GARY BERNHARD v KULL, et. al.; In re Gary Bernhard
- Summarized by Stephen Falanga , Walsh Pizzi O'Reilly Falanga LLP
- 11 months 1 week ago
- Case Type:
- Consumer
- Case Status:
- Affirmed
- Citation:
- No. 23-1358 (3rd Circuit, Feb 01,2024) Not Published
- Tag(s):
-
- Ruling:
- Because the Debtor's own actions and statements to his creditor obscured the applicability of the discharge order from his prior bankruptcy - which did not list or disclose the debtor's debt owed to the creditor -the creditor and their counsel had an objectively reasonable basis to think that their collection efforts did not violate the discharge order. Accordingly, there was fair ground to doubt whether the creditor's post-discharge collection action was barred by the discharge order and an award of sanctions for contempt was appropriately denied by the bankruptcy court.
- Procedural context:
- The Bankruptcy Court entered a discharge order in the Debtor's chapter 7 bankruptcy case which did not list a debt to his friend (the creditor). The Debtor also never informed the Trustee or his attorney of the debt. After the creditor brought a subsequent collection action, the Bankruptcy Court ruled that the creditor violated the discharge order when they attempted to collect on the debt, but the Court did not hold the creditor in contempt. The District Court affirmed. On appeal to the Third Circuit, the Third Circuit affirms the ruling that the creditor and their attorneys had an objectively reasonable basis for concluding that their collection efforts might be lawful under the discharge order.
- Facts:
- The Debtor borrowed money two times from his friends - totaling $60,000 - and eventually signed a promissory note. In July 2011, the Debtor initiated a Chapter 7 bankruptcy proceeding in the Eastern District of Pennsylvania. In his petition, he listed both personal and business debts but did not list the promissory note to his friends and also did not inform the Trustee or his attorney of the debt. The Debtor also did not inform his creditor-friends of the bankruptcy filing. The creditor friends did not learn of the bankruptcy until December 2011, In February 2012, the Debtor signed a second promissory note with his creditor-friends for $63,800 which covered the unpaid principal amount of the earlier loans plus interest. After seven years, with sporadic payments being made, the Debtor still had not repaid the loan. In February 2019, the creditor brought an action to collect on the note in the Court of Common Pleas of Montgomery County, alleging unjust enrichment and breach of contract. At that time, the Debtor argued in response that the debt had been discharged by his 2011 bankruptcy proceeding. The Montgomery County Court disagreed and overruled his objections and the Debtor tried to remove the case to the District Court, but the matter was remanded for lack of jurisdiction. The Debtor then initiated an adversary proceeding in the Bankruptcy Court, alleging that the creditor and their attorneys were in contempt of the December 2011 Discharge Order. After a trial, the Bankruptcy Court held that the creditor's debt was covered by the discharge order and that their attempts to collect on the debt violated the order, but the Court declined to hold the creditor in contempt and to award attorney’s fees.
- Judge(s):
- JORDAN, ROTH., and AMBRO, Circuit Judges
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