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The Security National Bank of Sioux City, IA v. Vera T. Welte Testamentary Trust

Summarizing by Amir Shachmurove

In re: Frank Ragone Jr.

Case Type:
Case Status:
20-8013, 2021 WL 1923658 (6th Circuit, May 13,2021) Published
Creditor's Counsel's law firm and Counsel personally liable for violation of discharge injunction by continuing garnishment proceedings on discharged debt and failing to return improperly garnished funds.
Procedural context:
Bankruptcy Court concluded that Creditor's Law Firm violated discharge injunction by continuing garnishment proceedings on discharged debt and imposed sanctions against both Law Firm and individual attorney at the Firm handling the matter. On appeal, the Sixth Circuit Bankruptcy Appellate Panel affirmed the award of sanctions against the Law Firm and against the attorney personally.
Debtor filed for relief under Chapter 7. Debtor did not file a Certificate of Attendance for the Post-Petition Financial Management Course and Court administratively closed case without a discharge. A creditor who held a pre-petition debt then commenced a garnishment action causing Debtor to reopen his bankruptcy case and file proof of attendance at the Financial Management Course, at which point the Bankruptcy Court issued an order of discharge and re-closed the bankruptcy case. Creditor continued to garnish Debtor's wages and when contacted by Debtor's counsel creditor refused to dismiss or terminate the garnishment. Creditor refused to either stop the garnishment or return the funds and ultimately reopen the case in an effort to set aside the discharge, although creditor subs only abandon that effort. Debtor then reopened the case to file an adversary proceeding for damages for violation of the discharge injunction based on the continued garnishment of income, failure to return garnished funds, and "spurious motions" in the bankruptcy case seeking to delay and ultimately deny return wrongfully garnished funds. Court concluded that creditor and creditor's counsel (including the individual attorney at the firm handling the matter) attempted to maintain a garnishment on a debt that had been discharged and unreasonably delayed in terminating the garnishment and returning the improperly garnished funds. There was no fair ground for dispute that the debt had been discharged and no good faith basis to continue litigating garnishment or opposing Debtor's efforts in state Court to release writ of garnishment. Attorney personally responsible where liability was based on actions taken by counsel as the attorney for the creditor. Court awarded $4,275.39 for the amount garnished post-discharge and $10,580 in attorney fees incurred in attempting to stop garnishment and recover improperly garnished funds.
Croom, Wise and Dales (concurringin part and dissenting in part)

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