Olsen v. Finance Authority of Maine

Case Type:
Case Status:
Affirmed in part and Reversed in part
BAP No. EP 16-058, BK Case No. 14-20859-PGC, Adv. Pro. No. 15-02031-PGC (1st Circuit, Jul 19,2017) Not Published
Inga Olsen (the “Debtor”) appeals from the bankruptcy court’s October 26, 2016 judgment in favor of creditor Finance Authority of Maine (“FAME”), determining that: (1) her student loan obligations to FAME are excepted from discharge; and (2) by its post-petition garnishment of the Debtor’s benefits, FAME did not willfully violate the automatic stay. For the reasons discussed, we AFFIRM the judgment in PART, both in its determination that the Debtor’s student loan obligations to FAME are not dischargeable in bankruptcy and in its determination that FAME’s act of garnishment was not willful.
Procedural context:
With respect to Count I, concerning the dischargeability of her student loans, the court ruled that the Debtor had not met her burden under § 523(a)(8) as to undue hardship. The Debtor’s inability to justify the magnitude of her $600.00 monthly transportation expense figured prominently in the court’s decision. The court explained: [O]ne of the things that I struggled with was the uncertain testimony of what the $600 per month was for transportation. Upon question[ing], [the Debtor] could remember that there were repairs of $200 per year, maintenance costs of $200 per year for the vehicles. . . . [t]hat number [($600.00)] is a large one and I didn’t quite understand it. I didn’t find that [ ] on that point [the Debtor] met her burden. The court concluded the Debtor had not satisfied her burden of proving she was unable to maintain a “reasonable minimal standard of living” while still paying her student loans, as required in Bronsdon v. Education Credit Management Corp., 435 B.R. 791 (B.A.P. 1st Cir. 2010). With respect to Count II, concerning the alleged stay violation, the court found that: FAME had garnished the Debtor’s SSDI benefits once, and only once, between the date of her bankruptcy filing and her receipt of a discharge; the garnishment occurred on November 3, 2014; and the bankruptcy noticing center had issued notice of the Debtor’s bankruptcy filing only on Saturday, November 1, 2014. The court ruled that FAME had not violated the automatic stay, either by the garnishment itself or by the retention of the garnished funds. In reaching this conclusion, the court found that the Debtor had not met her burden of proving “that FAME knew of the garnishment being a violation or . . . having occurred post-bankruptcy filing.” The court further noted that the parties agreed that FAME had returned the garnished funds. Lastly, the bankruptcy court observed that even if FAME’s retention of the garnished funds somehow amounted to a violation of the automatic stay, “it was de minimis.” In her brief, the Debtor identified two issues on appeal: (1) whether the bankruptcy court erred in concluding that excepting the Debtor’s student loans from her bankruptcy discharge would not impose an undue hardship on her within the meaning of § 523(a)(8); and (2) whether the bankruptcy court erred in concluding that FAME’s post-petition garnishment and subsequent retention of the garnished funds for more than fourteen months either did not violate the automatic stay or “fell within a de minimis exception to stay liability.” The Debtor further argues that the bankruptcy court erred by failing to make fuller findings about many of the factors courts normally consider in applying the totality of the circumstances test. We discern no error. Given the bankruptcy court’s determination that the Debtor had failed to satisfy her burden of proof by providing reliable evidence regarding a single large and dispositive item (the large transportation expense), more detailed findings by the bankruptcy court were unnecessary. There is no de minimis exception to the automatic stay. There is no reported case within the First Circuit indicating that the amount of money retained is controlling in determining whether a creditor’s retention of funds violated the automatic stay. As one bankruptcy court outside this circuit aptly stated, “no amounts should be seized or withheld . . . after the filing of a bankruptcy petition.” In re Briskey, 258 B.R. 473, 477 (Bankr. M.D. Ala. 2001) (emphasis added). The bankruptcy court found that, on one occasion, FAME garnished the Debtor’s SSDI benefits while the stay was in effect—that is, after the filing of the petition and before entry of discharge—but nonetheless ruled, without explanation, that there had been no violation of the automatic stay.7 This was error. FAME’s garnishment of the Debtor’s benefits was an act to collect or recover a claim against the Debtor that arose before the commencement of the case and, as such, was a violation of the stay in subsection (a)(6).8 In re Manuel, 212 B.R. 517, 518 (Bankr. E.D. Va. 1997) (“There can be little question that the continuation post[-]petition of a garnishment proceeding against a debtor is a violation of the automatic stay, notably as provided in . . . § 362(a)(1), (2), (3), (4) and (6).”) (citations omitted). The record reflects that FAME received notice of the bankruptcy filing sometime shortly after its sole act of garnishment. Moreover, the Debtor argued—and FAME did not dispute— that the bankruptcy court’s noticing system issued notice to FAME of the Debtor’s bankruptcy filing on November 1, 2014.11 FAME’s only argument is that it had not received notice in time to avert the November 3, 2014 garnishment. We are satisfied that the evidence required a finding that FAME acquired knowledge of the bankruptcy case in time to avert a December 2014 garnishment. Upon receiving this notice, FAME became obligated to determine whether it had garnished the Debtor’s benefits postpetition and, if so, to remedy this violation of the stay, all as soon as practicable. In re McMullen, 386 F.3d at 330; In re Kaneb, 196 F.3d at 269 (“Once the creditor receives actual notice, the burden shifts to the creditor to prevent violations of the automatic stay.”); In re Will, 303 B.R. at 365 (holding that notice of case gives rise to “affirmative duty” to remedy stay violation “without unreasonable delay”). It failed to do so until January 2016, and this failure constituted a violation of the stay. To be willful, however, the violation needed to have been committed intentionally and with knowledge of the bankruptcy filing. We have already indicated that the record establishes that FAME had by this time received such notice. We must now consider whether it also establishes that the violation was intentional. The assignment of the burden of proof is a ruling of law, which we review de novo. The burden of proving willfulness in § 362(k)(1) does indeed fall on the debtor, In re Panek, 402 B.R. at 76, and that burden extends to the intent component of willfulness. However, the law in this circuit is clear that, “[i]n cases where the creditor received actual notice of the automatic stay, courts must presume that the violation was deliberate.” Kaneb, 196 F.3d at 269 (citation omitted). As used in Kaneb, “deliberate” clearly means intentional in the sense required for willfulness. A presumption can be rebutted, and rebuttal returns the ultimate burden to the debtor, but until the presumption is rebutted, the debtor is entitled to the benefit of it. See Fed. R. Evid. 301 (“In a civil case, unless a federal statute or these rules provide otherwise, the party against whom a presumption is directed has the burden of producing evidence to rebut the presumption. But this rule does not shift the burden of persuasion, which remains on the party who had it originally.”) Here, the record established that FAME had received notice of the bankruptcy case, and from that notice it clearly knew of the automatic stay—the stay is precisely why it discontinued its monthly garnishment of the Debtor’s benefits. Yet the bankruptcy court did not find that the presumption had been rebutted. Nor could it have. FAME adduced no evidence of what it knew and when it knew it, of what steps, if any, it undertook to ascertain whether it had garnished the Debtor’s benefits in violation of the stay and to remedy the violation. FAME presented no evidence that its failure to remedy that violation of the stay was not willful.
On October 29, 2014, the Debtor filed a petition for relief under chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Maine. At the time, she was indebted to FAME on three student loans she had obtained between November 2005 and September 2007 to advance her career as a certified nursing assistant. on October 1, 2015, the Debtor commenced an adversary proceeding against FAME by filing a two-count complaint that she later amended (as amended, the “Complaint”). In Count I, the Debtor requested an order discharging her student loans pursuant to § 523(a)(8), stating that she could not afford to repay her student loans, that she was unlikely to become able to do so in the future, and that any repayment terms would impose on her an undue hardship. In Count II, the Debtor alleged that FAME had violated § 362’s automatic stay by continuing to garnish her social security income after receiving notice of her bankruptcy filing, and requested actual and punitive damages under § 362(k) for that violation.
BAP (Bailey, Godoy and Panos) appeal from USBC-Maine (Hon. Peter G. Cary)

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