The debtors filed for bankruptcy under Chapter 7. Their filing indicated that the debtor would “retain collateral and maintain payments” for the debt owed on his vehicle. Additionally, the debtor “did not claim the [vehicle] as exempt on Schedule C, nor did they express an intent to enter into a reaffirmation agreement.” The court granted a discharge injunction and an immediate stay. Months later, the debtor alleged that the creditor called him and several of his family members 50 or more times regarding late payments on his vehicle. One debtor then filed a motion against the creditor for imposition of sanctions. The debtor claimed that the creditor's constant calls violated the automatic stay and discharge injunction.
In In re Arnold, No. 22-70561, 2024 WL 3948458, 2024 Bankr. LEXIS 1983 (Bankr. W.D. Va. Aug. 26, 2024) (opinion not yet released for publication), the court denied the debtor’s motion for imposition of sanctions. Regarding the debtor's first claim, the court explained that the automatic stay regarding personal property was terminated under 11 U.S.C. § 362(h)(1) because the debtor had retained his vehicle (personal property) but failed to redeem the collateral according to § 722, and he had failed to enter into a reaffirmation agreement according to § 524(c). Further, the debtors were unable to use the “back door ride-through” exception to terminate the automatic stay because the exception is only available to “a debtor who does all he can to comply with § 362(h)(1) and § 524(c) by executing a reaffirmation agreement.” Therefore, the automatic stay was terminated, and the creditor had the right to seek payment for the vehicle and repossess it if necessary. Regarding the debtor’s second claim, the court ruled in favor of the creditor; it held that the creditor did not violate the discharge injunction. It noted that although discharge prevents collection efforts against a debtor’s personal liability, “there is little to prevent a creditor from proceeding in rem… when such property secures a prepetition debt,” and ordinary liens typically survive bankruptcy. Thompson v. Board of Trustees of the Fairfax Cnty. Police Officers Ret. System (In re Thompson), 182 B.R. 140, 154 (Bankr. E.D. Va. 1995). Therefore, because a loan on a vehicle is an ordinary loan and the debtor defaulted under the terms of the agreement with the creditor, the court ruled that the creditor could seek to enforce its rights and repossess the car without violating the discharge. Additionally, the court noted that the debtor’s testimony revealed that the debtor was late on the payments and did not present evidence that the creditor was trying to coerce the debtor to make payments. Ultimately, the court concluded that the debtor provided no proof to impose sanctions on the creditor under the “fair ground of doubt” standard and denied the debtor’s motion.
By Reshma Philipose: [email protected]
Edited By Callighan Ard: [email protected]
Edited By Ashley Boyce: [email protected]
Edited By Hayden Mariott: [email protected]