Discharge Injunction Revisited: Question: Is a Creditor’s Good Faith Defense Applicable? Answer: It Depends on Which Circuit the Case Was Filed in.
By Michael L. Moskowitz and Michele K. Jaspan
We recently reported on the success of our client in obtaining the imposition of monetary damages against a creditor for its violation of the bankruptcy discharge injunction. Our local bankruptcy judge ruled in debtor’s favor, despite counsel’s alleged good faith belief that her actions to collect the discharged debt were without malice or in violation of the Bankruptcy Code. Depending on the nature of the debt, creditors may operate under an incorrect presumption that their debt has not been discharged under the provisions of 11 U.S.C. 523 and undertake steps to collect their debt without first seeking a declaratory ruling from the court. Such was the case in a recent First Circuit decision, found here, where the court ruled the Internal Revenue Service (“IRS”) violated the discharge injunction when its employee took deliberate steps to collect on a debt, even though it had an alleged good faith belief the debt was not discharged and the collection actions of the IRS employee did not violate the discharge injunction.
