A recurring problem in bankruptcy is how lenders can provide information about a debt to a borrower without violating the discharge or the automatic stay. In some cases the borrower may wish to continue making payments and would appreciate receiving payment notices. In other cases, the lender may be required to send notices to the borrower in order to comply with state laws governing foreclosures. In these cases, lenders must walk a fine line between conveying information and coercively seeking to collect a debt. In re Roth, 2017 U.S. Dist. LEXIS 28710 (M.D. Fl. 2017) illustrates how to send a notice that does not violate the Bankruptcy Code.
In Roth, the Debtor filed a chapter 13 proceeding and confirmed a plan. Under the plan, the Debtor elected to surrender real property securing a debt owed to BAC Home Loan Servicing. The debt was subsequently transferred to Nationstar. After the Debtor completed her plan and received a discharge, Nationstar began sending statements to the Debtor. The Debtor brought both a motion for sanctions for violation of the discharge and a suit under the FDCPA. The Bankruptcy Court denied the motion for sanctions, finding that the “Informational Statement” did not constitute an attempt to collect a debt. The case was then appealed to the U.S. District Court which affirmed the Bankruptcy Court’s denial of sanctions.
Key to the Court’s ruling was a disclaimer in bold type on the top of the first page stating:
This statement is sent for informational purposes only and is not intended to collect, assess, or recover a discharged debt from you, or as a demand for payment from any individuals protected by the United States Bankruptcy Code. If this account is active or has been discharged in a bankruptcy proceeding, be advised this communication is for informational purposes only and is not an attempt to collect a debt. Please note, however Nationstar reserves the right to exercise its legal rights, including but not limited to foreclosure of its lien interest, only against the property security the original obligation.
Included with the letter was a payment coupon labeled “Voluntary Payment Coupon.” The Bankruptcy Court noted that the Bankruptcy Code contemplates that a Debtor may choose to make voluntary payments on a discharged debt and that the lender could make some contact with the Debtor so long as the communication did not amount to an attempt to collect a debt.
On appeal, the Debtor argued that in the related action under the Fair Debt Collection Practices Act (“FDCPA”), the Court found that the “Informational Statement” was an attempt to collect a debt. However, the District Court distinguished the standards under the FDCPA and the Bankruptcy Code. Under the FDCPA, the test is whether the “least sophisticated consumer” would interpret the statement as an attempt to collect a debt. The inquiry in bankruptcy, however, is whether the communication was an actual attempt to collect a debt.
The District Court also rejected the Debtor’s argument that the Bankruptcy Court should have conducted a hearing to determine the lender’s intent in sending the “Informational Statement.” The Court found that subjective intent was not relevant to whether the specific conduct violated the discharge. As a result, the District Court affirmed the Bankruptcy Court’s ruling.
The decision provides two main takeaways. The first is that a prominently placed disclaimer such as the one in this case can keep a communication from turning into an attempt to collect a debt (at least under the Bankruptcy Code). However, it is important to consider the totality of the circumstances. Had the notice been placed on the back of the letter or if the payment coupon had not said “voluntary” on it, the result could have been different.
The second takeaway is that the same conduct may have different consequences under the Bankruptcy Code and the FDCPA. In the separate case under the FDCPA, the District Court found that the allegation that the least sophisticated consumer might be misled by the Informational Statement was plausible enough to state a cause of action. Of course, the fact that the Complaint stated a cause of action does not mean that the Debtor will ultimately prevail. Nevertheless, it is significant that the same letter led to different results under the two statutory schemes.