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Consumer Bankruptcy Law and Practice: 15.4.3.19 Debts Made Nondischargeable by Other Statutes

Congress has passed several other statutory provisions that may make debts nondischargeable in bankruptcy under either chapter 7 or 13.745 Two statutes making student loan debts nondischargeable in some circumstances outside section 523(a)(8) are discussed above,746 as is a statute regarding federal criminal fines.747 Similarly, certain obligations arising from retention bonuses or continuation pay paid to military personnel were made nondischargea

Consumer Bankruptcy Law and Practice: 15.4.3.20 Debts That Were Nondischargeable in a Previous Bankruptcy Case—11 U.S.C. § 523(b)

Section 523(b) provides that certain types of debts that were not discharged in a prior bankruptcy case may be discharged in a later case if they would have been dischargeable under section 523(a) in the later case. The debts enumerated include debts that were previously found nondischargeable under subsections 523(a)(1), (a)(3), and (a)(8). What these debts have in common (or at least had in common when section 523(b) was enacted)749 is that they all turn on time periods that may have changed in the later bankruptcy case.

Consumer Bankruptcy Law and Practice: 15.5.1.2 Elimination of Personal Liability and Protections for Property

The discharge operates to eliminate the personal liability of the debtor. It does not eliminate valid liens against the debtor’s property that have not been avoided, paid, or modified during the bankruptcy.798 Thus, a mortgage continues to be valid after a chapter 7 case, though the creditor can no longer obtain a deficiency judgment against the debtor if the property fails to satisfy the debt. And, if a chapter 13 plan provides for the creditor to retain a lien in order to comply with 11 U.S.C.

Consumer Bankruptcy Law and Practice: 15.5.1.3 Voiding of Judgments

In both chapter 7 and chapter 13 cases, the discharge automatically voids any judgment obtained at any time to the extent such judgment is a determination of the debtor’s personal liability on a discharged debt.804 Thus, even if a creditor proceeded to judgment after the bankruptcy, that judgment would be void ab initio.805 Although this means that the debtor need take no action to protect against such a judgment, the better course would be to seek relief from the judgment as early as possible,

Consumer Bankruptcy Law and Practice: 15.5.1.4 The Discharge Injunction

Section 524(a)(2) puts into effect a broad injunction against the commencement or continuation of any action, the employment of process, or any act to collect, recover, or offset any discharged debt as a personal liability of the debtor or from property of the debtor.813 Thus, filing a proof of claim to collect a discharged debt in a later bankruptcy case violates the discharge injunction.814 This section was intended to cover not only legal proceedings, but also any other acts of creditors, suc

Consumer Bankruptcy Law and Practice: 15.5.1.5 Enforcing the Discharge Injunction

Violation of the discharge injunction is usually contempt, punishable by awards of damages, including emotional distress and punitive damages in certain cases, and attorney fees.838 However, an award of damages and other relief against a governmental unit will be limited by section 106(a).839 If the violation is asserted against the Internal Revenue Service, the debtor may have to exhaust administrative remedies prior to seeking judicial relief.840

Consumer Bankruptcy Law and Practice: 15.5.2.1 Reaffirmation by Agreement Only

Some of the most persistent problems under the previous Bankruptcy Act were those arising through the reaffirmation of debts by consumer debtors. By using a variety of coercive levers, such as threats of repossession, collection activities directed at cosigners, and refusal to lend more money without reaffirmation, creditors routinely lured debtors into giving up the protections of their bankruptcy discharges by making new and binding promises to pay debts that had been discharged.861

Consumer Bankruptcy Law and Practice: 15.5.2.3 Form of the Reaffirmation Agreement

The 2005 Act sets out requirements as to the form of a reaffirmation agreement, designated as “Part B,” as dictated by section 524(k)(4). The agreement must include a brief description of the credit agreement, a task that may not be easy in light of the complicated agreements utilized by consumer creditors. The creditor and the debtor(s) must both sign and date the agreement.

Consumer Bankruptcy Law and Practice: 15.5.2.5 Abusive Creditor Reaffirmation Practices

In a number of major cases, courts have found that many creditors had longstanding practices of obtaining reaffirmation agreements without filing them with the court.905 This practice rendered the reaffirmations invalid because the agreements failed to meet the requirements of section 524(c)(3).906 Collection based on such agreements violates the discharge injunction.907 Other statutory remedies may be available as well.

Consumer Bankruptcy Law and Practice: 15.5.2.7 Factors to Be Considered by Attorneys Validating Reaffirmation Agreements

Attorneys should be extremely cautious in negotiating and validating reaffirmation agreements. There are serious problems of possible malpractice liability if such an agreement later causes harm to the debtor, for example, through the debtor’s loss of property if the debtor does not later pay the reaffirmed debt. There is no question that many debtors enter into ill-advised reaffirmations; the numerous cases in which courts have disapproved reaffirmations suggest that attorneys have not always been as wary of reaffirmations as the courts.

Consumer Bankruptcy Law and Practice: 15.5.5.1 Drivers’ Licenses

One of the more common uses of bankruptcy by low-income clients is to prevent the loss of or to regain a driver’s licenses that is jeopardized by state financial responsibility laws such as the one dealt with in Perez v. Campbell.982 Typically, such statutes provide that an operator’s license, and sometimes vehicle registration, is suspended until a tort judgment arising out of a motor vehicle accident is paid.

Consumer Bankruptcy Law and Practice: 15.5.5.3 Public and Private Housing

Many of the issues that arise with respect to student loans are also involved in disputes concerning the right to remain in public or private housing after discharge. A strong argument can be made that the right to remain in public housing is in essence a grant of the subsidy that makes lower rents possible.