Bankr. EDNC: In re Sexton- Standard for Sanctions in Discharge Violation

Summary: The Debtor filed Chapter 13, during which Friedman’s Jewelers filed a Proof of Claim, asserting that it was secured in the amount of $300.00 and unsecured for the balance.  The Debtor subsequently converted to Chapter 7, then re-converted to Chapter 13, eventually confirming a plan treating Friedman’s as secured in the amount of $300.00. Friedman’s itself filed bankruptcy and its assets were liquidated, with the Debtor’s account being purchased by Merchant’s Acquisition Group, L.L.C.  (MAG).  MAG retained BRM Recovery Services to collect on this account.  The sale of this claim was not reported to the Trustee in the Debtors’ bankruptcy. During the course of the Debtor’s bankruptcy, the Trustee sent checks to Friedman’s for the full amount of its secured claim, as well as a dividend on its unsecured claim.  These checks were not, however, cashed.  The Debtor completed her Chapter 13 plan and received a discharge. MAG and BRM apparently were unaware of the progress of the Debtors’ Chapter 13 bankruptcy and contacted the Debtor’s attorney for an status update, but because the case was completed, the Debtor’s attorney did not respond. After BRM contacted the Debtor directly, however, Debtor’s counsel re-opened the case and brought a motion for violation of the discharge against BRM. The Court held that while BRM had knowledge of the discharge, the complicated history of the case and the failure of the Debtor’s counsel to respond to the request for a status update under cut the required showing by the Debtor of "clear and convincing evidence" that BRM had knowledge that its conduct was in violation of the discharge order.   Sexton- Standard for Sanctions in Discharge Violation.PDF