Creditor Violated Bankruptcy Discharge By Targeting Spouse

March 20th, 2009 by Reed Allmand

The 1st Circuit Bankruptcy Appellate Panel ruled that in the bankruptcy case of Lumb, William B.; In re (Lumb v. Cimenian), (Bankr. 1st Cir. 2009) a creditor may have violated the bankruptcy discharge by pursuing a non-debtor spouse for repayment of a discharged debt.

The details of the case:

The debtor, the defendant and another person formed a partnership that acquired title to real property. The partners decided that the debtor would hold the title in his name alone. The partnership agreement did not say when the property would be sold and did not pre¬vent the debtor from mortgaging the property. The debtor subsequently took a mortgage against the property and then sold it without sharing the profits. After the debtor filed for bankruptcy protection, the defendant threatened to go after the debtor’s wife if they could not resolve their dispute. The debtor received a discharge and the defen¬dant sued the debtor’s wife.

The debtor’s wife sued the creditor and won a judgment of $50,146 in attorney’s fees. The debtor (who received the bankruptcy discharge) also sued the creditor for violating the bankruptcy discharge. The bankruptcy trustee dismissed the debtor’s complaint; but the 1st Circuit Bankruptcy Appellate Panel sided with the debtor finding that the creditor did in fact violate the bankruptcy discharge because he attempted to coerce the debtor into repaying the debt by suing the debtor’s wife.

The creditor’s action may be another sign of the times. As credit defaults rise many creditors are pursuing whoever they can to get repayment on debts even if they are discharged in bankruptcy. This bankruptcy ruling is good news for non-debtor spouses who may feel vulnerable during their partner’s bankruptcy. If you are married and considering bankruptcy without your spouse, speak with a bankruptcy attorney about the benefits/drawbacks of doing so.