Actions Against Non-Debtor Spouse May Violate Discharge Injunction

On behalf of Macdonald Fernandez LLP on Wednesday, April 1, 2009.

In Lumb v. Cimenian, 2009 WL 427836 (1st Cir. BAP Feb. 23, 2009), the First Circuit Bankruptcy Appellate Panel ("BAP") held that post-discharge actions against a non-debtor spouse of a chapter 7 debtor can violate the discharge injunction of Bankruptcy Code Section 524.In this case, the debtor had entered into a business transaction with a creditor which did not substantially involve the debtor's wife. The debtor later filed a voluntary chapter 7 petition. Thereafter, the creditor sent a letter to the debtor's lawyer threatening to take legal action against the debtor's wife. The creditor subsequently sued the debtor's wife, who successfully defended the lawsuit. The creditor appealed, and the Supreme Court of Main affirmed, observing that the lawsuit was devoid of "even the slightest merit" and awarding $50,000 in attorney fees to the wife.The debtor brought an adversary proceeding against the creditor in bankruptcy court, alleging that the creditor's lawsuit against his wife amounted to a violation of the discharge injunction of Bankruptcy Code Section 524 in that the creditor's actions were an effort to coerce him into paying the discharged debt. The bankruptcy court ruled in favor of the creditor, holding that the discharge offered no protection to the wife because she had not filed the bankruptcy.The debtor/husband appealed, and the BAP reversed the bankruptcy court, ruling that: "Although we are not aware of any case in which a creditor was found to have violated the discharge injunction by virtue of actions taken against a third party, we note that the prohibition in section 524(a)(2) is not limited to actions by creditors against the debtor to collect on a discharged debt."