Opinion
Case No. 22-43095
2024-01-16
IN RE: Champagne TALLEY, Debtor.
Thomas G. Krall, Krall Law Offices, PLLC, Saint Clair Shores, Michigan, Attorney for the Jocelyn Bell.
Thomas G. Krall, Krall Law Offices, PLLC, Saint Clair Shores, Michigan, Attorney for the Jocelyn Bell.
ORDER GRANTING JOCELYN BELL'S MOTION TO REOPEN THIS BANKRUPTCY CASE
Thomas J. Tucker, United States Bankruptcy Judge
This case is before the Court on a motion filed on December 22, 2023 by Jocelyn Bell ("Bell"), entitled "Application to Reopen Case" (Docket # 24, the "Motion). The Motion seeks to reopen the bankruptcy case for the purpose of filing a motion for relief from the automatic stay, to allow Bell "to pursue her negligence claim against [the] Debtor in State Court, but only to the extent that there is insurance coverage, Allstate Policy Number PAAL008942504." (Mot. at ¶ 4.)
On January 2, 2024, the Court entered an order requiring Bell to file a supplement to the Motion, explaining why she has "any valid basis . . . to pursue a negligence claim against the Debtor, even if it is just 'to the extent that there is insurance coverage.' " (Docket # 25.) On January 5, 2024, Bell timely filed the required supplement. (Docket # 26, the "Supplement.") In the Supplement, Bell acknowledged that, due to the Debtor's discharge, the Debtor no longer has any personal liability for any debt arising out of Bell's negligence claim in the state court lawsuit. In the Supplement, Bell states that her intent in prosecuting the negligence claim in state court against the Debtor is only to establish the Debtor's liability on that claim so that she can collect from the Debtor's insurance company.
The Court will grant the Motion, for the following reasons and for the purposes described below.
The Debtor received a discharge in this Chapter 7 case on July 27, 2022. Bell was not listed as a creditor in the Debtor's schedules, and might not have received timely notice of the Debtor's bankruptcy case. Because this was a no-asset Chapter 7 case, however, the unscheduled debt of the Debtor to Bell was discharged to the same extent it would have been discharged if it had been properly scheduled. See In re Madaj, 149 F.3d 467 (6th Cir. 1998).
When the Debtor obtained her discharge on July 27, 2022, in all relevant respects, the automatic stay terminated, and so there is not cause to reopen this bankruptcy case for the purpose of seeking any prospective relief from the automatic stay. See 11 U.S.C. § 362(c)(2)(C). But there is cause to reopen this case, to permit Bell to move to annul the automatic stay, to seek an order stating that Bell's filing suit in state court on her claim on June 9, 2022 (post-petition) and prosecuting that suit thereafter will not be deemed to have been a violation of the automatic stay.
Finally, the Court notes that it is not necessary for Bell to seek an order stating that the discharge injunction under 11 U.S.C. § 524(a) does not preclude Bell's suit against the Debtor, as long as it is limited to the insurance-related purpose described in the Motion and the Supplement.
In In re Morris, 430 B.R. 824, 828-29 (Bankr. W.D. Tenn. 2010) (footnote omitted), the court explained why a creditor does not violate the discharge injunction by prosecuting a lawsuit against a bankruptcy debtor in order to determine liability for the purpose of collecting only from a responsible third party, such as an insurance company:
"A discharge in bankruptcy does not extinguish the debt itself, but merely releases the debtor from personal liability for the debt." In re Castle, 289 B.R. 882, 886 (Bankr. E.D. Tenn. 2003). Pursuant to § 524(a)(2), "any creditor holding a discharged prepetition claim may not attempt to hold the debtor personally liable for that claim." In re Patterson, 297 B.R. 110, 112 (Bankr. E.D. Tenn. 2003).
Although § 524(a) provides that a debtor is no longer personally liable to a creditor, § 524(e) of the Code provides that the discharge "does not affect the liability of any other entity on, or the property of any other entity for, such debt." 11 U.S.C. § 524(e). Simply put, § 524(e) "does not eradicate liability of third parties such as, for example, contractually responsible insurance companies." Simpson v. Rodgers (In re Rodgers), 266 B.R. 834, 836 Bankr. W.D. Tenn. 2001); [Houston v. Edgeworth (In re] Edgeworth, 993 F.2d [51,] 53 [5th Cir. 1993]; Owaski v. Jet Fla. Sys., Inc. (In re Jet Fla. Sys., Inc.), 883 F.2d 970, 976 (11th Cir.1989). Additionally, a debtor's chapter 7 discharge does not extinguish a personal injury action. Rodgers, 266 B.R. at 836; In re Gibson, 172 B.R. 47, 49 (Bankr. W.D. Ark. 1994). Rather, it simply renders "collection of debtor's personal liability for the debt [from the debtor] unenforceable." Id.; Castle, 289 B.R. at 888.
Despite the fact that § 524(a)(2) prohibits a creditor from attempting to hold a debtor personally liable for a prepetition debt, it does not " 'preclude a determination of the debtor's liability on the basis of which indemnification would be owed by another party.' " Castle, 289 B.R. at 888 (citing In re Schultz, 251 B.R. 823, 828 (Bankr. E.D. Tex. 2000)). As a result, "a creditor does not violate the discharge injunction by proceeding in a lawsuit against a debtor in order to determine liability for the
purposes of collecting from a third party . . . ." Patterson, 297 B.R. at 113. "The 'fresh-start' policy [contemplated by Chapter 7 of the Bankruptcy Code was] not intended to provide a method by which an insurer can escape its obligations based simply on the financial misfortunes of the insured." Jet Fla. Sys., Inc., 883 F.2d at 975; Rodgers, 266 B.R. at 836. Thus, it is permissible to commence or continue prosecution against a debtor as a nominal defendant if such action is necessary to prove liability as a prerequisite to recovery, for example, from the liability insurer . . . . It is emphasized, however, that no collection action may be taken against the debtor. Rodgers, 266 B.R. at 836. Allowing parties to proceed in this manner protects the debtor from any personal liability in accordance with the discharge injunction of § 524(a)(2) and imposes on an insurance company "no exposure greater than what it had agreed to in the insurance contract with the debtor." In re Christian, 180 B.R. 548, 550 (Bankr. E.D. Mo.1995).Id.; see also Plan Adm'r For The Gail & Rice, Inc. Profit Sharing Plan v. Gail & Rice, Inc., No. 10-11091, 2011 WL 110904, at *6-7 (E.D. Mich. Jan. 13, 2011); 11 U.S.C. §§ 524(a), 524(e), 362(c)(2)(C), and 362(d)(1).
Although allowing a creditor to proceed against a discharged debtor as a nominal defendant will impose a burden on the debtor by requiring him to attend depositions and a trial, "this is not a burden alleviated by § 524 when the purpose of the suit is to establish [a debtor's] nominal liability in order to collect from his insurance policy." Edgeworth, 993 F.2d at 54. And, a "chapter 7 debtor, whether discharged or not, is under the same obligations as any other witness despite the inconvenience of attending and testifying at [a] trial." Rodgers, 266 B.R. at 837. "Thus, as long as the costs of defense are borne by the insurer and there is no execution on judgment against the debtor personally, section 524(a) will not bar a suit against the discharged debtor as the nominal defendant." Edgeworth, 993 F.2d at 54.
Under the reasoning in Morris and Gail & Rice Inc., the discharge injunction under 11 U.S.C. § 524(a) does not preclude Bells's suit against the Debtor so long as it is limited to the insurance-related purpose described in the Motion and the Supplement.
Accordingly,
IT IS ORDERED that:
1. The Motion is granted, and the case is reopened for the limited purpose of allowing Bell to file a motion seeking the annulment of the automatic stay to the extent described above.
2. The deadline for Bell to file the motion described in paragraph 1 above is January 30, 2024. If the motion is not filed by that deadline, this case may once again be closed, without further notice or hearing.