The U.S. Court of Appeals for the Ninth Circuit recently reversed an award of summary judgment in favor of a defendant debt collector against claims that it violated the federal Fair Debt Collection Practices Act (FDCPA) by attempting to collect a debt that was discharged in bankruptcy and no longer owed.

In so ruling, the Ninth Circuit concluded that its holding in Walls v. Wells Fargo BankN.A., 276 F.3d 502 (9th Cir. 2002), which precludes FDCPA claims premised on a violation of a bankruptcy discharge order, did not apply because the FDCPA claims at issue here were premised on his full satisfaction of the debt through a Chapter 13 plan before the discharge was entered, rather than a violation of the discharge order.

A copy of the opinion in Manikan v. Peters & Freedman LLP is available at:  Link to Opinion.

In January 2009, after a homeowner (“debtor”) fell behind on his homeowners’ association (HOA) dues, a law firm acting as a debt collector for the HOA sent notices to the debtor regarding the unpaid debt.

Approximately three years later, the law firm recorded a notice of lien in the county’s official records for unpaid dues, assessments and costs payable to the HOA, and a “Notice of Default and Election to Sell” was recorded to initiate nonjudicial foreclosure proceedings.

In response, the debtor filed for Chapter 13 bankruptcy, designating the HOA as a secured creditor, and confirming he would pay the debt’s total arrears through his proposed plan and ongoing dues directly to the HOA.  The law firm filed a separate proof of claim for the HOA, and the debtor’s Chapter 13 plan was eventually confirmed.

A property management and debt collection company received the debtor’s HOA arrearage payments through the bankruptcy plan and advised the bankruptcy trustee in March 2014 that the debt was “paid in full,” despite the amount paid being less than the amount stated in the HOA’s proof of claim.  The trustee accordingly adjusted the claim to reflect what was paid and issued a notice stating the HOA’s claim was “deemed as fully paid” and later filed a “Notice of Final Cure Payment and Completion of Payments Under the Plan,” again verifying the debt was paid in full. Two months later, the bankruptcy court entered an order of discharge in the debtor’s case.

After the debt was paid off and the bankruptcy discharge was entered, the law firm hired a separate debt collection agency to re-serve the debtor with the notice of default that was recorded prior to initiating foreclosure proceedings.  To effectuate service, the process server allegedly entered the debtor’s backyard and supposedly banged on his windows until police arrived, and the 2012 notice of default was served.

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