Espinosa v. United Student Aid Funds, Inc.

Full title: Francisco J. ESPINOSA, Plaintiff-Appellant, v. UNITED STUDENT AID FUNDS, INC., Defendant-Appellee.

Court: UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Date published: Oct 2, 2008

Facts

Espinosa filed a Chapter 13 petition and proposed plan that provided for repayment of $13,250 in student loans to United Student Aid Funds, Inc. (Funds). Funds were notified and a proof of claim for $17,832.15. The bankruptcy court eventually confirmed the plan, and the Chapter 13 Trustee mailed Funds a notice advising it that “the amount of the claim filed differs from the amount listed for payment in the plan. Your claim will  be paid as listed in the plan.” The notice also contained the following warning:

The difference between these two amounts appears to be interesting. See n. 4 infra.

If an interested party wishes to dispute the above-stated treatment of the claim, it is the responsibility of the party to address the dispute. The claim will be treated as indicated above unless the Trustee receives within 30 days from this mailing, a written request for different treatment. The request should set forth the specific grounds for alternative treatment and should be filed with the Clerk of the Court, with a copy mailed to the Trustee at [address deleted]. [Emphasis added.]

Issue

Decision

Bennett’s bankruptcy court’s judgment was reversed, remanding the case to the bankruptcy court for reinstatement of the order enforcing the discharge injunction. The court held that a party who knowingly violates the discharge injunction can be held in contempt under section 105(a) of the bankruptcy code. The court cited the standard adopted by the Eleventh Circuit for violation of the discharge injunction, which requires the movant to prove that the creditor knew the discharge injunction was applicable and intended the actions that violated the injunction. If the bankruptcy court finds that the creditor willfully violated the injunction, it must impose sanctions to make Espinosa whole.

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