Pennsylvania Debtors May be Awarded Damages for Emotional Distress When a Creditor Violates the Discharge Order

27 Oct Pennsylvania Debtors May be Awarded Damages for Emotional Distress When a Creditor Violates the Discharge Order

In 2006, the Honorable Eric J. Frank*, United States Bankruptcy Judge for the Eastern District of Pennsylvania, authored an opinion supporting the notion that emotional distress damages may be awarded to a Debtor for a violation of the Discharge Order.  See In Re Meyers, 344 B.R. 61, 66-67 (E.D. PA 2006).

The Debtor must prove three elements to obtain civil contempt sanctions.  There must be clear and convincing evidence that a valid court order existed, that the defendant (the creditor in this context) had knowledge of that order, and that the defendant (i.e., creditor) disobeyed the order.  Meyers at 65 citing Robin v. Woods, 38 F.3d 396, 399 (3d Cir. 1994) and In Re Close, 2003 WL 22697825 at 10.

Judge Frank goes on to explain the two purposes of civil contempt:  first, to “coerce the disobedient party (in this situation, the creditor) into compliance with the court’s order” and second, to “compensate for losses sustained by the disobedience.”  Upon a finding of civil contempt, the Bankruptcy Court has broad discretion in selecting what sanctions are appropriate and upon a finding of civil contempt, has the power to issue sanctions including costs, damages, and attorney’s fees.  Meyers at 66.

Judge Frank opined that, although the Third Circuit has not ruled on whether an emotional distress award for civil contempt is permissible in the bankruptcy discharge order violation context, several bankruptcy courts have allowed emotional damage awards for violation of the discharge injunction.  Myers at 66 citing In re Feldmeier, 335 B.R. at 814; In re Barry, 330 B.R. 28, 37-38; In re Gervin, 337 B.R. at 862-64; In re Perviz, 302 B.R. 357, 371 (Bankr.N.D.Ohio 2003); In re Poole, 242 B.R. 104, 112 (Bankr.N.D.Ga.1999). Contra, In re Bock, 297 B.R. 22, 29 (Bankr.W.D.N.C.2002) (citing In re Walters, 868 F.2d 665, 670 (4th Cir.1989) (emotional distress not available for civil contempt)).

In his opinion, Judge Frank agreed with the analysis provided by In re Gervin, 337 B.R. at 863:

A significant component of the fresh start is being free of the kinds of harassment, threats, and anxiety that debtors were suffering before they filed. Threats and harassment are the first and most effective collection devices most creditors employ-far more prevalent and far more cost-effective than formal litigation. These methods work precisely because they inflict emotional distress on debtors, at a sufficient level of pain to motivate debtors to pay money to the creditor to make the pain stop. Outside of the bankruptcy, inflicting that pain as a means of debt collection is legitimate (within the parameters of other legal limitations). Once the debtor receives a discharge in bankruptcy, however, that particularly painful device for debt collection is supposed to stop. When a creditor insists on continuing to inflict the same painful methods on a debtor in contempt of Congress’ injunction, they must now compensate for the damages caused-and those damages are real. Indeed, no one knows that better than the creditors themselves. They know they are inflicting pain, because they know that’s what motivates debtors to make them go away.

Judge Frank concludes by opining that emotional distress damages should be awarded (when suffered by a debtor) for a bankruptcy discharge order violation because “there is a direct nexus between the purpose of the discharge order and the emotional distress which may result from the violation of the order.”  Meyers at 67.  Furthermore, he opines that courts which have granted emotional distress damages as a remedy for contempt have consistently found the debtor’s own testimony to be enough and that no medical testimony was needed.  Meyers at 67 referencing In re Feldmeier, 335 B.R. at 814-15 ($10,000 awarded to debtor for emotional distress without medical testimony); In re Barry, 330 B.R. at 37 (awarding $5000 for emotional damages from debtor’s testimony of stress and loss of sleep, but not for alleged diverticulitis absent testimony from medical professional); In re Poole, 242 B.R. at 112 (awarding $1,200 for emotional distress without medical testimony). See generally In re Stewart, 2000 WL 1194437 at *5 (Bankr.S.D.Ga. July 9, 2000) (quoting In re Washington, 172 B.R. 415, 427 (Bankr.S.D.Ga.1994)) (medical testimony is unnecessary but proof of mental anguish must be more than “fleeting and inconsequential”); In re Chambers, 324 B.R. at 331 (stating that there must be some “discernable level of corroborating evidence” and that “self-serving” testimony from debtor and his wife is not enough).

*The Honorable Eric L. Frank was appointed to the bench on February 14, 2006.  He is a cum laude graduate of University of Pennsylvania Law School, Philadelphia, PA, 1976 and a cum laude graduate of State University of New York at Binghamton, Binghamton, NY, 1973.  He was admitted to practice in Pennsylvania in 1976, the U.S. Court of Appeals 3rd Circuit in 1977, the U.S. District Court for the Eastern District of Pennsylvania in 1977, and the United States Supreme Court in 1982.

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