11th Circuit Rules Servicer’s Monthly Informational Statements to Bankruptcy Debtor with Discharged Debts Are Not Debt Collection Attempt

The Eleventh Circuit ruled that monthly mortgage statements sent by a mortgage servicer to a debtor whose debts were discharged in bankruptcy do not violate the bankruptcy code’s prohibition against attempts to collect a discharged debt under 11 U.S.C. § 524.

The plaintiff’s Chapter 13 bankruptcy petition, filed in 2010, listed a mortgage and declared an intention to surrender the property.  In 2014, the bankruptcy was discharged, and the mortgage servicer was notified, but it did not foreclose on the property.  The discharge order noted that while creditors did not have a right to collect discharged debt, they were entitled to enforce valid liens against the debtor’s property after bankruptcy.  The order also noted the debtor was entitled to voluntarily pay the amount due on the debt and retain the subject property.

Several months after the discharge order, the servicer began sending statements to the plaintiff that indicated they were not attempts to collect a debt, but included an amount due, due date, and payment instructions.  Despite a cease and desist letter sent to the servicer by the plaintiff’s attorney, the statements continued; subsequently, the servicer’s communications with the plaintiff took the form of an “Informational Statement” that again listed the amount due, due date, and payment instructions.

Although the statements also contained a disclaimer stating they were for informational purposes only and were not attempts to collect a debt, the plaintiff filed a motion for sanctions in her bankruptcy case.  That motion was denied by both the bankruptcy court and the district court, and the plaintiff appealed.  On appeal, the plaintiff asked the Eleventh Circuit to examine, among other things, whether the informational statement was a sanctionable violation of Section 524.

Section 524 of the bankruptcy code “operates as an injunction against commencement or continuation of” debt collection of discharged debt.  Here, the court determined that the servicer’s Informational Statement did not have the objective effect of pressuring the plaintiff to repay a discharged debt because the disclaimer included with the communication clearly and boldly stated it was for informational purposes only and was not an attempt to collect a debt.

Given that Section 524 allows a debtor to voluntarily repay a discharged debt, enabling a debtor to retain the property, the Informational Statement had the legitimate purpose of providing the plaintiff with information needed to repay the debt.  Thus, the court found sanctions were unwarranted.

The court also rejected plaintiff’s argument that a “least sophisticated consumer” test applicable in the FDCPA context to protect consumers from improper attempts at debt collection should also be applied in the Section 524 context of discharged bankruptcy debt, finding no reason to use an FDCPA standard of review to determine whether the Informational Statement violated the bankruptcy code.