6th Circuit BAP:  Rescheduling Sheriff’s Sale in Pre-petition Foreclosure Proceeding Not a Violation of Discharge Injunction

In In re Jackson, a mortgagee and a condominium association obtained a judgment of foreclosure against the unit owner.  Before sale, the condominium unit owner filed a Chapter 7 bankruptcy and received a discharge. After the discharge was entered, the condominium association re-scheduled a sheriff’s sale pursuant to the pre-bankruptcy judgment.  The debtor moved to reopen his case and hold the condominium association in contempt for violation of the discharge injunction.  After hearing, the bankruptcy court found that the association’s actions were a veiled attempt to compel the debtor to pay a discharged, pre-petition debt, because there was no equity in the condominium unit over and above the first mortgage, which was higher in priority to the condominium lien.

On appeal, the bankruptcy appellate panel of the 6th Circuit Court of Appeals reversed.  The court noted that the association’s lien was statutory and survived the bankruptcy case.  The court also noted that, although the debtor was discharged from personal liablity for the prepetition charges, the lien continued against the property.  While foreclosing a lien against property may result in a discharged debtor paying pre-petition charges in order to keep the property, that wa the nature of a lien and not a violation of the discharge injunction.

The court also held that any post-petition attorney fees became “due and payable” after the commencement of the case and were excepted from discharge pursuant to 11 USC Sec 523(a)(16).

The case presents a significant “win” for condominium associations in their effort to either maximize recovery or to stop the bleeding.

© Steve Sowell 2018