Claim For Collecting A Discharged Debt Cannot Be Pursued Outside The Bankruptcy Court

In Townsend v. M & T Mortg. Corp., 3:09CV1866 (M.D. Pa. June 23, 2010) the Plaintiffs sued in District Court for the Defendant’s attempt to collect a debt that had been previously discharged in Bankruptcy. The Plaintiffs asserted that recovery was available under §§ 524(a)(2) and 105(a) of the U.S. Bankruptcy Code and the FDCPA. The Defendants moved to dismiss the suit on the grounds that the Plaintiff had no private right of action for violations of the discharge injunction contained in §524(a)(2) and that §105(a) did not create substantive rights that would otherwise be unavailable under the Bankruptcy Code. The court agreed. It rejected the notion that although §524(a)(2) contains no explicit private right of action, the court has the power through §105(a) to issue an order of contempt against the Defendants for violating the discharge injunction. The legislative history of §524 did not indicate that Congress intended to create a private right of action under §524 and the court followed other courts in not implying one. Nor does §105(a) allow a district court to exercise jurisdiction to find Defendants in contempt for violating the discharge injunction is equally unavailing. Following Third Circuit precedent, the court concluded that the power contained in §105(a) to issue orders and injunctions to enforce the Bankruptcy Code is a power tool, but … it operates only within the context of Bankruptcy proceedings. Plaintiffs must therefore go before the Bankruptcy court to obtain that relief. As such, no private cause of action exists pursuant to §§ 524(a)(2) and 105(a) and plaintiff cannot bring a claim in this court based on a violation of the discharge injunction. Regarding the FDCPA claims, the court found they were preempted by the Bankruptcy Act. Because the claims are based on alleged violations of the Bankruptcy Code the remedies under the Bankruptcy Code are the sole remedies for their alleged actions. Following the reasoning from the Ninth Circuit, the court concluded that to permit a simultaneous claim under the FDCPA would allow through the back door what a plaintiff cannot accomplish through the front door – a private right of action. Since the Third Circuit has adopted the reasoning of the Ninth Circuit that no private right of action exists under §524, the conclusion that §524 precludes FDCPA claims follows logically.

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