"Actual Knowledge" Requirement Addressed By The 9th Circuit BAP in Case Regarding Claim of Violation of the Discharge Injunction

In Emmert v. Taggart (In re Taggart), BAP No. OR-15-1119-JuKiF, the 9th Circuit Bankruptcy Appellate Panel (the "BAP") reversed an Oregon bankruptcy court's decision to sanction an Appellant for willfully violating the discharge injunction because the bankruptcy court applied the wrong legal standard for determining whether the contemnor had the sort of actual knowledge necessary for finding willfulness. A party who knowingly violates the discharge injunction under Section 524(a)(2) of the Bankruptcy Code may be held in contempt under Section 105(a) of the Bankruptcy Code. 

The BAP explained that the Ninth Circuit has crafted a strict standard for the actual knowledge requirement in the context of contempt before a finding of willfulness can be made. That standard requires evidence showing the alleged contemnor was aware of the discharge injunction and aware that it applied to his or her claim. The BAP held that the bankruptcy court's "strict liability" analysis which found the subjective or good faith belief of the creditor irrelevant was improper. Since there was no clear and convincing evidence in the record that the Appellant had actual knowledge that the discharge injunction applied to their post-discharge fee request in state court, the BAP reversed the bankruptcy court's finding of contempt and vacated its judgment awarding sanctions. In the event you are owed money by an individual or company that has filed bankruptcy, be sure to consult with competent legal counsel before taking any steps to collect that debt because taking the wrong action could actually lead to you being held liable. At Shulman Bastian Friedman & Bui LLP our bankruptcy and creditor's rights lawyers have extensive experience in helping creditors collect money they are owed even when a bankruptcy has been filed. Please contact us at www.shbllp.com or call us at 949-340-3400 to speak with one of our lawyers.

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