The Nehls attempted to sell real property that they acquired in 1998. To close, the Nehls were forced to pay KCBI for the release of its "lien."

        The KCBI judgment lien was a nullity against the after-acquired property. Because the payment was involuntary and KCBI did not detrimentally rely on any of the Nehls' actions, the Nehls are not estopped from recovering the money paid to KCBI which was unjustly enriched.

        KCBI's failure to return the funds constitutes a violation of the discharge injunction. The Nehls are entitled to a judgment to recover the amount received by KCBI.

           2. FACTS- On February 10, 1995, KCBI recorded a judgment against the debtors in the Ketchikan Recording District, Alaska. The Nehls filed a chapter 7 bankruptcy on March 28, 1995, and were discharged on August 16, 1995.⁽¹⁾

        At the time they filed their bankruptcy petition, the debtors had no legal or equitable interest in a parcel of real property ("Lot 16") described as:

        Lot 16, Block 5, Alaska State Land Survey No. 79-243, Mud Bight Subdivision according to the plat thereof filed August 29, 1980 as Plat No. 80-35, Ketchikan Recording District, First Judicial District, State of Alaska.

        Several years after filing the chapter 13 bankruptcy, the Nehls obtained an interest in Lot 16 from Lance Pihlman.⁽⁶⁾ Before going into legal title, the Nehls constructed a home on the property for sale to a third party. Several months before selling to the third party, Pihlman conveyed Lot 16 to Phil Nehl.

        In November 1998, the debtors closed on the sale of Lot 16 to the third party. As a condition to closing, the title company handling the closing escrow required the release of a KCBI "judgment lien," over the protestations of the debtors that the lien had been released by the debtors' discharge in bankruptcy.

              6 ABR 495  The title company would not close without KCBI signing a release. Because of exigent circumstances, the Nehls acquiesced under duress and suffered the payment of $17,700, the amount for which KCBI agreed to release its lien.

        The closing statement⁽⁷⁾ shows that the following was paid from the seller's proceeds:

KCBI	$17,700.00
Cash to the Seller [Phil Nehl]	$21,163.54

        KCBI filed a claim in the chapter 7 bankruptcy on August 19, 1998, for $23,862.08.⁽⁸⁾ It is hard to believe that KCBI left more than $6,000 on the table (i.e., allowing Nehl to walk away with over $21,000) if it was not aware of some challenge to its "judgment lien," but for the purposes of this decision, I will assume it was not.

        Debtors' attorney wrote a letter to KCBI's attorney on January 22, 1999, demanding refund of the $17,700. KCBI's attorney responded on January 26, 1999, saying that KCBI was only asked for an interest calculation on its judgment by the title company for the purposes of obtaining a release, and it got a check from the title company without any explanation. KCBI indicates it         6 ABR 496  disbursed the funds to their client in December 1998.⁽⁹⁾ KCBI fails to indicate what percentage of the $17,700 it kept as its own fee.

        The debtors first sought to recover the money from KCBI by motion in the chapter 7 case,⁽¹⁰⁾ but never brought it to a hearing. Instead, debtors filed this adversary proceeding to recover those funds from KCBI in violation of the discharge injunction. KCBI argues that the debtors are estopped from recovering the funds which it has already disbursed to the clients of the collection agency.

        KCBI's CEO, James Steven Phillips, acknowledges that the debtors were not record owners of Lot 16 at the time they filed their bankruptcy, but states that he learned this only after disbursing the funds from KCBI's trust account.⁽¹¹⁾

        At oral argument on June 19, 2000, Phil Nehl testified under oath that neither he nor his wife had any interest in Lot 16 at the time they filed bankruptcy, but only acquired it years afterwards.

        After announcing its tentative ruling that summary judgment be granted to the plaintiffs, the court gave KCBI until Friday, July 7, 2000, to contravene Mr. Nehl's testimony about the Nehls having no legal or equitable ownership interest in Lot 16 on March 28, 1995. No further evidence was produced by KCBI.

              6 ABR 497       3. ISSUES- The principal issues are: (a) did KCBI violate the discharge injunction by forcing the debtors to pay off its prepetition judgment lien, or alternatively, by refusing to return the funds to the debtors; and, (b) are the debtors estopped from claiming that KCBI denied the discharge injunction?

           4. ANALYSIS-

           4.1. A Discharge Nullifies the Effect of a Recorded Judgment on Subsequently Acquired Real Estate-  The discharge which the Nehls obtained in their chapter 7 case, discharged them of all personal liability for debts that existed on March 28, 1995, the date they filed bankruptcy.⁽¹²⁾ It acted as an injunction against the collection of any debt by bringing an action or employ process to recover personal liability that has been discharged.⁽¹³⁾

        If a creditor has a valid lien on property of either the bankruptcy estate or the debtor, that lien is not abrogated by the discharge in bankruptcy.⁽¹⁴⁾ The lien rides or passes through the bankruptcy unaffected.⁽¹⁵⁾ But, if there is a recorded judgment which would otherwise have attached to after-acquired real property, the bankruptcy discharge nullifies the effect of the recorded judgment as to any property acquired after the date of the bankruptcy petition.

        "A prepetition judgment that has been made void by this section [11 USC § 542(a)(1)] cannot be the basis for a creditor obtaining a lien on property         6 ABR 498  that was not subject to a lien before bankruptcy. Nor may a creditor proceed in rem against a property interest of the debtor if the creditor had no lien before the bankruptcy case and the debtor's personal liability has been discharged."⁽¹⁶⁾

        Only if the Nehls owned Lot 16 on the date of their chapter 7 bankruptcy, would the lien have attached to it. If they acquired Lot 16, as Mr. Nehl has testified, after the chapter 7 bankruptcy, the judgment lien filed before the chapter 7 petition does not attach to real property acquired after the petition date. There was no basis for enforcing the judgment lien against Lot 16.

           4.2. KCBI Violated the Discharge Injunction by Refusing to Refund the Amount Collected in Violation of the Discharge Injunction; Nehls Have a Private Right of Action to Recover Damages- Although the discharge injunction is often vindicated by a contempt proceeding against the violator,⁽¹⁷⁾ the Nehls have a private right to pursue an action in bankruptcy court to recover damages for a violation of the discharge injunction. Although the 9^th Circuit has not yet ruled that there is a private right of action for violating the discharge injunction,⁽¹⁸⁾ at least two district courts in the circuit have found that such a right is implied.⁽¹⁹⁾

        Can the Nehls enforce such a right under the facts of this case? Did KCBI violate the discharge injunction by not returning the $17,700 when it learned         6 ABR 499  that its judgment lien had been nullified? I have found no case directly on point, but there is substantial authority in comparable fact situations involving the automatic stay⁽²⁰⁾ to conclude that it did.

        In many respects, the automatic stay serves a similar function to the discharge injunction under 11 USC § 524(a).⁽²¹⁾ Cases discussing the injunctive effect of the automatic stay are, in an appropriate fact situation, authoritative regarding the effect of the discharge injunction.

        Cases which require a creditor to return a debtor to the status quo when the creditor discovers it has violated the automatic stay, provide authority for the analogous situation of a creditor who discovers it has recovered property in violation of the discharge injunction. A creditor that has repossessed collateral without knowing about a pending bankruptcy has an affirmative duty to restore matters to the status quo - i.e., to return the goods.⁽²²⁾

        Another close analogy is the situation where a creditor with an ongoing wage garnishment is required, after a bankruptcy is filed and the automatic stay goes into effect, to take affirmative steps to stop the garnishment. The creditor cannot just stand by and accept the fruits of the stayed garnishment.⁽²³⁾

              6 ABR 500  Accepting the facts as alleged by KCBI that it only learned about the fact that judgment lien had been discharged by the Nehls' discharge after it received the funds, it was the duty of KCBI to return the funds, even if it had to recover some of the funds which it disbursed to its collection agency clients. Its failure to do so is a violation of the discharge injunction.

        Nonetheless, KCBI indicates the debtors are estopped from recovering.

           4.3. There Are No Grounds for Estoppel of the Debtors From Recovering for KCBI's Refusal to Refund the Money Collected in Violation of the Discharge Injunction, Nor Are KCBI's Other Defenses Valid- Although nothing prevents a debtor from voluntarily repaying a debt that has been discharged,⁽²⁴⁾ the Nehls did not voluntarily pay for the KCBI release. They did so under pressure in light of a personal emergency.

        KCBI argues that it merely took the funds that were offered to it and deposited them in its trust account and disbursed them to its clients. It implies it does not have the funds any more. It has made no disclosure as to what portion of the funds it actually retained as its fee. On the basis of having disbursed the funds, and its allegation that it had no knowledge of any impropriety, KCBI argues that the Nehls are estopped.

        They suggest that: (a) the Nehls could have had the title company escrow the funds; (b) they could have refused to sign the documents; or, (c) they could have gone to another title company. The Nehls indicated they closed due         6 ABR 501  to a medical emergency. Even if they had not, it is difficult to see how there is an estoppel under the cases cited by KCBI.⁽²⁵⁾ The Nehls did not assert a position to the detriment of KCBI.⁽²⁶⁾ They were forced to pay money to release an invalid lien. It is no "detriment" for one who receives funds wrongfully, or who are unjustly enriched, to have to repay them.⁽²⁷⁾

        A collection agency, such as KCBI, is generally considered an independent contractor.⁽²⁸⁾ Having received the funds, it is independently responsible for returning them in the form of damages.

           5. CONCLUSION- There are no material fact issues, and the Nehls are entitled to judgment as a matter of law. The court will enter a judgment for $17,700, plus interest at the federal judgment rate from the date of the payment to KCBI until the date of the judgment. Costs of $150 for the filing fee will be allowed. If the debtor is able to obtain a refund of this cost from the clerk, it shall be applied against the judgment. It may be that no filing fee was required.⁽²⁹⁾

              6 ABR 502  The court will award attorney fees, using Alaska Civil Rule 82 as a guide.⁽³⁰⁾ Violation of the discharge injunction is contemptuous behavior calling for attorney fees to make debtors whole.⁽³¹⁾

        Interest on the total judgment will run at the federal judgment rate on the unpaid balance.

DATED:     July 12, 2000

HERBERT A. ROSS
U.S. Bankruptcy Judge

N O T E S:

1.         6 ABR 493  See, Order Discharging Debtors, Docket Entry 10, filed August 16, 1995.

2.         6 ABR 494  Case No. K96-00811-DMD, In re Phil D. Nehl, Petition, Docket Entry 1, filed September 19, 1996.

3.         6 ABR 494  See, Schedules A and F, Docket Entry 5, filed October 15, 1996, in Case No. K96-00811-DMD, the chapter 13 case.

4.         6 ABR 494  See, Proceeding Memo for § 341 Meeting of Creditors, held on October 18, 1996, Docket Entry 8, filed October 22, 1996, in Case No. K96-00811-DMD, the chapter 13 case.

5.         6 ABR 494  Proof of Claim No. 7, filed February 6, 1998, in Case No. K96-00811-DMD, the chapter 13 case.

6.         6 ABR 494  Testimony of Phil Nehl on June 19, 2000.

7.         6 ABR 495  See, Defendant Ketchikan Credit Bureau, Inc.'s Opposition to Motion for Summary Judgment, at Exhibit A, Final Settlement Statement, Settlement Date, November 25, 1998, page 9 of 15, Docket Entry 19, filed May 19, 2000.

8.         6 ABR 495  Proof of Claim No. 13 filed August 19, 1998, in the main case of the chapter 7 proceeding.

9.         6 ABR 496  See, Objection to Motion for Avoidance of Liens on Real Property, filed by KCBI, Docket Entry 51, filed April 5, 1999, in the main case of the chapter 7 proceeding.

10.         6 ABR 496  Motion for Avoidance of Liens on Real Property, and Memorandum, Docket Entry 49, filed March 18, 1999, in the main case of the chapter 7 proceeding.

11.         6 ABR 496  Affidavit of James Steven Phillips, Docket Entry 20, filed May 19, 2000.

12.         6 ABR 497  11 USC § 524(a)(1).

13.         6 ABR 497  11 USC § 524(a)(2).

14.         6 ABR 497  4 Collier on Bankruptcy, ¶ 542.02[1] (15 ed rev 2000).

15.         6 ABR 497  Johnson v Home State Bank, 501 US 78, 82-3, 111 S Ct 2150, 2153, 115 L Ed 2d 66, 73-74 (1991), citing Long v Bullard, 117 US 617, 6 S Ct 917, 29 L Ed 1004 (1886).

16.         6 ABR 498  4 Collier on Bankruptcy, ¶ 542.02[1] (15 ed rev 2000) [footnotes omitted]; see, also, In re Paeplow, 972 F2d 730, 735 (7^th Cir 1992); In re Thomas, 102 BR 199 (Bankr ED Cal 1989).

17.         6 ABR 498  4 Collier on Bankruptcy, ¶ 542.02[2][c] (15 ed rev 2000).

18.         6 ABR 498  11 USC § 524(a).

19.         6 ABR 498  See, Malone v Norwest Financial California, Inc., 245 BR 389, 394-98 (ED Cal 2000); Molloy v Primus Automotive Financial Services, 247 BR 804, 815-21 (CD Calif 2000). But, see, Bessette v Avco Financial Services, Inc., 240 BR 147, 153-57 (D RI 1999).

20.         6 ABR 499  See, 11 USC § 362(a).

21.         6 ABR 499  Matter of Arnold, 206 BR 560, 563, fn 3 (Bankr SD Ala 1997).

22.         6 ABR 499  Taxel v Electronic Sports Research (In re Cinematronics, Inc.), 111 BR 892, 898 (Bankr SD Cal 1990); In re Holman, 92 BR 764, 769 (Bankr SD Ohio 1988).

23.         6 ABR 499  In re Mims, 209 BR 746, 748 (Bankr MD Fla 1997); In re Manuel, 212 BR 517, 518 (Bankr ED Va 1997); Sucre v MIC Leasing Corp. (In re Sucre), 226 BR 340, 346 (Bankr SDNY 1998); Walters v Sherwood Municipal Court (In re Walters), 219 BR 520, 526 (Bankr WD Ark 1998).

24.         6 ABR 500  11 USC § 524(f).

25.         6 ABR 501  Miscovich v Tryck, 875 P2d 1293, 1302 (Alaska 1994); Mortvedt v State of Alaska, Dept. of Natural Resources, 858 P2d 1140, 1142 (Alaska 1993); Municipality of Anchorage v Schneider, 685 P2d 94, 97 (Alaska 1984).

26.         6 ABR 501  Miscovich v Tryck at 1302.

27.         6 ABR 501  State of Alaska, Dept. of Rev., Child Support Enforcement Div. v Mitchell, 930 P2d 1284, 1289 (Alaska 1997).

28.         6 ABR 501  15A AmJur2d, Collection and Credit Agencies, § 2, Status of Collection Agency; Relationship and Liability of Creditor Employing Agency, and fn 14.

29.         6 ABR 501  See, 28 USC § 1930,Judicial Conference Schedule of Fees; Bankruptcy Court Miscellaneous Fee Schedule, ¶ (8).

30.         6 ABR 502  See, Calculation of Final Judgment being filed concurrent with this memorandum decision.

31.         6 ABR 502  Matthews v United States (In re Matthews), 184 BR 594, 599 (Bankr SD Ala 1995); and, see, annotation of cases pro and con on the issue of attorney fees at Note 155, 11 USCA § 524 (West Publ rev 2000).