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In re Keller

United States Bankruptcy Appellate Panel of the Ninth Circuit

May 26, 2017

In re: ROBERT C. KELLER and FINLEY JONES KELLER, Debtors.
v.
NEW PENN FINANCIAL, LLC dba SHELLPOINT MORTGAGE SERVICING; THE BANK OF NEW YORK MELLON fka THE BANK OF NEW YORK AS TRUSTEE FOR THE CERTIFICATEHOLDERS OF CWMBS, INC., CHL MORTGAGE PASS-THROUGH TRUST 2004-HYB5, MORTGAGE PASS-THROUGH CERTIFICATES SERIES 2004-HYB5, Appellees. ROBERT C. KELLER; FINLEY JONES KELLER, Appellants, Bk. No. 12-22391

          Argued and Submitted on March 23, 2017, at Sacramento, California

         Appeal from the United States Bankruptcy Court for the Eastern District of California, Hon. Christopher D. Jaime, Bankruptcy Judge, Presiding

          Scott J. Sagaria of Sagaria Law, P.C. argued for appellants, Robert C. Keller and Finley Jones Keller.

          B. Ben Mohandesi of Yu Mohandesi LLP argued for appellees New Penn Financial, LLC dba Shellpoint Mortgage Servicing and Bank of New York Mellon fka The Bank of New York as Trustee for the Certificateholders of CWMBS, Inc., CHL Mortgage Pass-Through Trust 2004-HYB5, Mortgage Pass-Through Certificates, Series 2004-HYB5.

          Before: BRAND, JURY and TAYLOR, Bankruptcy Judges.

          OPINION

          BRAND, Bankruptcy Judge.

         Chapter 13[1] debtors Robert and Finley Keller ("Debtors") appeal an order denying their motion for contempt and sanctions for violating the automatic stay and confirmation order against New Penn Financial, LLC dba Shellpoint Mortgage Servicing ("Shellpoint") and the Bank of New York Mellon fka The Bank of New York as Trustee for the Certificateholders of CWMBS, Inc., CHL Mortgage Pass-Through Trust 2004-HYB5, Mortgage Pass-Through Certificates, Series 2004-HYB5 (collectively "Defendants"). The issue before the bankruptcy court was whether a creditor's postpetition reporting of overdue or delinquent payments to a credit reporting agency ("CRA"), regardless of the information's accuracy, is a per se violation of § 362(a)(6) and constitutes prohibited collection activity.

         This question is an issue of first impression before the Panel. We hold that it is not, and we AFFIRM.

         I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

         Debtors filed their chapter 13 bankruptcy case on February 7, 2012. Shellpoint is the servicer of the loan secured by Debtors' residence. Prepetition arrears on the loan were approximately $11, 400.

         Debtors' fifth amended chapter 13 plan, confirmed by the bankruptcy court, provided for payment of the prepetition arrears; maintenance of ongoing contractual installments due on the loan would be paid by the chapter 13 trustee. Debtors made all payments under the plan. Prepetition arrears were cured by March 31, 2015. At the time of Debtors' contempt motion, the trustee was making the ongoing monthly loan payments under the plan.

         In January 2016, Mrs. Keller obtained a 3-bureau credit report (Experian, Equifax and Transunion) containing the following information Shellpoint furnished to these three CRAs about the loan:

Payment History: 120 to 90 days late on all three bureau reports for March 2014 through December 2015.
Payment Status: Account reported as "past due 150 days, " "at least 120 days or more then four payments past due" and "120 days past due."
Past Due Balance: All three bureau reports list the account as $9, 297.00 past due.
Bankruptcy Status: Shellpoint failed to report that the account was included in or part of a chapter 13 repayment plan.

         Mr. Keller's 3-bureau credit report contained similar information furnished by Shellpoint:

Payment History: 120 to 90 days late on all three bureau reports for March 2014 through March 2015.
Past Due Balance: All three bureau reports list the account as $9, 297.00 past due.

         On January 27, 2016, Mr. Keller was denied credit in the purchase of a new vehicle. The denial letter indicated that Mr. Keller was an "Unacceptable Credit Risk" and that credit was denied "based in whole or in part on information obtained on a report" from Experian.

         Debtors moved for contempt and sanctions against Defendants for violating the automatic stay and confirmation order. Debtors argued that by reporting misleading and inaccurate information on their credit reports - i.e., that the account was severely delinquent and with a past due balance - Defendants had willfully acted to collect on a debt that was subject to the automatic stay and confirmation order in violation of §§ 105, 362 and 1327.

         In support of their stay violation claim, Debtors argued that reporting of an account which has been included in a chapter 13 bankruptcy as "past due" or "late" is a per se violation of the automatic stay, because reporting late payments or past due balances is classic collection activity under § 362(a)(6). Debtors argued that such reporting did more than acknowledge that the debt still exists; it suggested that Debtors had failed to perform and served no other purpose than to coerce them into paying the debt directly to Shellpoint, despite the trustee's payments.

         Debtors also argued that the exception to the automatic stay under § 362(b)(2)(E), added by BAPCPA in 2005, that allows credit reporting of overdue child support obligations, conversely means that negative credit reporting otherwise falls within the coverage of § 362(a) and constitutes prohibited collection activity under § 362(a)(6). Debtors contended legislative history of this added exception supported their argument; the Congressional Record states that § 362(b)(2)(E) was added "[t]o facilitate the domestic support collection efforts by governmental units . . . ." H.R. Rep. No. 109-31(I), at 17 (2005).

         Lastly, Debtors relied on In re Sommersdorf, 139 B.R. 700 (Bankr. S.D. Ohio 1991), a published case supporting their position.

         At the hearing, Debtors' counsel clarified that the issue before the bankruptcy court was not the accuracy of what was reported to the CRAs but rather whether reporting that a payment is past due or late violates the automatic stay. The bankruptcy court confirmed that the legal issue to be decided was "whether past-due credit reporting is a per se violation of § 362, " and took the matter under submission. Hr'g Tr. (Apr. 5, 2016) 8:25-9:7; 10:19-24.

         In a written memorandum, the bankruptcy court denied Debtors' motion for contempt and sanctions for violation of the automatic stay and confirmation order. Debtors timely appealed the ensuing order.

         II. ...


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