Bankruptcy Court Finds PR Treasury Department Liable for Violating Discharge Injunction In Rivera-Padilla v. Treasury Department of PR, the Treasury
Bankruptcy Court Finds PR Treasury Department Liable for Violating Discharge Injunction In Rivera-Padilla v. Treasury Department of PR, the Treasury
Department of Puerto Rico sent a debtor a Collection Notice for $20,861.98 after the debtor had received a discharge under the Bankruptcy Code. The debtor then initiated an adversary proceeding against the Treasury,
seeking $30,000.00 in damages plus reasonable attorney fees and litigation expenses. According to Judge Lamoutte, “[a] creditor violates the discharge injunction when it (i) has notice of the debtor's discharge; (ii) intends the actions which constitute the violation; and (iii) acts in a way that improperly coerces or harasses the debtor.” There was no controversy that the Treasury had notice of the debtor’s discharge.
The bankruptcy court found that the third requirement (coercion or harassment) was met because the Collection Notice included the following language: “you owe the treasury $20,861.98”, “[t]o prevent Interests and surcharges from accumulating any further, you must pay the debt immediately”, “if we do not receive the corresponding payment, we will proceed to charge the debt” by “1) requiring your financial institution to withhold the payment of the debt of your bank accounts; 2) seizing and auctioning your real and personal property in an expedited manner;
- Ordering payments to be withheld in case you are an asset and service
provider for the Government of Puerto Rico: 4) Notifying the Credit Bureau.” The court rejected the Treasury’s invocation of a “bankruptcy disclaimer” that was also included in the Collection Notice. According to Judge Lamoutte, the disclaimer was not sufficiently clear or prominent to remove the coercive aspect of the notice, particularly since the notice did not state that it was informational in nature.
Moreover, the court saw such disclaimer as “at most, a pro forma acknowledgement that the SURI Portal’s programing is deficient in its detection of bankruptcy proceedings.” Judge Lamoutte concluded that the second element (willfulness) was also met notwithstanding the fact that the Department claimed that SURI “didn't recognize the Plaintiff’s account as bankruptcy case”, and thus no “willful or intentional collection efforts were made.” The court noted that, in this context, “the computer did it defense” has been routinely characterized by courts as a non-starter.
The court also noted that in a recent case, Bernier v. Treasury Department of PR, the Treasury “also blamed its SURI Portal for its own shortcomings.” However, in Bernier, the Judge Lamoutte did not find that the Department violated the discharge injunction, mainly because the notice in Bernier had the word “DRAFT” in the Spanish Language written consciously on the center of each of its three pages.