In re Mann, Bankruptcy No. 7-84-00460-A.

• Citation: 58 BR 953
• Decision Date: 27 March 1986
• Docket Number: Bankruptcy No. 7-84-00460-A.
• Parties: In re Jeffrey Kent MANN, Debtor. Michelle Rene WIMMER, Movant, v. Jeffrey Kent MANN, et al., Respondents.
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Western District of Virginia

58 B.R. 953 (1986)

In re Jeffrey Kent MANN, Debtor.

Michelle Rene WIMMER, Movant, v. Jeffrey Kent MANN, et al., Respondents.

Bankruptcy No. 7-84-00460-A.

United States Bankruptcy Court, W.D. Virginia, Abingdon Division.

March 27, 1986.

Robert A. Vinyard, Lawrence L. Moise, III, Abingdon, Va., for debtor/respondent.

Johnson, Scyphers & Austin, Abingdon, Va., for movant.

Penn, Stuart, Eskridge & Jones, Bristol, Va., for respondent Va. Farm Bureau.

Michael A. Bragg, Bristol, Va., trustee.

MEMORANDUM OPINION AND ORDER

H. CLYDE PEARSON, Bankruptcy Judge.

The issue for determination is whether the injunctive provisions of 11 U.S.C. § 524 prohibit the Movant from continuing her pending state court action against the Debtor, who has received a discharge, in order to recover under the uninsured motorist clause of the Movant's insurance policy. This Memorandum Opinion is in accordance with Rule 7052.

Briefly stated, the facts appear as follows. On November 27, 1983, the Movant, Michelle Rene Wimmer, was involved in an automobile accident with a vehicle driven by the Debtor-Respondent, Jeffrey Mann. Wimmer had insurance coverage with Virginia Farm Bureau. Mann was an uninsured motorist.

On March 26, 1984, Wimmer filed a Motion for Judgment against the Debtor in the Circuit Court of Washington County, Virginia requesting $50,000.00 in damages. Virginia Farm Bureau was also served with this Motion for Judgment.

The Debtor filed his Chapter 7 petition in this Court on May 11, 1984. The accompanying schedules listed Wimmer as an unsecured creditor without priority. The § 341 Meeting of Creditors was held on July 18, 1984, and the Debtor was granted a discharge on September 6, 1984. Following the Trustee's report of no distribution, the case was administratively closed on April 19, 1985.

On July 9, 1985, Counsel for Wimmer filed a motion to reopen the case and a motion for relief from the injunctive effects of the discharge under 11 U.S.C. § 524. Wimmer requested that she be permitted to proceed on her Motion for Judgment against Mann in the state court, without subjecting Mann to personal liability, in order to collect any applicable insurance proceeds from her insurer, Virginia Farm Bureau, under the provisions of the uninsured motorist clause.

The case was reopened and argument heard on the motion for relief from the provisions of § 524. On January 3, 1986, this Court entered what appeared to be an Agreed Order but which was, in fact, objected to by Virginia Farm Bureau, lifting the injunction and permitting Wimmer to proceed with her state court action. By Order of this Court entered January 16, 1986, a motion for reconsideration of the Court's January 3 Order was granted. The matter was set for further hearing on February 18, 1986, at which time Counsel were given leave to file memoranda in support of their positions.

The filing of a Bankruptcy petition operates as a stay against certain actions of creditors. In relevant part, § 362(a) provides that filing of a petition:

"Operates as a stay applicable to all entities, of —

(a) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before commencement of the case under this Title, or to recover a claim against the debtor that arose before the commencement of the case under this Title;"

Unless a party files a motion for relief from the stay under § 362(d)¹ or (f)², under § 362(c)³, the automatic stay continues until property is no longer property of the estate and the case is either closed, dismissed, or a discharge is granted, whichever comes first.

Under § 362(a), Wimmer was stayed from proceeding on her Motion for Judgment for damages against the Debtor in state court by the filing of his petition here. Wimmer never filed a motion for relief from the stay pursuant to § 362(d) or (f) in order to reduce her claim to judgment. The automatic stay continued in effect until the Debtor was granted a discharge on September 6, 1984.

Upon the granting of a discharge, the automatic stay of § 362 is dissolved and is replaced by the permanent injunction of 11 U.S.C. § 524. In re Aldrich, 9 C.B.C.2d 1073 (Bankr.App. 9th Cir.1982); In re White Motor Credit Corp., 37 B.R. 631, 643 (N.D.Oh.1984); aff'd 761 F.2d 270 (6th Cir.1985). Section 524 outlines the effects of a discharge in Bankruptcy and, in relevant part, provides that:

"(a) A discharge in a case under this title —

(1) voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged under Section 727, 944, 1141, or 1328 of this Title, whether or not discharge of such debt is waived;

(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived;"

In general, § 524 protects the debtor from any subsequent action by a creditor whose claim has been discharged in the Bankruptcy case. Section 524 ensures that a discharge will be completely effective and operate as an injunction against enforcement of a judgment or the commencement or continuation of an action in other courts to collect or recover a debt as a personal liability of the debtor. 3 Collier on Bankruptcy, ¶ 524.01 at 524-4 (15th Ed.1985); In re Sands, 24 B.R. 688 (Bankr.D.R.I. 1982). See, also, Campbell v. General Financing Corp. of Virginia, 523 F.Supp. 989 (W.D.Va.1981) (Discharge releases the debtor from any legal duty to repay the debt.)

However, as § 524(e) recognizes, "except as provided in subsection (a)(3) of this Section, discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt." Whereas the provisions of § 524 are intended to protect the debtor from personal liability, § 524(e) indicates that it was not to affect the liability of third parties nor prevent establishing such liability through whatever means required. 3 Collier on Bankruptcy, supra, at 524-15. In discussing the scope of § 524(d)(1)(A) and (2), Collier notes that "when it is necessary to commence or continue a suit against a debtor in order, for example, to establish liability of another, . . . such suit would not be barred." Id.⁴

Numerous courts have addressed the lifting of the § 362 automatic stay to permit continuation of litigation against the debtor in other forums. See, e.g., In re Curtis, 40 B.R. 795 (Bankr.D.Ut.1984); In re Phillips, 40 B.R. 194 (Bankr.D.Col.1984); In re Huffman, 33 B.R. 937 (Bankr.W.D.Ok. 1983). However, as noted previously, Wimmer never filed a motion for relief from the stay to proceed in the state court. The Debtor has been granted a discharge and the § 362 stay has been replaced by the permanent discharge injunction of § 524. The present case addresses whether the provisions of § 524 prohibit continuation of the pending litigation so that Wimmer may recover under her uninsured motorist insurance policy.

The reported cases involving the injunction of § 524 and its effects on pending litigation and insurance recovery have allowed the suits to continue. In In re Glen-Bern Industries, Inc., 6 C.B.C. 100 (Bankr. D.Mass.1975), a case decided under § 16 of the Bankruptcy Act of 1898 (11 U.S.C. § 34), the Plaintiffs who sustained personal injuries in a construction accident sought to continue their actions against the Bankrupt's liability insurer following confirmation of the Plan. The court allowed the suit to continue, noting that "a discharge is intended to be personal to the debtor, and not to accrue to the benefit of third parties who may have liability based on the Bankrupt's liability." Id., at 102. The court reasoned that the insurance company should not be entitled to gain a benefit that was not intended or in any way computed within the rate charged for its policy. Id., at 103; see, also, Miller v. Collins, 328 Mo. 313, 40 S.W.2d 1062 (1931); Johnson v. Bondurant, 187 Kan. 637, 359 P.2d 861 (1961) (Liability of an insurer is not altered by the discharge of a Bankrupt).

The case of Wilkinson v. Vigilant Insurance Co., 236 Ga. 456, 224 S.E.2d 167 (1976), on remand 138 Ga.App. 380, 226 S.E.2d 478 (1976), presents facts similar to those of the instant case. In Wilkinson, an insured motorist brought suit against the Bankrupt, an uninsured motorist, to recover damages from an automobile collision. The Bankrupt was granted a discharge and dismissed as a party-defendant in the action. The Supreme Court of Georgia concluded that the trial court erred in not allowing the insured's action to proceed to establish all sums which she would be legally entitled to recover as damages. The uninsured motorist's discharge in Bankruptcy did not preclude the Plaintiff-insured from recovering under the uninsured motorist provision of her policy.

Cases decided under the Bankruptcy Code have reached the same conclusion. In Matter of McGraw, 18 B.R. 140 (Bankr. W.D.Wis.1982), accident victims sought to modify the injunction of § 524 for the sole purpose of determining the liability of the debtor in a proceeding against the debtor, her former employer, and the employer's insurance company which was filed prior to filing of the Bankruptcy petition. The Plaintiffs had agreed to seek no enforcement of any judgment against the debtor. The Bankruptcy Court concluded that since neither the debtor nor his property was in any jeopardy of personal liability, the injunction of § 524 could be modified and the suit could continue with the debtor as a defendant for the limited purpose of determining liability. Id., at 143. In so ruling, the court cited approvingly the case of In re Honosky, 6 B.R. 667 (Bankr.S.D.W.Va. 1980), in which the court concluded that...