Saturday, December 1, 2012

In re Paglia case brief

In re Paglia (Bankr. WD Pa. 2003)
Bankruptcy Law

Facts: Debtor took out a note for his business for $13k for bank. Debtor’s mother pledged her interest in an annuity to secure payment of debtor’s obligation. Debtor filed for Chapter 7. Bank sent a demand to the mother for payment. Before discharge the debtor took out another note for $13k payable in 108 monthly installments. Mom once again pledged her interest. Debtor received a discharge and paid off the second note. 10 years after the second note was signed the debtor brought an action against the bank for violating the discharge injunction and the automatic stay when it coerced him to execute the 2nd note.

Analysis: A creditor that passively permits a debtor to become liable once again for a discharged debt has not violated §524(a)(2). The ∆ in no way undertook to collect a soon-to-be discharged debt from debtor or even advised him that he had to execute the second note. In fact the debtor took his initiative to ensure the ∆ would not take legal action on his mother. The ∆ merely accepted debtor’s offer to execute the second note. The second note was not a reaffirmation however. It was a different obligation for different consideration. *Chapter 13 contains a special stay to protect co-debtors while Chapter 7 does not.

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