J. MICHAEL DEASY, Bankruptcy Judge.
The matter before the Court is the "Debtor's Motion for Contempt and Sanctions for Violation of Order Confirming Chapter 13 Plan and 11 U.S.C. § 362, § 524(i)"
This Court has authority to exercise jurisdiction over the subject matter and the parties pursuant to 28 U.S.C. §§ 157(a), 1334, and U.S. District Court for the District of New Hampshire Local Rule 77.4(a). This is a core proceeding under 28 U.S.C. § 157(b)(2).
The Debtor filed a Chapter 13 petition on August 31, 2009. On Schedule A — Real Property ("Schedule A"), he listed a fee simple interest in property located at 3 Blue Boar Lane in Canterbury, New Hampshire (the "Property") with a value of $129,000. According to Schedule D — Creditors Holding Secured Claims ("Schedule D"), the Property is encumbered by a mortgage securing loans by the USDA in the amounts of $80,990 and $4,967. On October 23, 2009, the USDA filed a proof of claim listing a single secured claim in the amount of $87,217.47, with a prepetition arrearage in the amount of $370.68 (the "Claim"). The Claim indicates that the prepetition arrearage arose from a single missed payment that was due on August 19, 2009, shortly before the filing of the bankruptcy petition.
On February 3, 2010, the Court entered an order confirming the Debtor's Chapter 13 plan as orally modified to cure the prepetition arrearage owed to the USDA and maintain regular postpetition payments outside the plan (the "Confirmation Order"). On October 30, 2014, the Chapter 13 trustee (the "Trustee") filed a Notice of Final Cure and Completion of Plan Payments, indicating that the USDA's prepetition claim had been paid in full by the Trustee and that the Debtor had completed his payment obligations under the plan. The USDA did not file a response alleging the existence of a postpetition payment default.
On May 11, 2015, the Debtor filed the Motion for Contempt, asserting that the USDA had regularly misapplied his mortgage payments between April 2010, and April 2014, including those the Trustee paid. The Debtor further alleged that as a result, the USDA reported his mortgage account as delinquent to credit reporting agencies for 40 out of 48 months during that period. He argued that these deficiencies rendered the USDA in contempt of the Confirmation Order, the automatic stay, and, curiously, the discharge injunction. The Debtor requested that the Court award actual damages, attorney's fees, and punitive sanctions.
On May 29, 2015, the USDA filed an objection to the Motion for Contempt, conceding that payments had been misapplied, but denying that the accounting remained inaccurate. The USDA also asserted several affirmative defenses to the Motion for Contempt. They include: (1) incorrect credit reporting is not specifically precluded by 11 U.S.C. § 362; (2) the USDA could not have violated the discharge injunction because the Debtor had not yet received a discharge; (3) sovereign immunity precludes the award of punitive damages against the United States; and (4) the Debtor has not incurred any actual damages.
The Court held an initial hearing on the Motion for Contempt on June 9, 2015, at the conclusion of which the Court entered a pre-trial scheduling order. After numerous extensions and continuances granted at the request of the parties, the Court conducted an evidentiary hearing on April 20, 2017. At the commencement of the hearing, the Court ruled that any alleged violation of the discharge injunction would be outside the scope of the proceedings because a discharge had not yet entered at the time the Motion for Contempt was filed. The Debtor also clarified that he was not pursuing a claim for misapplication of payments under the loan documents. Eleven exhibits were admitted into evidence, and only the Debtor testified. At the close of evidence, the Court ordered the parties to file written closing arguments and took the matter under advisement. The Debtor filed his closing argument on May 4, 2017, and the USDA did the same on May 15, 2017.
It is undisputed that the USDA misapplied mortgage payments during the Debtor's Chapter 13 case. The full extent of the USDA's errors, which is relevant to the Debtor's claim for damages, remains in dispute. However, due to deficiencies in the record, the Court is not able to identify all such errors or confirm the adjustments made by USDA. Although the "corrected" loan histories that the USDA transmitted to the Debtor's counsel on August 27, 2014 (the "Amended Loan Histories") were admitted into evidence, no expert witness was called to explain their preparation or contents. Upon review, the Court finds the Amended Loan Histories confusing and patently inconsistent.
Notwithstanding these deficiencies, the record does permit the Court to discern a range of time during which it is more likely than not that the USDA had consistently misapplied the Debtor's payments. The problems appear to have started on September 1, 2009, the day following the filing of his petition. Generally, the Debtor's mortgage payments are due on the 19
At trial, the Debtor testified that he first contacted the USDA regarding the application of his payments on October 9, 2009, upon receipt of the October 5, 2009 mortgage statement reflecting a two payment delinquency. Although he had an attorney at the commencement of his bankruptcy case, he communicated with the USDA directly.
While the accuracy of the Amended Loan History is doubtful, it contains several indications supporting the assertion that the USDA has yet to properly account for all the Debtor's payments. According to the Trustee's disbursement records, the prepetition arrearage arising from the failure to make the August, 2009 payment was paid in installments of $333.22 on February 17, 2010, and $37.78 on March 30, 2010.
It is undisputed that the USDA has regularly reported the status of the Debtor's loans to national credit reporting agencies. As one would expect, the confusion described above impacted the reports made by the USDA. Several of the Debtor's credit reports from TransUnion and Experian were admitted into evidence.
The first TransUnion report was last updated on November 28, 2014 (the "First TransUnion Report").
From February, 2009, to January, 2014, the First TransUnion Report reflects the Debtor was reported current 16 times with respect to the first loan, and 19 times with respect to the second.
In contrast, the Debtor's Experian credit reports indicate that he was delinquent on numerous occasions. An excerpt of an Experian credit report dated April 17, 2014, states that that the "account was delinquent 60 days past due four or more times," but without specifically identifying how many times or when.
The Experian Credit Report did not begin reporting the second loan until May, 2012, but lists 30 day delinquencies in May, June, July, and October, 2012.
As it stands, the record does not permit the Court to determine whether the Debtor made every payment on time. Given that the Amended Loan Histories do not reflect the Trustee's first payment and otherwise appear to contain non-contemporaneous entries which are not identified as such, the Amended Loan Histories are not sufficiently reliable for this purpose. While the Debtor's bank records evidence payments to the USDA between September, 2009, and February, 2014, there are nine months for which there is no evidence the Debtor made a monthly payment. Further complicating matters is the fact that few mortgage statements are in evidence and, s a result, the Court cannot ascertain whether the payments the Debtor made were greater than or equal to the amount due in that particular month.
The only delinquencies in the Experian Credit Report the Court can verify are those reflected between August and December of 2009. The Debtor's bank statements show no payments made in August, 2009 and each of the payments made between September, 2009, and January, 2010, were less than the full amount due.
The Debtor credibly testified that he spent a substantial amount of time between the fall of 2009 and the summer of 2014 trying to resolve his payment issues with the USDA by telephone, fax, and email. At trial, however, he was unable to provide any estimate of that time, or quantify the cost of any expenses he incurred as a result. The Debtor is disabled and does not work, but testified that he used to perform contract work in child support enforcement and charged a minimum of $45.00 per hour.
The only claim for actual damages the Debtor was able to quantify arose from a lost financing opportunity in the spring of 2015. He testified that the USDA's inaccurate credit reporting caused his truck loan to be approved at a higher interest rate than was initially offered, resulting in an increased interest expense of approximately $1,300.00 over the life of the loan. Nevertheless, on cross-examination, the Debtor conceded that at the time he applied for the loan, his Chapter 13 case remained pending, and that he had previously filed at least one prior Chapter 7 case.
The Debtor argues that it is obvious from the Amended Loan Histories that the USDA has misapplied the Debtor's mortgage payments, and has yet to account accurately for all payments. In support, he cites a number of deficiencies, including: the apparent application of postpetition payments to the prepetition arrearage; the failure to apply the Trustee's payments to the prepetition arrearage; and the absence of any record of a September, 2009 payment. The Debtor further contends that the USDA's revisions, which amount to reversing and reapplying funds starting with the November, 2009 payment, conceal important details and render it impossible to determine whether payments were applied correctly.
As a result of these errors, the Debtor asserts that the USDA sent him inaccurate mortgage statements until November, 2014.
The Debtor contends these acts violate the terms of the Confirmation Order and, to the extent that the USDA tried to collect funds that were not actually due, the automatic stay.
The USDA argues that the Debtor has not sustained his burden to show that he is entitled to recover any damages. First, the USDA asserts that it did not violate the automatic stay because there is no evidence showing that it took any affirmative steps to collect a debt, notwithstanding the errors in its accounting. In so arguing, the USDA urges the Court to conclude that the act of credit reporting, either correct or incorrect, is not a per se violation of the automatic stay.
In any event, the USDA contends that the Debtor has not suffered any actual damages on account of its actions. The USDA asserts that the Debtor did not offer any "meaningful" testimony regarding any damages he incurred at trial. With respect to the Debtor's allegation that he was forced to pay a higher interest rate on his vehicle loan, the USDA argues that the Debtor has not established that the dealership based this decision solely on the USDA's credit reporting, and not based on the Debtor's otherwise poor credit. Additionally, the USDA disputes that the Debtor is entitled to attorney's fees because he retained counsel in July, 2014, after the USDA corrected his loan histories in May, 2014.
Upon the filing of a bankruptcy petition, 11 U.S.C. § 362(a) automatically stays a wide array of collection and enforcement proceedings against a debtor and his or her property.
11 U.S.C. § 362(a)(6). Once a court determines that the automatic stay has been violated, 11 U.S.C. § 362(k)(1) provides that "an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees and, in appropriate circumstances, may recover punitive damages." 11 U.S.C. § 362(k)(1) (emphasis added). The words "shall recover" indicate that such awards are mandatory upon a finding of a willful violation of the stay.
A creditor's misapplication of postpetition mortgage payments can result in a stay violation. Indeed, the Court has previously held that "[a]pplication of postpetition payments to prepetition obligations of a chapter 13 debtor is simply collection of a prepetition debt outside of a plan of reorganization prohibited by § 362(a)(6) of the Bankruptcy Code."
In the present case, it is undisputed that the USDA misapplied the Debtor's mortgage payments. From September 1, 2009, until at least January 17, 2014, the USDA repeatedly placed funds received from the Debtor into the Unapplied Funds Account, often accumulating funds in excess of a mortgage payment, while simultaneously asserting that he was delinquent. Although the USDA insists that the loan histories have been corrected, the loan records remain incomplete and uncertain due to both known and unknown errors and omissions. Examples include: (1) the absence of the Trustee's first payment in the Amended Loan Histories; (2) the apparent application of a postpetition payment to the prepetition arrearage; and (3) the absence of any funds having been applied to the September, 2009 payment. Accordingly, the Court finds that the USDA began misapplying the Debtor's payments in September 2009, and has yet to account properly for all payments received thereafter. Because the loan history records are cumulative, with each entry building on the last entry, the Court concludes that USDA's errors at the beginning of the bankruptcy, and its failure to correct those errors, infected their record keeping for the duration of the case. Therefore, it is clear that the USDA violated both the automatic stay and the confirmation order.
That said, the Court is unable to determine exactly how many violations occurred for several reasons. First, the Amended Loan Histories are unreliable due to the apparent existence of unidentified retroactive corrections. Second, the record reflects that the Debtor failed to make full payments between September, 2009, and January, 2010, meaning that there was a delinquency, but it is unclear when he became current. Third, as the Court has repeatedly noted, the gaps in the record do not permit a finding that all payments were, or were not, made in full. Fourth, the Court is unable to determine whether the payments evidenced by the record were early or late. For this reason, the Court cannot find that the USDA's credit reporting was inaccurate.
Notwithstanding these deficiencies, the Court finds that the USDA's misapplication of payments and the accuracy of its loan history records was a persistent issue over the life of the plan. The Debtor testified as much, and the omissions and errors in the Amended Loan History, particularly the balance of the Unapplied Funds Account, support this conclusion.
Ultimately, the number of violations is only relevant to the determination of the Debtor's damages. In this sense, the Court's uncertainty is tempered by the Debtor's inability to quantify his actual damages. The Debtor's unrebutted testimony was that he spent countless hours over the years contacting the USDA in an effort to resolve the accounting of his mortgage. The Court finds this testimony credible, but also as indefinite as the Debtor's showing regarding the violations themselves. The Court must also consider that some communications may have been prompted by the Debtor's own failings, such as partial or late payments. Nevertheless, given the Court's conclusion that the USDA's errors were persistent throughout the case, an award to compensate the Debtor for at least a portion of his time is warranted.
The record indicates that the USDA began misapplying the Debtor's payments in September, 2009. From then until July, 2014, when he retained counsel, the Debtor dealt with the USDA directly. Over those 58 months, the Court finds that the Debtor spent at least two hours per month reviewing monthly mortgage statements and communicating with the USDA. At trial, the Debtor testified that prior to his disability, he charged a minimum rate of $45.00 per hour doing contract work. Applying this rate to two hours per month for 58 months yields actual damages in the amount of $5,220.00 . The Court will also award the Debtor an additional $100.00 for his out of pocket expenses. Although the Debtor testified that he believed that he received a higher interest rate on his vehicle loan because of the USDA's credit reporting, the Court finds that he has not sustained his burden to show he suffered an actual injury as a result of inappropriate conduct. Even assuming, arguendo, that the USDA's credit reporting was the sole factor influencing the interest rate he received, the Debtor did not establish a record showing that the notations were inaccurate.
In light of the USDA's violations of the automatic stay and confirmation order, the Debtor is also entitled to his reasonable attorney's fees. Therefore, the Court will order the Debtor's counsel to file an affidavit itemizing the fees incurred in this matter. Moreover, because the Court finds the Amended Loan Histories inaccurate, the Court and will order the USDA to provide to the Debtor a full accounting of both loans.
For the reasons articulated above, the Court will grant the Motion for Contempt. The Court shall award the Debtor actual damages in the amount of $5,320.00. The Debtor's counsel shall file an affidavit itemizing the fees incurred in this matter by September 13, 2017. The USDA shall provide the Debtor a full accounting of both loans by September 29, 2017. The accounting shall show the amount and date of receipt for all payments made by the Debtor and the Trustee, as well as the application of those payments. The USDA shall also provide the Debtor with a report of what errors are contained in his credit history because of erroneous reports by USDA and what steps USDA proposes to take, if any, to correct such errors.
This opinion constitutes the Court's findings of fact and conclusions of law in accordance with Fed. R. Bankr. P. 7052. The Court will issue a separate order consistent with this opinion.