MEMORANDUM DECISION ON MOTION FOR VIOLATION OF DISCHARGE INJUNCTION

DENNIS MONTALI, Bankruptcy Judge.

I. INTRODUCTION

Before the court is the motion of Yevgeny Shvartsman and Natalia Shvartsman ("Debtors") against the Internal Revenue Service ("IRS") for violation of the discharge injunction of section 524(a)(2)1. Whether that section is applicable is questionable, because the Debtors' property that is the subject of this dispute remains property of the estate, suggesting that the automatic stay of section 362(a) applies. For the reasons that follow, the IRS did violate the automatic stay, but Debtors' damages are limited to reasonable attorneys fees in prosecuting the present motion.

II. DISCUSSION2

In 2015 the IRS recorded tax liens in San Francisco for amounts owed by Debtors from 2008, 2009 and 2010. They own their residence in San Francisco, so the liens attached.

Debtors filed chapter 7 on June 13, 2016, and the case was reported as a no-asset case. Creditors were told not to file claims. Debtors received their discharge on November 4, 2016. Because of the no-asset status of the case plus the grant of the discharge, IRS mistakenly released its liens on December 9, 2016.

The case trustee reported a notice of possible dividend on January 23, 2017, and creditors were given a deadline to file proofs of unsecured claims. IRS did not file a proof of claim.

On March 1 or 2, 2017, Debtors' counsel advised the Chief, Tax Division (for IRS) in San Francisco that rerecording the tax liens would violate the discharge order.3 Despite that warning, on April 18, 2017, IRS recorded new tax liens for 2008, 2009 and 2010, replacing the recorded and then released liens. Later, after this present motion was filed, IRS, through its Insolvency Group Manager, admitted that the April 18 recording was error (See Dkt. No. 46-1, 2:10-11).

Unfortunately IRS neither rescinded the newly recorded liens nor sought an order from the court annulling the stay to permit the recording of the three liens.4 Since the release of them in December, 2016, was clearly an error by confusing the discharge and no-asset status of the case with the obvious perfected liens, it is hard to imagine how the Debtors could have defended such a request or that the court would have denied it. The release of the liens was a fortuitous windfall to which neither Debtors nor the case trustee were entitled.

Debtors brought the present motion, styled as an adversary proceeding but without a separate number or payment of a filing fee. The motion procedure is proper for Rule 9020 contempt motions. Barrientos v. Wells Fargo Bank (In re Barrientos), (9th Cir. 2011), 633 F.3d 1186. The court finds the IRS's opposition unpersuasive5 except to the extent that it contends that Debtors have shown no damages from the stay violation other than their attorneys fees. Its argument that it did not knowingly violate the stay, while perhaps plausible when it misunderstood the no asset and discharge development, is undermined by the specific warning Debtors' counsel gave in March, before the liens were recorded again. Thus the violation was wilful.

That said, had IRS thought to seek relief from stay to correct its error, it would have incurred nominal fees and maybe Debtors would have done nothing. Because IRS's refusal to take heed, Debtors were justified in bringing the motion. They are entitled to reasonable fees, but certainly not the $5,000 prayed for in their papers. And to put the matter to rest, upon payment of those fees, the court will enter an order annulling the automatic stay to permit the April 18, 2017, liens to remain of record and valid.

III. DISPOSITION

Counsel for IRS and Debtors are directed to meet and confer and make a good faith effort on the amount of fees to be paid Debtors' counsel. If they agree, then they should submit an agreed form of order resolving the present motion in accordance with this memorandum decision, fixing the amount of fees and that they have been paid, and annulling the stay as necessary. If they are unable to agree, counsel for Debtors should prepare, serve and upload an order consistent with and for the reasons stated in this memorandum decision. Upon entry of that order counsel will have fourteen days to file, set and serve a motion for an award of reasonable attorneys fees.