STEPHANI W. HUMRICKHOUSE, Bankruptcy Judge.
The matters before the court in the above-captioned adversary proceeding are the parties' cross motions for summary judgment. A hearing was held on November 2, 2016, in Raleigh, North Carolina, at the conclusion of which, the court took the matter under advisement.
Defendants Karl Williams Schwarz and Shauna Lynne Schwarz (collectively, the "defendants") filed the underlying chapter 7 case on November 23, 2009. Karl Schwarz ("Mr. Schwarz") is the owner and operator of a medical practice, Karl W. Schwarz, M.D., P.C (the "Practice"). Pre-petition, between August 2007 and October 2008, the Practice entered into seven equipment finance agreements with the plaintiff, Americorp Financial, L.L.C. (the "plaintiff"). Mr. Schwarz executed a personal guaranty of the Practice's obligations under each finance agreement. When defendants filed for bankruptcy in 2009, they listed the debt owed to the plaintiff on Schedule F of their petition. On March 10, 2010, the defendants received a discharge pursuant to 11 U.S.C. § 727, and their case was closed.
Prior to and during the pendency of the defendants' chapter 7 case, the Practice continued making regular payments on the finance agreements. However, in late 2012, the Practice became delinquent in payments under the agreements, leading to a default. In early 2013, the plaintiff, the Practice, and Mr. Schwarz, solely in his capacity as CEO of the Practice, entered into discussions regarding a potential forbearance agreement. On June 12, 2013, the Practice and both defendants, as guarantors, entered into a Forbearance Agreement, a provision of which was a Joint Guaranty of the Forbearance Agreement signed by both defendants ("Forbearance Agreement").
The Forbearance Agreement states that the "[Practice] is past due on each of the Equipment Finance Agreements and is in Default." Ex. B to Compl., Doc. No. 1 at 15. Among other things, the Forbearance Agreement contains a payment accommodation clause that modifies the Practice's original obligations by lowering the gross monthly payments and by extending the payment terms. Otherwise, however, it provides that the equipment finance agreements are to continue in full force and effect.
On October 21, 2015, the plaintiff filed a motion to reopen the defendants' chapter 7 case in order to initiate the instant adversary proceeding. The case was reopened by order dated November 16, 2015. On November 24, 2015, plaintiff filed an adversary complaint seeking declaratory relief that the execution of the Forbearance Agreement did not violate the discharge injunction and that it is not an unenforceable reaffirmation agreement under § 524(c). On January 27, 2016, the defendants filed an answer and a counterclaim seeking a declaratory judgment that the Forbearance Agreement is an invalid reaffirmation agreement, and seeking damages for the plaintiff's alleged violation of the discharge injunction.
On September 12, 2016, the plaintiff filed a motion for summary judgment. The plaintiff contends that, with respect to Shauna Schwarz ("Mrs. Schwarz"), the Forbearance Agreement did not violate the discharge injunction, and that it is not an unenforceable reaffirmation agreement because Mrs. Schwarz did not owe any pre-petition debt to the plaintiff. Put simply, there was no pre-petition debt to discharge or reaffirm. With respect to Mr. Schwarz, the plaintiff maintains that it did not violate the discharge injunction or execute an invalid reaffirmation agreement because the Forbearance Agreement was an entirely new post-discharge contract, dependent upon wholly new consideration, and thus was not an attempt to collect on a discharged debt. On October 3, 2016, the defendants filed a response to the plaintiff's motion for summary judgment and noticed their intent to seek summary judgment as non-movants. On October 26, 2016, the plaintiff filed a response to the defendants' request for summary judgment.
A bankruptcy discharge extinguishes a debtor's personal liability on a debt, and specifically "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." 11 U.S.C. § 524(a). However, a discharge does not "prevent[] a debtor from voluntarily repaying any debt." § 524(f). "`Voluntary' as used in § 524(f) is defined `in an objective sense as referring to repayment that is free from creditor influence or inducement, regardless of whether the debtor was motivated by forces unrelated to the creditor.'"
Mr. Schwarz's obligations under his pre-petition guaranties of the finance agreements were discharged in the chapter 7 case. § 727(b). There is no dispute that the Forbearance Agreement did not comply with the requirements of a reaffirmation agreement under § 524(c), so the first issue before the court is whether the Forbearance Agreement is an invalid reaffirmation agreement. An agreement between the holder of a claim and the debtor, "consideration for which, in whole or in part, is based on a debt that is dischargeable," constitutes a reaffirmation agreement and must meet the statutory requirements of § 524(c) to be valid and enforceable. § 524(c);
Here, with respect to Mrs. Schwarz, there was no pre-petition debt or obligation to the plaintiff. Accordingly, the Forbearance Agreement was not based in whole or in part by a dischargeable debt,
Essentially, in executing the Forbearance Agreement, Mr. Schwarz assumed the obligations that had previously been discharged in his chapter 7 case. "The fact that the [plaintiff] gave new consideration in exchange for the [Forbearance Agreement] does not change the fact that the consideration given by [Mr. Schwarz] was his promise to honor a discharged debt. . . ."
The court next considers whether there was a violation of the discharge injunction as to either of the defendants. As an initial matter, the court finds that there was no violation as to Mrs. Schwarz because, as noted above, she owed no debt to the plaintiff pre-petition, and thus there was no debt that was discharged, and no discharge injunction to violate. Turning to Mr. Schwarz, although a discharge does not "prevent[] a debtor from voluntary repaying any debt," § 524(f) must be read in conjunction with, rather than in negation of, §§ 524(c) and (d).
The court finds that the execution of the Forbearance Agreement violated the discharge injunction as to Mr. Schwarz, and that summary judgment should be granted in Mr. Schwarz's favor as to the violation of the discharge injunction, but granted in the plaintiff's favor with respect to Mrs. Schwarz.
The issue of damages remains before the court. A violation of the discharge injunction is punishable by civil sanctions pursuant to § 105.
With respect to Mrs. Schwarz, the court finds that the plaintiff did not violate the discharge injunction and that the Forbearance Agreement is valid and enforceable, and accordingly, summary judgment shall be granted for the plaintiff. With respect to Mr. Schwarz, the court finds that the plaintiff did violate the discharge injunction and that the Forbearance Agreement is an invalid and unenforceable reaffirmation agreement, and summary judgment shall be granted for Mr. Schwarz. A hearing shall be set to determine the issue of damages.
