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Debtor Must Move for Contempt of Bankruptcy Court, Not Bring Adversary Proceeding - Barrientos v. Wells Fargo Bank

August 17, 2011

Our Riverside County personal bankruptcy attorneys were interested to read a ruling reminding bankruptcy filers that there's no substitute for following the correct procedures. In Barrientos v. Wells Fargo Bank, the Ninth U.S. Circuit Court of Appeals ruled that Adolfo Barrientos must make his motion against Wells Fargo as a motion for contempt, no matter how strongly the facts back him up. Barrientos had filed for Chapter 7 bankruptcy and already received a discharge, but he says Wells Fargo continued to report his discharged debt of $80,831 to credit agencies. Barrientos brought an adversary proceeding in U.S. Bankruptcy Court for the Southern District of California, but that court dismissed the proceeding, saying there is no private right of action to sue for a violation of the discharge. The district court upheld the bankruptcy court's action, and so did the Ninth Circuit.

Barrientos contacted one or more credit rating agencies to dispute the debt owed to Wells Fargo, which should have been discharged with his bankruptcy. Nonetheless, he alleges, Wells Fargo continued to report it as a debt, harming his credit. His 2007 adversary complaint included requests for an injunction stopping Wells Fargo from reporting the debt; fines; declaratory relief; and attorney fees. Wells Fargo moved to dismiss, relying on a 2002 case in which it was involved, Walls v. Wells Fargo Bank, which found no private right to action for violations of a bankruptcy discharge. This motion was granted, and Barrientos appealed it up to the Ninth Circuit.

On appeal, the Ninth noted that while bankruptcy judges expressly have the power to hold litigants in contempt of court, this does not create a private right of action. It ruled in Walls that finding a private right of action for violations of the discharge could take power to enforce court orders away from the court that issued those orders, which would undermine the goal of having a separate bankruptcy court. Barrientos argued that this did not necessarily make adversary proceedings unavailable, but the Ninth disagree. It also said that regardless of Wall, Bankruptcy Rule 7001 expressly defines what an "adversary proceeding" is -- and contempt orders are not among the definitions. The court rejected arguments from Barrientos that it could read into the law an authorization for contempt proceedings that specifically seek to enforce injunctions. In fact, it said, Bankruptcy Rule 9020 expressly says the opposite. Thus, the Ninth Circuit upheld the lower courts' decisions.

As Redlands individual bankruptcy lawyers, we would like to point out that this decision does not deny Barrientos a chance to stop Wells Fargo from violating his bankruptcy discharge. Rather, it requires him to make a motion within the bankruptcy case. This may be less preferable than pursuing a separate adversary motion, but at least relief is available. This is vital, because clearing debt off your record is, of course, the primary purpose of bankruptcy. The failure by Wells Fargo to do this is certainly grounds for contempt of court and a court order to fix the problem. However, as this case shows, debtors must pursue these penalties through the right channels, or face a lot of unnecessary extra expense and time. One goal for our Los Angeles consumer bankruptcy attorneys is to help our clients get through the bankruptcy without problems but quickly, so they can start the hard but rewarding work of rebuilding their finances.

If you're considering bankruptcy because of debt you know you can't reasonably pay off, you should talk to Howard Law PC about your options. For a free consultation, call us toll-free at 1-800-872-5925 or send us a message through our website.

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