The following is a case update written by William E. Winfield of Nelson Comis Kettle & Kinney LLP analyzing a recent case of interest:
In an unpublished decision, the Ninth Circuit affirmed the District Court’s dismissal of a debtor’s claims against a creditor and credit reporting agencies for failure to report payments after discharge, but reversed the District Court holding that a debtor cannot pursue a claim against a lender for failing to report a positive payment history during the bankruptcy proceeding and prior to discharge. Steinmetz v. American Honda Finance Corp., 2020 U.S. App. LEXIS 35271 (9th Cir. 2020). To view the memorandum, click here.
Factual Background and Procedural History
Eric Steinmetz (“Debtor”) filed for a petition under chapter 13 and confirmed a plan of reorganization. Under the plan, Debtor reaffirmed and continued making payments on two car loans. Debtor received a discharge and thereafter continued making the car payments.
Debtor’s lender American Honda Finance Corporation (“Honda”) did not report the payments made post-petition – before or after discharge. The credit reporting agency, Experian Information Solutions, Inc. (“Experian”), did not report any positive payments on the two car loans but did list multiple charge offs.
Debtor filed suit in the United States District Court for the Southern District of California against Honda and Experian under the Federal Fair Credit Reporting Act “FCRA”, 15 U.S.C. section 1681 et seq., as well as for Nevada state law claims. Debtor alleged that Honda as a “Furnisher” failed to accurately report the positive payments to Credit Reporting Agencies (“CRAs”) and that Experian did not report positive payments made on the two car loans. The District Court noted that “[s]everal courts have held that after a debt is discharged, a CRA may report a $0 balance on an account and need not continue to report post-bankruptcy payments because the debtor no longer has personal liability on the account,” and therefore held that “is not inaccurate to withhold information about payments made to accounts that were discharged in bankruptcy. Steinmetz v. Am. Honda Fin., 447 F. Supp. 3d 994, 1004–05 (D. Nev. 2020). Thus, the District Court granted the defendants’ motions to dismiss under Federal Rule of Civil Procedure 12(b)(6) and dismissed the complaint with prejudice.
On appeal, the Ninth Circuit affirmed dismissal of causes of action based on Nevada and Federal law relating to reporting of charge offs and for failure to report post-discharge payments. The Ninth Circuit, however, reversed the District Court’s order dismissing claims against Honda and Experian for non-reporting of positive payments prior to discharge and against Experian for inconsistent bankruptcy inclusion dates.
Ninth Circuit’s Reasoning
The Ninth Circuit affirmed that Debtor did not state a claim for failure to report the post-discharge payments because those payments were “provided for” by the chapter 13 plan. The phrase “provided for” in 11 U.S.C. section 1328(a) provides a discharge for debts which are included in a chapter 13 plan. Citing Matter of Gregory, 705 F.2d 1118, 1122 (9th Cir. 1983).
The Ninth Circuit also held that Debtor failed to state a claim for reporting multiple charge offs of the same debt. The court reasoned that, in fact, the debts had been charged off, it is “indisputable “that debt can only be charged off once, and that the Debtor failed to plead harm with precision.
However, the Ninth Circuit found that the District Court erred in dismissing claims related to the defendants’ failure to report positive payments made during bankruptcy and prior to discharge. The Ninth Circuit reasoned that Debtor made those payments before the plan “provided for” the debts. The court also held that the District Court erred in dismissing Debtor’s claims for inconsistent bankruptcy filing dates, as they could reasonably cause readers of the reports to conclude multiple bankruptcy cases had been filed.
This case is best understood after reference to the lower District Court decision and the Bankruptcy Court case docket. In this case, Debtor had relatively little unsecured debt. Debtor filed for relief on June 30, 2016 and confirmed a Chapter 13 Plan on February 15, 2017. Debtor objected to some claims, resulting in disallowance of some unsecured claims for various reasons. The remaining unsecured claims, including a priority tax claim, were paid by June of 2017. The Chapter 13 Trustee then filed a final report indicating all debts, other than the car loans, had been paid and the Debtor received a discharge on July 14, 2017.
The multiple orders in the Chapter 13 case, including the order disallowing claims, the order confirming the plan, and the discharge order caused the CRAs to make multiple reports – which, according to the Ninth Circuit – were potentially confusing and could be interpreted as multiple bankruptcy filings. After discharge, however, even though Debtor continued making post-petition payments on the secured car loans, the discharge of personal liability on the debts extinguished the defendants’ obligation to report the positive payments.
Although the Ninth Circuit implies that Debtor may have been able to plead a claim for failure to report post-discharge payments, it is unlikely that claim would have succeeded. This is an example of one of the most frequently misunderstood concepts in consumer bankruptcy cases: the difference between discharge of personal liability or recourse and the satisfaction of a lien. A lien in property is not discharged or satisfied except by payment, whereas personal liability or the lender’s recourse beyond the collateral is eliminated by the bankruptcy discharge. In this case, the discharge extinguished both the personal obligation of the Debtor to make car payments and the obligation of the creditors and CRAs to report those payments – even though the lien remained until it was paid in full. There is partial vindication for debtors here – they, at least, are entitled to receive positive credit reporting on their payments until discharge.
These materials were authored by William E. Winfield of Nelson Comis Kettle & Kinney LLP. Editorial contributions were made by Maggie E. Schroedter of Higgs Fletcher & Mack.
 This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3.