by An IRS 1099-A Form sent post-foreclosure by the mortgagee and misstating that the debtors were personally liable on the mortgage debt, was not an attempt to collect a debt in violation of the discharge injunction. Bates v. CitiMortgage, Inc.,– F.3d – , 2016 WL 7229754 (1st Cir. Dec. 14, 2016).Cathy and Timothy Bates received a chapter 7 discharge after which they entered into a Loan Modification Agreement with their mortgagee, CitiMortgage. When they stopped making payments under that agreement, CitiMortgage foreclosed. The Bateses then received an IRS 1099-A Form listing Freddie Mac as the lender on the home mortgage and stating that the Bateses could have reportable income based on the foreclosure. The box on the Form indicating that “the borrower was personally liable for the repayment of the debt,” was checked. The Form also directed the Bateses’ attention to an informational IRS publication explaining that a debt cancelled in bankruptcy is not included in income. Freddie Mac refused to revoke the Form and, when Mr. Bates called CitiMortgage about the incorrectly-checked box, he was told the debt had not been discharged. Furthermore, after the Bateses reopened their bankruptcy, CitiMortgage made a prerecorded phone call to them requesting proof of insurance on the home.
In their adversary complaint the Bateses alleged that CitiMortgage and Freddie Mac had violated the discharge injunction. On cross-motions for summary judgment, the bankruptcy court found that the phone call violated the injunction but that the Bateses suffered no damages. The court further found that the IRS Form did not violate the injunction because there was no evidence that it was sent in an attempt to collect on the debt. The district court affirmed. The Bateses appealed the decision with respect to the IRS Form.
On appeal, Freddie Mac argued that the IRS Form did not improperly coerce or harass the Bateses as required to establish a discharge injunction under section 524(a). Applying an objective standard to the facts and circumstances of the case, the First Circuit agreed. The IRS Form was not an attempt to collect on a debt but was “informational.” The fact that Freddie Mac may have incorrectly checked the box indicating personal liability on the debt did not change the non-coercive nature of the Form.
The court was unswayed by the Bateses’ argument that the Form was coercive because it put them in a position of either having to pay the debt or incurring the cost of seeking professional tax advice. The court found that Freddie Mac was required to file the 1099-A Form and it was the foreclosure rather than the Form that created any need for tax advice. Finally, the court was unpersuaded by Freddie Mac’s failure to correct the Form after it was sent to the Bateses. The court distinguished this situation from one in which false information is provided to a credit-reporting agency where misinformation may have the very real consequence of reducing the debtor’s creditworthiness. In this case, the incorrectly checked box carried no consequences. The Bateses’ tax liability or lack thereof would not be affected by the Form.
Recognizing that the Form caused the Bateses subjective distress, and that CitiMortgage compounded that distress by giving them incorrect information about the status of their loan, the court nonetheless held that “the Bateses have not presented evidence that the Forms were objectively coercive.”