by In a major victory for consumer bankruptcy debtors and their advocates, the U.S. Court of Appeals for the Fourth Circuit reversed a troubling lower court decision in Koontz v. SN Servicing Corporation, holding that a mortgage servicer’s post-discharge collection efforts could still be subject to the Fair Debt Collection Practices Act (FDCPA), even where the debtor’s personal liability had been extinguished. This opinion affirms that a debtor’s in rem obligations after discharge are still “debts” under the FDCPA—and that debtors remain “consumers” protected by its provisions.
This result is due in no small part to the strong advocacy of the National Association of Consumer Bankruptcy Attorneys (NACBA), the National Consumer Bankruptcy Rights Center (NCBRC), and the National Consumer Law Center (NCLC), who filed a powerful joint amicus brief in support of the debtor, John Koontz.
The Legal Issue: Can a Discharged Debtor Still Owe a “Debt”?
After Koontz received a Chapter 7 discharge, SN Servicing Corporation (SNSC) sent him two letters asserting late fees and refusing to apply a payment—despite the discharge. The district court dismissed Koontz’s FDCPA and West Virginia Consumer Credit and Protection Act (WVCCPA) claims, reasoning that post-discharge, Koontz no longer had a “debt” and therefore no statutory protection.
The Fourth Circuit firmly rejected that view.
Citing Johnson v. Home State Bank, the court held that a discharged mortgage debt remains an enforceable obligation, albeit only through in rem remedies like foreclosure. Thus, Koontz was still a “consumer” obligated to pay a “debt” under 15 U.S.C. § 1692a(3)-(5), and SNSC’s letters constituted “collection activity.”
Amici’s Role: Correcting the Record and Reframing the Law
The joint amicus brief filed by NACBA, NCBRC, and NCLC was pivotal. The brief:
- Clarified the effect of a bankruptcy discharge:
Drawing heavily from Johnson, the amici explained that discharge eliminates personal liability but not the obligation itself. The mortgage lender retains rights against the property, and the borrower retains an obligation to pay to avoid foreclosure. - Refuted the “no personal liability, no debt” fallacy:
The lower court had erroneously concluded that without personal liability, there is no “debt.” The brief dissected this error, showing how such logic would gut consumer protection statutes, including the FDCPA, Truth in Lending Act, and Fair Credit Reporting Act. - Highlighted § 524(j) of the Bankruptcy Code:
Congress explicitly preserved a creditor’s ability to collect post-discharge payments “in lieu of pursuit of in rem relief.” But, as amici argued, nothing in § 524(j) authorizes deceptive or unfair conduct—FDCPA standards still apply. - Emphasized real-world impact:
Many debtors like Koontz attempt to keep their homes post-bankruptcy. The lower court’s decision would have undermined that goal by stripping them of protections when they try to pay—essentially penalizing them for compliance. - Explained broad statutory context:
The amici reviewed other statutes and jurisprudence, showing a consensus that non-recourse or in rem debts are still subject to consumer protection laws. They warned that allowing the district court’s reasoning to stand would sow confusion and injustice across consumer finance law.
Why This Matters for Debtors and Their Counsel
The Fourth Circuit’s decision is more than just a statutory interpretation victory—it’s a win for real people trying to rebuild after bankruptcy:
- Preserves essential consumer protections post-discharge.
- Recognizes ongoing obligations and vulnerability of debtors seeking to retain homes.
- Ensures mortgage servicers must comply with the FDCPA, even if they’re only pursuing in rem remedies.
- Empowers consumer attorneys to challenge improper fees, misapplied payments, or coercive letters.
In a time when mortgage servicers increasingly push the envelope in post-discharge collections, Koontz provides a much-needed check—and clear precedent that the FDCPA still applies.
The Advocacy Behind the Win
This case once again demonstrates the indispensable role of systemic advocacy. By joining forces, NACBA, NCBRC, and NCLC ensured that the Fourth Circuit understood the broader legal, policy, and practical implications. As their brief argued:
“The implications of the lower court’s error are severe for consumer bankruptcy debtors… The ruling effectively strips discharged debtors of important statutory protections against debt collection abuses… This error of law should be reversed.”
Their voices made a difference—not just for John Koontz, but for thousands of future debtors navigating life after bankruptcy.
Looking Ahead
With the case remanded, Koontz can pursue his FDCPA § 1692f and state law claims. But the bigger picture is already clear: debtors remain consumers, and their rights do not vanish with a discharge.
This decision, and the amicus advocacy behind it, will resonate in courts across the country as consumer advocates continue to push back against unfair post-bankruptcy collection practices.