Pancoast v. McColl's Corporation

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
PAUL PANCOAST, No. 06-10467
Debtor(s).
______________________________________/
PAUL PANCOAST,
Plaintiff(s),
v. A.P. No. 06-1142
McCOLL’S CORPORATION, et al.,
Defendant(s).
_______________________________________/
Memorandum on Motion for Summary Judgment
_________________
Defendant McColl’s Corporation obtained a state court judgment against debtor and plaintiff Paul
Pancoast in 1996 and recorded an abstract of judgment, creating a lien on Pancoast’s real property.
Pancoast filed a Chapter 11 petition in 1998; his case was converted to Chapter 7, and a discharge was
entered in 2000.
On February 12, 2006, McColl’s successor in interest, Crystal Cream and Butter Company, Inc.,
(“CCBC”) applied for renewal of the judgment. It recorded the renewal on March 13, 2006. Pancoast filed
Entered on Docket
April 04, 2007
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 06-01142 Doc# 18 Filed: 04/04/07 Entered: 04/04/07 13:29:51 Page 1 of 3

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a Chapter 13 petition on July 28, 2006. In this adversary proceeding, he alleges that CCBC violated the
discharge injunction issued in 2000 by renewing the judgment. Pancoast’s motion for summary judgment is
now before the court.
Pancoast argues that CCBC has violated the bankruptcy discharge by attempting to renew its lien
through state court procedures. However, the Bankruptcy Code has never been interpreted in such a
manner.
The bankruptcy discharge, 11 U.S.C. § 524(a), “operates as an injunction against ... the employment
of process, or an act, to collect, recover, or offset any [discharged] debt as a personal liability of the debtor.”
“[A] bankruptcy discharge extinguishes only one mode of enforcing a claim - namely, an action against the
debtor in personam-while leaving intact another - namely, an action against the debtor in rem.” Johnson v.
Home State Bank, 501 U.S. 78, 84, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991). “[A] discharge in bankruptcy
prevents the [creditor] from taking any action to collect the debt as a personal liability of the debtor ....
however, [the debtors'] property remains liable for a debt secured by a valid lien.” In re Isom, 901 F.2d 744,
745 (9th Cir.1990).
In In re Transtrum, 2006 WL 2556699 (Bkrtcy.Idaho 2006), Bankruptcy Judge Pappas considered
and rejected the same arguments Pancoast makes here. Judge Pappas noted:
A discharge injunction operates to
(1) void any judgment at any time obtained, to the extent that such judgment is a
determination of the personal liability of the debtor with respect to any debt discharged
under section 727 ... of this title, whether or not discharge of such debt is waived;
(2) 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, whether or not discharge of such debt is waived; ...
11 U.S.C. § 524(a). These Code provisions prevent any actions by a creditor to enforce
Debtors' personal liability for prebankruptcy debts. But the reference in § 524(a) to a
debtor's personal liability “makes clear that an in rem judgment, based upon a prepetition
lien and running solely against the debtor's property, would not be affected by the
discharge.” 4 Collier on Bankruptcy ¶ 524.02 at 524-14.8 (Alan N. Resnick & Henry J.
Sommer, eds., 15th ed. rev.2005). In other words, the right of a creditor to foreclose a
prepetition lien survives, or “passes through,” bankruptcy unaffected by the debtor's
discharge, so long as the lien has not been avoided. Dewsnup v. Timm, 502 U.S. 410,
417 (1992); In re Eakin, 153 B.R. 59, 60 (Bankr.D.Idaho 1993); 4 Collier on
Bankruptcy ¶ 524.02 at 524-14.8.
. . . .
Case: 06-01142 Doc# 18 Filed: 04/04/07 Entered: 04/04/07 13:29:51 Page 2 of 3

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Because Creditor's lien was unaffected by Debtor's discharge, Creditor could proceed in
rem against Debtors' property after bankruptcy. Creditor did not violate the discharge
injunction when it sought to renew its judgment lien or to satisfy its claim from any
proceeds realized from the sale of the [subject] property. (Emphasis added)
Pancoast’s motion seems be based on a misreading of In re Smith, 293 B.R. 220 (9th Cir. BAP
2003). That case held only that the discharge injunction was clearly inapplicable to a situation where the
underlying debt was not discharged. It does not stand for the proposition that the discharge injunction bars
renewal of a discharged debt.
Because CCBC’s post-discharge conduct in attempting to renew its lien through state court
procedures constituted in rem actions, CCBC did not violate the bankruptcy discharge. Accordingly,
Pancoast’s motion for summary judgment will be denied and judgment shall be entered in favor of CCBC.
The judgment shall be without prejudice to Pancoast’s claims that the renewal was not in compliance with
state law. As to state law issues, the court will abstain so those issues can be heard in state court.
Counsel for CCBC shall submit an appropriate order denying summary judgment to Pancoast and
granting summary judgment to CCBC. It shall also submit an appropriate form of judgment reflecting that it
is without prejudice to state law issues and that this court abstains from ruling on such issues.
Dated: April 4, 2007
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 06-01142 Doc# 18 Filed: 04/04/07 Entered: 04/04/07 13:29:51 Page 3 of 3