Before a creditor may be held in contempt of a bankruptcy discharge injunction, the debtor must show by clear and convincing evidence that the creditor had actual knowledge of the discharge injunction’s existence and the fact it applied to his claim as well as that the creditor then acted in a manner that violated the discharge injunction.  The actual knowledge element of the offense is judged by a subjective standard, so even an unreasonable belief that the discharge injunction doesn’t apply may prevent a finding of contempt.  The violative conduct element, however, is judged objectively.  Here, the bankruptcy court wrongly found a creditor in contempt where the creditor reasonably believed that its seeking an attorney fee award from the debtor in state court litigation did not violate the discharge injunction under the Ninth Circuit’s decision in Boeing North American, Inc. v. Ybarra (In re Ybarra) (9th Cir. 2005) 424 F.3d 1018, which held that a debtor can be held liable for post-petition attorney fees in litigation even on a pre-petition claim if the debtor re-inserts himself in the litigation after the discharge.  Here, both the state court and the bankruptcy court (initially, but reversed on appeal) had held the debtor in this case had re-inserted himself in the state court case sufficiently to make the Ybarra rule applicable—and hence render the discharge injunction inapplicable to the creditor’s claim for post-petition attorney fees.

Ninth Circuit Bankruptcy Appellate Panel (Jury, J.); April 12, 2016; 2016 WL 144521