Harley-Davidson Can’t Repossess Bike From Debtor

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By Daniel Gill

Harley-Davidson Financial’s proof of claim filed in a debtor’s second bankruptcy case was declared invalid by a Louisiana bankruptcy judge July 21 ( In re Guidry , 2017 BL 254163, Bankr. E.D. La., No. 16-11584, 7/21/17 ).

The debt was discharged by the earlier bankruptcy, and the collateral motorcycle was uncollectible as securing a “prescribed debt” under Louisiana law.

But even though the claim was not enforceable, Harley didn’t violate the Fair Debt Collection Practices Act when it filed a proof of claim for the prescribed debt, the opinion by Judge Wlizabeth W. Magner held, relying on the Supreme Court’s recent decision in Midland Funding LLC v. Johnson.

Maurin Guidry Jr. purchased a Harley-Davidson motorcycle on credit in 2002. Harley took a note and a lien on the bike.

In 2005, Guidry filed a Chapter 7 bankruptcy, where a debtor’s assets are liquidated by a trustee for the benefit of creditors. Guidry said he would surrender the motorcycle to Harley, but Harley never repossessed the bike.

Guidry was awarded his discharge, wiping out his personal debts, in 2006, and the bankruptcy case was closed.

More than ten years later, Guidry filed a Chapter 13 bankruptcy, which allows individuals receiving regular income to obtain debt relief while retaining their property. To do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three- to five-year period.

Harley filed a proof of claim in the new bankruptcy case for more than $9,300. Shortly after Guidry’s attorney notified Harley that the underlying debt was discharged by the first bankruptcy, Harley amended the proof of claim to $3,460, representing what it said was the value of the motorcycle.

Violating the Discharge Injunction

Harley violated the discharge injunction when it sought more than the value of the collateral, the U.S. Bankruptcy Court for the Eastern District of Louisiana held. Guidry was therefore entitled to damages for the time and effort getting Harley to amend its claim.

But the violation wasn’t egregious enough to merit punitive damages because Harley promptly amended its claim when it was reminded that the underlying personal obligation had been discharged, the court held.

Because there were no payments for more than five years since the debtor surrendered the bike, it was a prescribed debt under Louisiana law, and Harley lost its lien rights against the motorcycle.

Finally, filing the proofs of claim wasn’t a violation of the FDCPA, the court said. Midland Funding established that filing a proof of claim for an otherwise uncollectible, time-barred debt isn’t a violation of the FDCPA, and that logic applied to a proof of claim for a prescribed debt.

Guidry was represented by Elisabeth D. Harrington, Metairie, La. Hilary Bonial, Dallas, represented Harley.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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