Bankruptcy Discharge Order: Limited Effect of the Injunction against Subsequent Creditor Action

In re Thompson, 416 F. Supp. 991 (S.D. Tex. 1976). A discharge in bankruptcy is designed to provide the honest debtor a new opportunity in life and a clear field for future effort, unhampered by the presence and discouragement of preexisting debt. Discharges thereby operate as a safety valve to permit the smooth operation of an economy which depends on credit. The 1970 Dischargeability Amendments to the Bankruptcy Act were designed to more fully effectuate the fresh start provided by the discharge. One of the mechanisms provided by that act is an injunction against creditor harassment of a discharged bankrupt. New subdivision f(2) added to section 14 of the Act reads, An order of discharge shall … (2) enjoin all creditors whose debts are discharged from thereafter instituting or continuing any action or employing any process to collect such debts as personal liabilities of the bankrupt. In a case of first impression of section 14f(2), In re Thompson limited the protection afforded by that section to discharged debtors. The creditor of a discharged bankrupt, in order to induce a reaffirmation of a discharged debt, threatened to bring civil and criminal actions, and did bring a criminal fraud action against the bankrupt. Those collection activities oppose the purpose of the discharge to give the debtor a breathing space free from the harassment of creditors. In a decision which should be of significant interest to creditors, the court decided that neither type of conduct is a technical violation amounting to contempt of the discharge order