Appeal from the United States District Court For the Middle District of Pennsylvania D.C. Civil -- Bankruptcy No. 87-0296.
Stapleton, Greenberg, and Hunter, Circuit Judges.
1. The Pennsylvania State Employees Credit Union ("PSECU") appeals a damage award imposed for violations of the bankruptcy code. Appellee Delores Brown is a debtor seeking the protection of the bankruptcy laws; appellant PSECU, her employee credit union, is one of her creditors. PSECU sent a letter to Brown stating that it will bar her from membership unless she reaffirms, with court approval, her outstanding debt. Brown contends that the letter was an improper attempt to collect a dischargeable debt, in violation of 11 U.S.C. § 362(a)(6) and § 524(a). The district court, which had jurisdiction under 11 U.S.C. § 158(a) on appeal from the bankruptcy court, agreed. We have jurisdiction under 11 U.S.C. § 158(d). Because we find that the bankruptcy laws do not require PSECU to provide services to Brown, we will reverse the decision of the district court.
2. The essential facts are not in dispute. On May 1, 1984, Delores Brown filed a voluntary petition for bankruptcy under Chapter 7 of the bankruptcy code. On May 3, Brown's attorney wrote to PSECU informing the credit union that a petition had been filed on behalf of his client, so that "all collection efforts . . . should cease immediately." On June 5, 1984, PSECU sent a letter directly to Brown. Her attorney was not provided with a copy. That letter, on which the dispute centers, read in part:
It is the Credit Union's policy to deny future services to members when any portion of the debt is discharged in bankruptcy. However, if the obligation is reaffirmed with court approval, you would remain eligible for services as though the bankruptcy had not occurred.
Brown filed a complaint with the bankruptcy court on July 31, 1984. She alleged that the letter violates the automatic stay provision of the bankruptcy code, 11 U.S.C. § 362(a)(6), the injunction against attempts to collect dischargeable debts, 11 U.S.C. § 524(a)(2), and the provision against discrimination on account of bankruptcy filing, 11 U.S.C. § 525.*fn1
3. The bankruptcy court conducted a brief hearing, receiving the testimony of Brown and an officer of the credit union. The hearing established the following facts. PSECU had provided an unsecured loan of $5,000 to Brown, most of which remained unpaid at the time of the petition. PSECU also provided Brown non-credit services. Brown maintained a "share draft account" with the union, which she operated as her checking account. Her earnings were deposited directly into the account, and the credit union paid the premiums on Brown's life insurance directly out of that account. The credit union also provides other credit-related services, such as secured motor vehicle loans and mortgages, and student loans. In addition, the credit union may act as a surety for checks up to $200.
4. According to the testimony, PSECU bases its credit decision on flexible criteria, such as the character history of the applicant, rather than relying solely on credit history. However, its bylaws bar all debtors who have caused the credit union financial loss. While Brown does not dispute that both bankrupts and nonbankrupts who fail to repay loans suffer the same penalty, she did testify that she was unaware of this penalty. The testimony also established that the credit union is not difficult for state employees to join, requiring only a 25-cent fee and the purchase of a $5 share. With the exception of the rule barring those who have caused it a loss, the credit union does not examine the credit history of its members.
5. The bankruptcy court found only a technical violation of the bankruptcy laws. It first held that § 525 of the Act, which bars only discrimination by government or its agencies, did not apply. Although PSECU is comprised of present and former government employees (and their families), the bankruptcy court found this fact insufficient to transform PSECU into a governmental body. The court next considered the credit union's policy of denying services to those who discharge in bankruptcy an obligation to the credit union. It found the policy was not an attempt to collect the debt, noting that the policy applies equally to nonbankrupts. The bankruptcy court held that "there is nothing in the code which requires a creditor to continue to deal with a debtor." Because the credit union "cannot be ordered to provide services to a debtor," its policy did not violate the law. Because the policy itself did not violate the law, the court found that PSECU may inform Brown of its policy.
6. Although the bankruptcy court found that PSECU, in contacting Brown, did not act with the purpose of recovering its claim, it disapproved the manner in which PSECU acted. It found that, by mailing the letter directly to Brown, the credit union violated 11 U.S.C. § 362(b) -- the "automatic stay", which bars collection efforts once a petition is filed. PSECU interfered with the "breathing spell" from creditors contemplated in the section by dealing directly with Brown, instead of mailing the letter to her attorney. Because the error was "technical and clearly unintended," the bankruptcy court did not assess damages.*fn2
7. Both parties appealed to the district court, which reversed the decision of the bankruptcy court. Quoting the legislative history of § 362, the district court stated that the automatic stay "stops all collection efforts," (court's emphasis) and "prevent[s] creditors from attempting in any way to collect a prepetition debt." The court found that, although it could not require PSECU to extend credit, the denial of all future services amounted to an attempt by the credit union to collect the prepetition debt. That nonbankrupt debtors suffer the same denial the district court found unpersuasive: Congress intended those who file a bankruptcy petition to receive the benefit of certain protections, including the injunction against collections, and the benefit of a "fresh start" upon discharge. The district court found PSECU's actions "more than mere technical violations", but found no ...