Violation of Bankruptcy Discharge Actionable

Valdellon v. PHH Mortg. Corp. (9th Cir. Apr. 20, 2026, No. 25-538) 2026 U.S. App. LEXIS 11084.)

The Valdellons (debtors) successfully completed their bankruptcy plan that provided for cure of pre-petition mortgage arrears and maintenance of ongoing mortgage payments. The Chapter 13 Trustee filed a notice of final cure payment. Creditors PHH Mortgage and Wells Fargo confirmed that the arrears had been cured and the loan was current. The Bankruptcy Court entered a discharge order in June 2020.

Following discharge, PHH allegedly continued to send statements reflecting unpaid arrears, treated the loan as in default, and refused future payments — conduct the debtors attributed to PHH's misapplication or miscrediting of plan payments. The Valdellons sued PHH and Wells Fargo, asserting violations of the bankruptcy discharge injunction under 11 U.S.C. § 524, which addresses a creditor's willful failure to properly credit payments received under a confirmed plan where the failure causes material injury to the debtor.

The Ninth Circuit affirmed the Bankruptcy Appellate Panel's decision allowing the case to proceed. The court found the debtors' allegations sufficient under section 524(i), as PHH had acknowledged the cure, continued to report unpaid arrears, failed to reinstate the loan as current, and its own accounting errors created the purported default.  Given that PHH had previously acknowledged the cure, had opportunities during the bankruptcy to dispute any deficiency, and the miscrediting was attributable to PHH's own errors, the court found PHH had no reasonable basis to treat the loan as remaining in default. The court also addressed the availability of emotional distress damages as a potential civil contempt remedy.