Siegel attempted to claim that FHLMC’s (a/k/a “Freddie Mac”) claim for fees against him was discharged because the mortgage contract that contained the fee-shifting clause was entered into pre-petition, and therefore was a contingent claim that was discharged upon the successful completion of his petition in bankruptcy. Federal Home Loan Mortgage Corporation, 143 F.3d 525 (9 th Cir. Lender then sought attorneys’ fees for fees incurred only after the order for relief was entered.Ī similar scenario was seen in Siegel v. To complete the story in the example, Lender defended against the counterclaim and eventually prevailed at trial. In the example, Debtor’s contract with Lender was entered into before the order for relief, but Debtor, instead of walking away from the liability, voluntarily continued the state court action against Lender for his counterclaim of breach of contract. For Lender’s post-petition attorneys’ fees in the example above to be discharged, a court would need to find that the claim for attorneys’ fees was a contingent claim under 11 U.S.C. A “claim” is a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured. the filing of the petition under Chapter 7 of the United States Bankruptcy Code). It is well-known that a discharge in bankruptcy discharges all claims and debts that arose before the date of the order for relief (i.e. The effect of a voluntary return to the fray is what must be understood. By continuing to litigate against Lender after receiving a discharge, Debtor has voluntarily returned to the fray of litigation. After the discharge, Debtor continues to litigate his counterclaim against Lender.
ONCE MORE UNTO THE FRAY CODE
Before the foreclosure case is concluded, however, Debtor seeks bankruptcy relief under Chapter 7 of the United States Bankruptcy Code and eventually receives a discharge. Debtor claims that Lender engaged in some sort of misdeed in dealings with Debtor, so Debtor counterclaims against Lender for breach of contract (the same contract that allows Lender to recover its attorneys’ fees).
“Return to the fray” is a fairly simple concept, but is best explained using an example:ĭebtor owns a home, but falls behind on mortgage payments and finds himself in foreclosure where Lender seeks the property, damages, and contractually-authorized attorneys’ fees. It is important for attorneys to know about and understand this concept so that they can properly advise their clients, but judges also need to be cognizant of the doctrine to be sure that any such litigation is properly before them. The “return to the fray” doctrine is a little-known theory that could result in harsh consequences for debtors that receive a discharge in bankruptcy, but choose to continue litigating post-discharge against creditors or other entities. “Once more unto the breach, dear friends, once more.”
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