By: Lauren Michalski
St. John’s Law Student
American Bankruptcy Law Review Staff
In In re Dunbar, the United States District Court for the District of Montana held that a creditor was not substantially justified in objecting to the debtor’s discharge where the creditor could not demonstrate that the debtor had acted in bad faith by incurring the debt in the first instance. Dunbar, the debtor, obtained a $9,000 cash advance against a credit card issued by FIA, which he used to pay off other credit card debt. Later that year, Dunbar filed a Chapter 7 petition, and sought to discharge more than $43,000 in credit card debt, including the debt owed to FIA. FIA objected to the discharge of Dunbar’s debt pursuant to section 523(a)(2) of the Bankruptcy Code, arguing Dunbar had procured the loan under false pretenses because he never intended to repay FIA. Dunbar counterclaimed for attorney’s fees and costs under section 523(d), claiming that FIA’s position was not substantially justified. FIA’s complaint was dismissed and the court awarded Dunbar $5,595 in attorney’s fees and costs. FIA appealed, alleging that it should not be forced to pay Dunbar’s attorney’s fees because (i) its position was substantially justified, and (ii) special circumstances existed that should bar the award. In the alternative, FIA argued that Dunbar had failed to mitigate his costs and therefore any attorney fee award should be reduced as a result. The District Court disagreed with FIA and affirmed the bankruptcy court’s ruling.