## Facts

- Sue Toth received a bankruptcy discharge in June 1995.
- She later applied to the Michigan State Housing Development Authority (MSHDA) for a low-income home-improvement loan administered through a HUD-related program.
- MSHDA denied the application under an agency policy requiring three years to pass after a bankruptcy discharge before a loan application would be processed.
- Toth alleged the denial was discrimination based solely on her bankruptcy and violated 11 U.S.C. § 525(a).
- She sought relief under 42 U.S.C. § 1983 against MSHDA and two officials, including damages and punitive damages.
- The district court granted summary judgment to all defendants.

## Issues

1. Whether 11 U.S.C. § 525(a) prohibits a state housing authority from denying a post-discharge, low-income home-improvement loan based on a recent bankruptcy discharge.
2. Whether an alleged violation of § 525(a) creates rights enforceable through 42 U.S.C. § 1983.
3. Whether the Eleventh Amendment and 11 U.S.C. § 106(a) bar punitive damages against a state entity in an action premised on § 525.

## Decision

- The Sixth Circuit affirmed summary judgment for MSHDA and the individual defendants.
- The court held § 525(a) does not reach post-discharge credit decisions by state entities, including a government-administered home-improvement loan.
- Because there was no § 525(a) violation, Toth’s § 1983 claim failed.
- The court held the Eleventh Amendment barred punitive damages against MSHDA; § 106(a) abrogates immunity for non-punitive relief in § 525 actions, not punitive damages.

## Legal Principles

- Section 525(a) targets governmental denials of licenses, permits, charters, franchises, and “other similar” governmental grants, not ordinary extensions of credit.
- A state entity’s consideration of a prior bankruptcy in a post-discharge loan decision is outside § 525(a)’s scope.
- A § 1983 claim requires an underlying violation of a federal right; absent a § 525(a) violation, § 1983 provides no remedy.
- State sovereign immunity is not abrogated for punitive damages in § 525-related suits; statutory abrogation under 11 U.S.C. § 106(a) is limited to non-punitive relief.

## Conclusion

The Sixth Circuit held that § 525(a) does not prohibit a state housing authority from denying or deferring a post-discharge home-improvement loan application based on a bankruptcy discharge, rejected the related § 1983 theory, and ruled that punitive damages against the state entity were barred by sovereign immunity.


Toth v. Michigan State Hous. Dev. Auth., 136 F.3d 477 (6th Cir. 1998)