Discharge and Willful and Malicious injury

Posted by Kevin on May 10, 2011 under Bankruptcy Blog | Be the First to Comment

The object of a bankruptcy is to get a discharge of your debts.  The Code, however, has delineated certain types of debts which are not dischargeable; for example, certain taxes, claims based on a DWI, etc.   One of the exceptions to discharge is for debts based on willful and malicious injury by the debtor to another entity or to the property of another entity.  The usual example for this type of exception to discharge would be if the debtor beat up and injured someone who then got a judgment.  However, this exception to discharge does way beyond the obvious.  It can include an intentional breach of contract.

In one extreme case in Louisiana, a debtor was sued for non-dischargeability based on an intentional breach of contract, but  the Court had mercy on the debtor.  The debtor moved mobile homes.  The creditor hired the debtor to move his home.  The move happened during a rain storm.  The debtor brought the home to the new location but advised the creditor not to install the home because it was too muddy.  The creditor insisted that the debtor set up the house.  The debtor agreed and set up the house partially but did not return because of the attitude and behavior of the creditor.  The house was never fully hooked up.  The creditor sued the debtor and his employer and got a judgment for $32,500.

Debtor filed a Ch 7 and the creditor filed a complaint to declare the judgment non-dischargeable.  What the creditor did was try to turn the debtor’s words on him.  He said that the debtor knew that setting up in the mud posed risks but he did it anyway.  The creditor conveniently left out that he (the creditor) insisted that the debtor install the mobile home in the mud.  The Court said that the testimony of the debtor was that his employer’s equipment could get damaged, and that in muddy conditions it is more likely that damage may occur to the house.  The Court said that this was not an admission by the debtor that the creditor’s home would get damaged.

Bankruptcy courts are courts of equity.  The judges tend to exercise common sense.  Although I was not sitting in on the trial, I could read between the lines that the Judge found that the creditor was substantially responsible for his own plight.  The judgment debt was discharged.  However, under the right circumstances a debtor can find out that what appears to be a simple breach of contract may turn out to be an intentional injury that is not dischargeable.