Bankruptcy helps relieve the burden of credit card and loan debts, medical bills, back utilities and rent, and so forth.
But there are some debts that bankruptcy does not affect; that are “immune” from a bankruptcy discharge – the word is “non-dischargeable”. This means that when the smoke clears and the bankruptcy is over, these debts will still have to be paid.
Previous blogs were about taxes, traffic fines, speeding tickets and their ilk, student loans and Intentional Debt – that is, lying to get a loan – either by preparing a false financial statement or otherwise.
Sometimes people get a loan or cash advance or purchase a luxury item just before filing bankruptcy. The court presumes you bought the item/got the loan with no intention of paying for it.
The next series of debts that are not discharged in bankruptcy are those that are a willful and malicious injury to another person or their property.
Willful. An intentional act. This is somewhere between “just an accident” and a moustache-twirling villain.
Malicious means eeeeevil! I once used the phrase “cackling with glee” in a lawsuit where maliciousness was alleged. But it also includes being SO reckless and thoughtless that “it was an accident” doesn’t fly.
If a storm knocks a tree onto my neighbor’s car, it was an accident.
But what if I were sawing down the tree and it smashed into my neighbor’s car? I list this potential debt in my bankruptcy I filed the next day. My neighbor challenges the dischargeability saying it was willful. I may be as sorry as I can be about the damage, he says, but my chopping down my tree was an intentional act.
Does that count?
No judge will see this as anything but an accident. Willful? Yes, by its definition, but still an accident.
What if the day before he ran over my dog with that car?
Or let’s change the facts to make me less vengeful: what if my neighbor asked me to wait five minutes so he could get his keys and move his car but I kept chopping?
These are where law school final exam questions come from.
Here’s another example: I like this one.
Suppose the neighbor’s kid loves to sneak onto my yard and jump into my swimming pool. Especially when I am gone and when it is dark after I have gone to sleep.
I get tired of it, so I drain my pool. The kid jumps in that evening shortly after midnight and breaks his leg.
Willful? Yes, it was not an accident. But willful enough to be nondischargeable?
Malicious? Maybe not. It was my pool on my yard, the kid was trespassing; I can do what I want! Right?
Well, not really. This question really is iffy and the judge will have to rely on any other facts he or she can get from the case.
If I told the kid’s parents that I drained the pool? It’s pretty obvious I had no intention of causing him harm.
If I left a sign or a note for him? Well, the kid will never see it at midnight …
Good question. I’d hate to be a judge on a case like this.
That is the rule for Chapter 7 liquidation. What about the Chapter 13?
The rule is slightly different – the standard is willful OR malicious.
Wait, isn’t malicious by its definition willful? Yes, but it is one of those phrases that makes the law sound more grandiose than it is.
Willful OR malicious means that, whether you meant to be eeeeevil or not – if you did it with intent, the debt linked to the deed survives the Chapter 13.
Because of this difference between the two standards – willful AND malicious (Chapter 7) versus willful OR malicious (Chapter 13 – the odds are better in a Chapter 7 that a Debtor will win in a dischargeability challenge and better for a creditor in a Chapter 13.
Let’s use the example from above: my neighbor asks me to wait five minutes so he can move his car but I keep chopping my tree anyway. The damage to his car will more likely discharge in a Chapter 7 over a Chapter 13 depending on any other facts you and your attorney will analyze (past animosity between the parties, etc.).
Professionals also see these issues in their bankruptcy. Lawyers, doctors, etc. As an attorney I have to ask if there has been any complaints filed and what the rulings were. Were there findings of willfulness or maliciousness? If it has already been ruled on, the bankruptcy judge isn’t going to change it. Bankruptcy Court is not a court of appeals.
I have also seen people who run their own construction business defending these kinds of actions. The siding was poorly done. The landscaping was awful or not completed.
Proving these kinds of businessmen did something willful and malicious is difficult. In order to lose, the maliciousness would have to be so obvious the Debtor’s attorney will try to settle and avoid a hearing before the judge.
A good local bankruptcy attorney will have the experience and knowledge to know if the injury caused was willful enough to affect the dischargeability of this kind of debt.
More “Intentional Debts” next time …
Copyright 2016 Michael Curry
About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.
He is also the author of books on finance and bankruptcy available on Kindle through Amazon!
Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!
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