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Kelley & Fulton, P.L. Bankruptcy Lawyers

Willful or Malicious Conduct Can Bar Bankruptcy Discharge

Bankruptcy is a federal law that sets out an orderly process allowing people who owe money (called debtors) to get rid of debts and get a fresh start.

Although bankruptcy is not for everyone, it can be very helpful for individuals who are experiencing a financial crisis because it allows them to get back on their feet.

Discharge Of Debts In Bankruptcy

There are several different types of bankruptcy proceedings, but the two most common types used by individuals are referred to as Chapter 7 and Chapter 13 bankruptcies. At the end of a bankruptcy, the court issues a “bankruptcy discharge,” which is a legal term meaning that the debtor no longer has a legal requirement to pay any debts that are discharged. The discharge permanently bars creditors from taking any actions to collect on the discharged debts, including legal action or communicating with the debtor through telephone calls, letters, or personal contact.

Certain Debts Are Excepted From Bankruptcy Discharge For Public Policy Reasons

While most debts can be discharged in bankruptcy, certain types cannot be discharged for public policy reasons. Section 523(a) of the Bankruptcy Code specifically excludes various categories of debts, which means that the debtor must still repay these debts after discharge.

The most common types of nondischargeable debts include:
– Certain types of tax claims;

– Debts that the debtor fails to list on his or her bankruptcy debt schedules;

– Debts for child support, spousal support, or alimony;

– Debts to governmental units for fines and penalties;

– Debts for most governmentally funded or guaranteed educational loans;

– Debts for governmental benefits overpayments;

– Debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated;

– Debts owed to certain tax-advantaged retirement plans;

– Debts for certain condominium or cooperative housing fees; and

– Debts for willful and malicious injuries to person or property

The nondischargeability of debt obligations affected by fraud or maliciousness are not automatically excepted from discharge. Instead, a creditor must specifically ask the bankruptcy court to rule that the debt is not discharged. If the creditor does not ask the court for a nondischargeability determination, then the types of debts set out in sections 523(a)(2), (4), and (6) will be discharged.

Kelley & Fulton, P.L. Bankruptcy Lawyers

Nondischargeability Rules Applied In Kane v. Stewart Tilghman Fox & Bianchi, P.A.

In the recent proceeding of Kane v. Stewart Tilghman Fox & Bianchi, P.A. (In re Kane), the United States Court of Appeals for the 11th Circuit applied the nondischargeability rules to the debtor’s case.

In Kane, the 11th Circuit reviewed whether the lower court had properly determined that the debtors were prevented from discharging a state court judgment against them in the amount of $2 million where the state court judgment arose from a “wilful and malicious injury” caused to the plaintiff by the debtors.

In its decision, the 11th Circuit noted that, while a Chapter 7 debtor is generally entitled to a discharge of all debts that arose prior to the filing of the bankruptcy petition, the “fresh start” policy is only available to the honest but unfortunate debtor.

After reviewing the lower court’s findings regarding the debtor’s conduct, the 11th Circuit determined that there was no error in the lower court’s determination that the debtor intentionally committed acts that were substantially certain to harm the plaintiff, and that the acts were “wrongful and without just cause.” Thus, on June 26, 2014, the 11th Circuit affirmed the judgment denying the dischargeability of the $2 million judgment against the debtors.

Consult An Experienced West Palm Beach Bankruptcy Attorney

The experienced bankruptcy lawyers at the Law Office of Kelley & Fulton, P.L. can help you with all of your bankruptcy-related needs, including advising you on whether you have nondischargeable debt and whether filing for bankruptcy is still a worthwhile option.

At our office in West Palm Beach, we serve clients in the Boca Raton, Delray Beach, Jupiter, Boynton Beach, Palm Beach Gardens and Wellington areas. Call us today at (561) 203-8357 or contact us online to schedule a free initial consultation.