The right to a bankruptcy discharge is not absolute. For example, debtors who fail to keep adequate records, hide assets, incurred debt based on false pretenses, rack up credit card debt in bad faith or who are generally dishonest with the court are precluded from receiving a discharge by the bankruptcy code. Similarly, the bankruptcy code prevents most student loans and child support obligations from being discharged.
Damages that arise as a result of willful or malicious conduct of the debtor are not dischargeable in bankruptcy
Thankfully, a much less talked about provision, contained in section 523(a)(6)of the bankruptcy code, classifies as non-dischargeable debts that result from “willful and malicious injury by the debtor to another entity or to the property of another entity.” A recent case out of the 7th circuit Court of Appeals, Nicolai vs. Larsen, applied section 523(a)(6) to prohibit discharge of a judgment imposed on the debtor, Larsen, as a result of injuries he caused when attempting to murder his wife. After a Wisconsin court awarded a $3.4 million judgment for battery, false imprisonment and intentional infliction of emotional distress, Larsen brazenly sought to discharge his obligations in bankruptcy. We’ll spare you the sad details of the murder attempt and resulting injuries and focus instead application of the law. In holding the debts nondischargeable, the court analogized the case to a wrongful death scenario and reasoned as follows:
We can’t find an appellate case on this precise point—the nondischargeability of a claim for loss of consortium derivative from a willful and malicious injury. But that it is not dischargeable follows directly not only from the cases dealing with punitive damages but also from cases that hold that debts arising from wrongful-death suits are not dischargeable even when the creditor fighting discharge is not the victim of the wrongful death but the victim’s estate or the estate’s representative.
The court went on to emphasize one of the most frequently quoted rules of the bankruptcy system, that bankruptcy relief is reserved for the “honest but unfortunate debtor.” Since Larsen’s behavior was intentional and malicious, there could be no doubt that section 523(a)(6) precluded the debts from being discharged.
We imagine that all courts would agree that a willful and malicious injury, precluding discharge in bankruptcy of the debt created by the injury, is one that the injurer inflicted knowing he had no legal justification and either desiring to inflict the injury or knowing it was highly likely to result from his act. To allow him to shirk liability by discharging his judgment debt in those circumstances would undermine the deterrent efficacy of tort law without serving any policy that might be thought to inform bankruptcy law.