Burr & Forman

12.21.2016   |   Articles / Publications

Burr Alert: Debtors Who Misuse Collateral Can Lose the Benefit of Discharging their Debt in Bankruptcy

On November 21, 2016, in a case entitled In re Monson,1 the Eleventh Circuit Court of Appeals affirmed the Bankruptcy Court’s decision,2 which held that a debtor’s conduct constituted a willful and malicious injury to a creditor within the meaning of 11 U.S.C. § 523(a)(6), because the debtor injured the creditor’s right to recover its loan, the injury was intended, and the debtor was conscious of his wrongdoing. Thus, the debt was nondischargeable under § 523(a)(6).

Exceptions to the Dischargeability of Debt under Section 523 of the Bankruptcy Code
A Chapter 7 debtor is generally entitled to the discharge of all debts that arose prior to his bankruptcy filing. This is because the “fundamental purpose of the Bankruptcy Code is to afford financial relief to honest but unfortunate debtors.”3 However, the benefit of discharge is limited by certain exceptions, which are listed in Section 523 of the Bankruptcy Code. These exceptions are designed to prevent a debtor from using bankruptcy to avoid the consequences of his wrongful conduct.4 For example, a debtor is not entitled to discharge debt for a tax or customs duty,5 for debts obtained under false pretenses,6 for fraud, embezzlement or larceny7, or for a domestic support obligation.8

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