Friday, February 21, 2014

"Willful and Malicious Injury" - Exception from Chapter 7 Discharge

On February 22, 2012, the 11th Circuit Court of Appeals issued its decision in Jennings v. Jennings, 670 F.3d 1330 (11th Cir. 2012).  The case involved the issue of whether debt arising from the debtor's active participation with a co-conspirator in performing a fraudulent transfer of real property was excepted from discharge under 11 U.S.C. §§523(a)(6) which provides that a debt for "willful and malicious injury by the debtor to another entity or to the property of another entity" is non-dischargeble. The Court upheld the District Court's decision that the claim was non-dischargeable.  It should be noted that this was a chapter 7 bankruptcy case and that this exception from discharge of  section 523(a)(6) does not apply in a chapter 13 bankruptcy case, except when the debtor seeks a chapter 13 "hardship discharge." 

In the adversary proceeding to determine dischargeability, the debtor argued that the debt was not within this exception from discharge. She argued  that because the fraudulent transfer took place before the state court judgment arose, she could not have injured the creditor or his property. The Court rejected this argument and found that an injury to the property of another did take place as creditor did have a judgment that established his right to payment on the property interest at the time he initiated the adversary proceeding in this chapter 7 bankruptcy case to declare the claim non-dischargeable under section 523(a)(6). 

The Court found that the evidence showed that the injury was "willful and malicious" and therefore rejected the debtor's arguments. The Court explained that proof of willfulness requires a "showing of an intentional or deliberate action, which is not done merely in reckless disregard of the right of another. In re: Walker, 48 F.3d 1161, 1163 (11th Cir., 1995)  The Court further explained that a debtor is responsible for a willful injury when he or she commits an intentional act the purpose of which is to cause injury or which is substantially certain to cause injury. The Court explained that "malicious" means "wrongful and without just cause or excessive even in the absence of personal hatred, spite or ill-will."  In re: Walker, 48 F.3d at 1164. The Court noted that to establish malice, "a showing of specific intent to harm another is not necessary."  

The Court upheld the District Court's ruling that the debt was non-dischargeable under section 523(a)(6) as it found that the evidence showed that the transfer of the property to keep it out of the hands of this judgment creditor was "willful" as the debtor knew the purpose of the transfer and further held that the evidence showed that the transfer was malicious as the debtor had no just cause to effect the transfer.