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11 USC 523 (a)(6) - EXCEPTION TO BANKRUPTCY DISCHARGE

Speaks of willful and malicious injury to person or property.

This a delicate subject because terms such as "willful" and "malicious" are difficult to define. Many courts, including the Supreme Court have tackled their definition. Some have held that any act that was willful shall suffice as satisfying this element. The problem with this definition, said the U.S. Supreme Court, is that any act undertaken by a person can be considered willful. In other words, unless the act was accidental, all acts are done voluntarily by the actor.

Instead, the U.S. Supreme Court has held that willful and malicious requires a "specific intent" to invoke harm on a person or his property. Specific intent is a matter generally left to the trier of fact and NOT the main focus of this blog.

It is the types of injuries covered under this section that take center stage here:

"Person or property" and injury to these, but what does that really mean? We all know what a person is. At least most of us do. We all have some idea of what property is, or do we? Is a credit score property? What about cash money? What about future income? Is this property for purposes of 523(a)(6).

Property has been well-defined by both the U.S. Supreme Court the 9th Circuit to exclude financial interests. The injuries covered under this section include those usually covered under intentional torts, i.e., battery, conversion, trespass to chattel. One can successfully argue that fraud is an intentional tort, and it most certainly is. However, 11 U.S.C. 523 has two separate sections that deal with fraud [(a)(2) and (4)]. As a result, fraud is excluded from (a)(6).

So what about the type of injury that results from a financial transaction?

Two examples here: in its most basic form, if you give me money to hold and I burn the bills and later tell you that the money is lost, you could argue that I injured your property (or property of the federal government). This one is clear. But what about the argument that I harmed your financial interests, however intentional or malicious, without actually mutilating your currency? Not good enough.

This is not injury for purposes of this section. In other words, if I harm your credit score because of a transaction gone awry or cause you a financial loss that is not directly related to one of the intentional torts identified by most courts, a creditor cannot successfully argue that he was injured. Put another way, If the only injury alleged is due to breach of contract or the like, summary judgment will be in order. Willfulness or malice does not enter the discussion without first showing injury and, more importantly, the types of injuries covered.

Categories: Bankruptcy Exceptions

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