One purpose of federal bankruptcy laws is to allow people to settle their debts and gain a fresh start. Once debts listed in the bankruptcy documents have been satisfied, (in whole or in part, or not at all if the debtor lacks sufficient assets), the debts may be "discharged" or extinguished by order of the bankruptcy court. There are, however, some debts which the law does not allow to be discharged. Among these are debts that arise out of "willful and malicious injury by the debtor to another entity or the property of another entity."

 

While a bankruptcy proceeding is in progress and, assuming proper notice has been given, there is an automatic "stay" of some lawsuits against the debtor. In other words, such cases will be put on hold and not allowed to proceed forward until the stay is lifted. The plaintiff in a pending lawsuit against the debtor may:

 

1.      Apply for "relief" from the stay in order to proceed with an action in that court; and/or

2.      May file a "proof of claim" and "adversary proceeding" in the bankruptcy court to determine the case and whether the judgment would be dischargeable.

 

Following the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the automatic stay has been eliminated in cases involving eviction actions, driver's license suspensions, child support actions, or divorce proceedings.

 

If a judgment already exists against the debtor from a prior lawsuit, the judgment creditor may (and probably should) file a proof of claim and "adversary proceeding" with the bankruptcy court to contest discharge of the judgment, if the judgment has been listed in the bankruptcy papers as a debt for which discharge is sought. The judgment creditor has the burden of proving the debt is nondischargeable by a "preponderance of the evidence." One method of avoiding discharge is showing that the debt was the result of willful and malicious injury. The bankruptcy court may accept a trial court's characterization of the judgment as arising out of willful and malicious behavior, such as fraud or other intentional torts, or may require further proof of willful and malicious injury.

 

As often happens when courts interpret statutory language, a dispute developed over the exact meaning of "willful and malicious injury." Federal courts split over enforcing this statutory provision. Some courts held that the term requires a deliberate or intentional injury, while other courts held that it included deliberate and intentional acts that resulted in injury, but were not necessarily intended to injure.

 

The U.S. Supreme Court settled this dispute with its landmark decision in Kawaauhau v. Geiger in 1998. Margaret Kawaauhau had a foot injury that was treated by Dr. Geiger. The end result of the treatment was that Margaret's right leg had to be amputated just below the knee. She sued for malpractice and won, but Geiger had no malpractice insurance. Geiger then filed for bankruptcy. Margaret opposed discharge of the malpractice judgment on the ground that it was a debt arising out of willful and malicious injury. The bankruptcy court agreed, because Geiger's treatment fell so far below the standard of care that it was considered willful and malicious.

 

The Eighth Federal Circuit Court of Appeals reversed, holding that the term "willful and malicious injury" is confined to "intentional torts," and a malpractice action based on reckless or negligent conduct is not intentional, therefore the debt was dischargeable. The Supreme Court agreed with the Court of Appeals, holding that the injury must be the result of an underlying act done with the actual intent to cause the injury, not merely the result of reckless or negligent act, in order for the debt to become nondischargeable in bankruptcy. The Court saw no evidence that Geiger had intended by his malpractice to injure Margaret.

 

Since the Geiger decision, courts have further interpreted the standard of willful and malicious injury. For example, in a 2001 bankruptcy case, a grown daughter had obtained a judgment against her father for sexual abuse, assault and exploitation perpetrated on her from the time she was four years old, and continuing for years thereafter. In the trial court, the father failed to appear at trial and a default judgment was entered against him.

 

The father subsequently filed for bankruptcy and sought to have his daughter's judgment discharged. The daughter petitioned to have the judgment declared nondischargeable as arising out of willful and malicious injury. The court cited authorities since the Geiger decision that held the term willful and malicious injury includes not only the intent and desire to harm, but also knowledge that injury is "substantially certain" to occur to a targeted person.