Making Sense of Bankruptcy: Discharging Disputed Debts, Challenges for “Willful and Malicious Injury”

Your financial difficulties may include an unresolved claim against you for personal injury or property damage. 

Here’s the sentence that we’re explaining, phrase by phrase, in this blog post today:

Bankruptcy can discharge (write off) disputed claims if the claimant is given appropriate notice of the bankruptcy filing, though the discharge of claims for willful and malicious injury to the claimant’s person or property can be challenged by the claimant, if the challenge is made on time.

Disputed, Unresolved Claims

If you don’t know how much you owe someone, or even don’t know whether or not you owe anything at all, that unresolved potential liability can still usually be forever discharged in bankruptcy. 

When most people consider dealing with their debts through bankruptcy, they are usually thinking about conventional debts with a known or knowable balance such as credit cards, medical bills, income taxes, vehicle loans and home mortgages. But bankruptcy can also give your relief from less conventional debts arising from disputed claims involving automobile accidents, business disputes, and such.

Under the Bankruptcy Code “debt” is defined as “liability on a claim.” A “claim” means the “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” In other words, bankruptcy deals with your obligations regardless whether you know how much you owe or whether you really owe anything at all.

What’s important is to know what to do to make sure the unresolved claim against you is indeed covered in your case, and to know under what circumstances a claim may not be covered.

Appropriate, Timely Notice to Claimants

For bankruptcy to give you power over your claimants you first need to make sure they know about your bankruptcy filing and can participate in it if they want. That’s why it’s crucial that all your claimants and creditors be listed on your bankruptcy documents, so that they all get notice of your case.

It’s important to be thorough about this, listing every possible person, business and entity which may have a claim against you. So, for example, if you’ve had a vehicle accident you should list not just the other driver, but also every passenger, vehicle owner, and even property owners (including governmental entities) if any traffic barriers or any other roadside property was damaged. Otherwise someone you left off will not know about and not be covered by your bankruptcy. As a result you may owe someone you would not have owed otherwise. Your attorney will help you gather the necessary information so that all potential claimants are covered.

Willful (Intentional) and Malicious (Inexcusable) Injury

Although disputed claims against you can often be discharged in bankruptcy, some claims may not be. Our last two blog posts referred to categories of debts which may not be discharged—those allegedly incurred through a debtor’s “fraud,” and those involving “luxury” purchases and cash advances. The rest of this blog post is about another category that may not be discharged, claims for “willful and malicious injury.” Let’s start with the “willful” part of that phrase.

“Willful” means intentional or deliberate. A “willful injury” is one in which the debtor deliberately or intentionally caused the injury, didn’t just deliberately or intentionally commit an act that unintentionally resulted in the injury.

For example, if a person intended to frighten an acquaintance by brandishing a gun, but the acquaintance ran out of the building into the path of a moving vehicle, incurring serious bodily injuries, those would not be a “willful injuries.” The debtor intended to frighten the other person, but he did not intend to cause any bodily injuries.

Sometimes though, an injury can be “willful” without the actual intent to cause that particular injury, as long as some injury is almost certain to come from debtor’s action. For example, if a person in the above example instead pushed the acquaintance into the path of a moving vehicle with the intent only to scare him, but knowing the high likelihood of the other being hurt in some way, this could still qualify as “willful injury.”

As for the meaning of “malicious injury,” it is one “without just cause or excuse.”

So a claimant or creditor can challenge the discharge of a claim or debt related to an injury caused by debtor who either actually intended to cause the resulting injuries, or else acted in a way that was substantially certain to cause harm, without justifiable excuse.

Person or Property

This exception to discharge refers to injuries by the debtor both to someone else and to someone else’s property. So it potentially covers intentional bodily injuries and property damage.

Challenge on Time and the Right Way

This “willful and malicious injury” exception to discharge requires objection by the creditor-claimant or else the claim at issue is still discharged. Some kinds of debts—such as child support and recent income taxes—are not discharged simply because of the type of debt they are, without the creditor-claimant needing to challenge the discharge in bankruptcy court. But claims for willful and malicious injury ARE discharged if the creditor-claimant fails to object by the deadline communicated by the bankruptcy court.

Assuming the creditor-claimant is given appropriate notice of the debtor’s bankruptcy case, it has a very short time to raise its objection.  Its deadline to do this is 60 days after the “meeting of creditors,” so usually about three months after the bankruptcy case is filed. The creditor-claimant must, by the deadline, formally file a complaint with the bankruptcy court laying out its allegations. If the creditor-claimant who received notice of the bankruptcy case fails to file a complaint on time, it loses its chance to do so forever. And the debt or claim is gone forever.