Situations Where Chapter 7 Bankruptcy May Not Be Available

Under the federal bankruptcy laws, you can discharge most unsecured debts through a Chapter 7 proceeding, though you need to qualify by submitting to a means test first. Child support arrearages, student loan payments and tax obligations are generally not dischargeable, with extremely limited exceptions. There are other instances where bankruptcy may be unavailable.

Debts for “Willful and Malicious” Injury?

The bankruptcy laws give you the opportunity to start over again, either permanently discharging or renegotiating financial obligations that have become burdensome. There are, however, limits on what types of debts may be permanently erased through a bankruptcy proceeding. One type of financial arrearage that typically cannot be wiped out is a debt that stems from “willful and malicious” injury. For most of the history of the bankruptcy laws, that limitation has been construed somewhat broadly. However, about 20 years ago the court clarified the rule.

In Kawaahuau v. Geiger, a case heard by the United States Supreme Court, the nation’s high court heard a case involving a physician who filed for bankruptcy after an adverse medical malpractice decision. The doctor did not have malpractice insurance and could not pay the judgment. The Supreme Court held that the doctor had a right to discharge the debts in bankruptcy, as there was not showing that his malpractice was intentional. The court held that the “willful and malicious” conduct exception to bankruptcy protection applied only to intentional acts, and should not be applied in cases involving carelessness or ignorance.

Debts Involving Embezzlement or Violation of Fiduciary Duty

As a general rule, you cannot discharge debts for money wrongfully taken, either in breach of fiduciary duty or through embezzlement. The only exception—if you did not know that your action was a breach of fiduciary duty.

Contact Heath, TX Bankruptcy Attorney Carrie Weir

I provide a free initial consultation to anyone with questions or concerns regarding a bankruptcy filing. Contact my office by e-mail or call me at 972-772-3083 for a private meeting. With offices in Rockwall, Texas, I represent clients in Heath, Greenville, Lavon, Wylie, Mesquite and Rowlett.