Judgments Can Be Declared Nondischargeable Before They Are Entered

A judgment not yet entered nonetheless may be declared nondischargeable as a “willful and malicious injury” under Section 523(a)(6).

In his January 8 opinion, New York’s Bankruptcy Judge Martin Glenn drew his conclusion from cases finding nondischargeability under the more restrictive language in Section 1328(a)(4).

The creditor had worked almost two years as an au pair for the debtor. Discovering a hidden camera in her room, she notified police. The debtor pled guilty to a felony. The creditor sued in state court, but the debtor’s chapter 7 filing halted the lawsuit before judgment.

In bankruptcy court, the creditor filed an adversary proceeding asking Judge Glenn to declare that any judgment entered in the future would be nondischargeable.

To answer the question, the starting point is Section 523(a)(6), which provides that “any debt” arising from “willful and malicious injury by the debtor to another entity” will not be dischargeable.

Judge Glenn began his analysis by citing the Supreme Court for holding that “willful” modifies “injury,” meaning “that nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.” Kawaauhau v. Geiger, 523 U.S. 57, 57–58, 61-62 (1998). He cited the Second Circuit for saying that malice may be implied by the debtor’s acts and conduct.

While “section 523(a)(6) is silent on the issue,” Judge Glenn reported that a “future judgment in a pending civil action on causes of action (1), (2), (3) and (4) will be nondischargeable.” He added that courts “throughout the country have noted that Congress in drafting the Bankruptcy Code could not have intended to allow a debt’s dischargeability to depend on a whether an ongoing civil action has concluded by the time of a bankruptcy filing.”

More on point, Judge Glenn relied on Morrison v. Harrsch (In re Harrsch), 432 B.R. 169 (Bankr. E.D. Pa. 2010), where the creditor sought a declaration that any future judgment would be nondischargeable under Section 1328(a)(4). That subsection, like Section 523(a)(6), proscribes discharge for debts resulting from willful or malicious injury. However, Section 1328(a)(4) is more limited than Section 523(a)(6) because it bars discharge for debts “awarded in a civil action against the debtor as a result of willful or malicious injury by the debtor that caused personal injury to an individual or the death of an individual.” [Emphasis added.]

Despite the limiting language in Section 1328(a)(4), Judge Glenn described the court in Harrsch as having “ultimately determined that Congress contemplated that damage awards entered both before or after the commencement of a debtor’s bankruptcy case would not be dischargeable.” [Emphasis in original.]

Judge Glenn quoted the court in Harrsch when he said, “I cannot fathom why Congress would choose to have such a debt’s dischargeability depend on whether the debtor or the creditor wins the proverbial ‘race to the courthouse.’” Id. at 174. 

Among other courts reaching the same result, Judge Glenn quoted the Ninth Circuit Bankruptcy Appellate Panel for seeing “‘no reason to assume that Congress intended to differentiate between creditors who were able to obtain a judgment against a debtor before the bankruptcy filing and those that were stymied in their efforts to obtain redress for their injuries by the invocation of the automatic stay.’” Waag v. Permann (In re Waag), 418 B.R. 373, 381-82 (B.A.P. 9th Cir. 2009).

“Given the history of courts determining prejudgment debts are nondischargeable under more restrictive provisions of the Code,” Judge Glenn said, he would “not limit plaintiffs from their requested relief under section 523(a)(6) solely because the action is still pending in state court.” He held that “Section 523(a)(6) allows for a denial of discharge for a future judgment award in a civil action if willful and malicious injury is required to recover on the state law cause of action.” [Emphasis in original.]

Examining the creditor’s complaint in state court, Judge Glenn held that claims for unlawful surveillance, intentional infliction of emotional distress, sexual harassment and retaliation all require willful and malicious conduct. If judgment were to be entered on those claims, he ruled that they would not be discharged. 

Judge Glenn modified the automatic stay to permit the suit to proceed in state court, but he was careful to say that he was making no determination on the merits of the claims.