Debt During Bankruptcy Discharge

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What Effect does California State Court Judgement have on a Debt during Bankruptcy Discharge?

Bankruptcy is one of the preferred ways to get your spiraling debts discharged so that you get a clean slate to start your life afresh. Though usually court rulings or judgment are not enough on their own to make a debt not dischargeable, yet sometimes they may make it difficult or impossible in rare cases too. Though a majority of the debts accumulated by a person get discharged during bankruptcy, it is important to note that certain debts cannot be legally written off. Those debts which cannot be discharged are categorized as:

  1. Non-Dischargeable- The creditor doesn’t object to the discharge of these debts. Some examples of these debts include spousal and child support, income tax, criminal fines, and
  2. This category includes debts that are potentially non-dischargeable since the creditor can object to their discharge. Timely objection by the creditor can result in non-discharging of the debts. To interrupt the discharging of these debts, you need to file charges for bad behavior against the debtor. Few examples of such debts include those due to misrepresentation or fraud (bounced cheques) or causing willful injury to a person or property (physical assault)

How to lay the foundation for non-discharge of debts in bankruptcy?

It is extremely important for a creditor to prove all required allegations for the establishment of bad behavior to get not dischargeable debts. According to Section 523(a)(2) of Bankruptcy Code, Los Angeles bankruptcy lawyers Recovery Law Group suggests, to prove that a particular debt was obtained by fraud – a creditor needs to attest that the debtor made a demonstration which he/she knew to be false at that particular time; that such demonstration was made with a malicious intent (of deceiving the creditor) and the creditor fell prey to the said demonstration and incurred heavy damage due to the same.

All of these points need to be proved during the trial in bankruptcy court. However, if the same was previously done in a state court lawsuit, with a judgment obtained against the debtor, the job will be very easy for the creditor. If a state court judgment is entered against the debtor, the chances of getting the debt discharge may diminish.

Can debts be discharged even after unfavorable judgment?

Just because a debt has turned into a judgment is no way to guarantee whether they will be discharged or not. If a particular debt can be discharged before the entry of judgment, then it can be done after judgment too. Bankruptcy discharge can be effectively used to not just wipe out the debt but also the judgment. Sometimes a judgment can turn into a lien on your real estate and other properties. When the creditor registers a lien against your home or other property, options are available to get rid of the lien. However, if a judgment has changed into a judgment lien attached to your property, things can get a bit tricky.

As per Section 524 of Bankruptcy Code, if a creditor does not wish the debtor’s debts to be discharged or the judgment voided, they should timely object to discharging of debts. To object to the debts, the creditor must have timely information of the filing of the bankruptcy case by the debtor and file his concerns within the specific short timeframe. Consult with bankruptcy attorneys at 888-297-6023 to send appropriate notice to the creditors and find out the timeframe of creditors deadline in your particular case.

In case the creditor objects to the debt discharge within the stipulated time frame, the language of the judgment plays an important role. The judgment can simply state the amount of money owed in debt by the debtor or the judgment might specify any fraud, misrepresentation or any wilful and malicious injury actions of the debtor which caused him/ her to incur the debts and subsequent judgment.

What effect can the language of judgment have?

Words and language can make a huge difference, especially in legal documents. State court judgment’s specific language is extremely important as the bankruptcy court uses this to decide the bankruptcy discharge. If the language specifies only the fact that debtor owes money to creditors, the debt has a chance of getting discharged during bankruptcy. If however, any fraudulent activity or any type of bad behavior is specified in the state court judgment, this fact is taken into consideration by the bankruptcy court to decide their verdict.

Res judicata or collateral estoppel is an important and an ancient principle through which courts take each other’s decision into account while giving the verdict. In case one court has reached a verdict, it is accepted by another court, provided a specific number of conditions are met.

The factor that keeps this time-honored law principle in place is:

  • It protects petitioners from any harassment due to similar repeated litigations.
  • It helps avoid any varying judgments of the same problem with different solutions, as this can imbibe low esteem for the legal system.
  • It also saves time by avoiding repetitive lawsuits.
  • A lot of time as well as resources, both of the court and the filing parties, are saved since a matter previously resolved in courts is not re-tried in another.

Despite federal courts being superior to state courts, they too generally accept state court judgments, thanks to Article IV, Section 1 clause of the U.S. Constitution’s which states “full faith and credit”. However, there are some cases where federal law overstates the state law; but states have the right to decide when a particular judgment from one court is binding on another. California law specifies which state court judgments will be accepted by bankruptcy courts.

According to the Supreme Court of California, for a case to be excluded from re-litigation, it must be exactly similar to one decided in previous proceedings. The issue in concern must actually have been tried in a former proceeding. The case must have been certainly decided in the previous proceeding. The decision taken previously must be on merits and final. Lastly, the party against whom prohibition is being asked must be the same as the party in previous proceedings. If the creditor is able to prove that the judgment obtained in a state court satisfies all of the above mentioned five requirements in bankruptcy court, the debts will not be discharged.

In case the debt is not discharged as the debtor had incurred the same via means of fraud, the creditor needs to prove that the intentions of the debtor were malicious and done with the sole intention of cheating the creditor. If this was the actual issue litigated and decided in state court and a final decision was rendered against the debtor, then the bankruptcy court is bound to agree with the state court’s assessment and decision regarding the fraud element. The principle of collateral estoppel is applied with both discretion and flexibility. As per the U.S. Supreme Court, trial courts including bankruptcy courts should use broad discretion to know when res judicata must be applied.