Past Judgment Against Contractor Gets Discharged In Bankruptcy Case

Glasses and legal scaleFiling for Chapter 7 bankruptcy in Washington DC offers debtors the chance to start over with a clean financial slate. With most debts effectively erased, a debtor is free to begin building a savings and working toward restoring credit.

However, it’s important to note there may be some circumstances under which certain debts will not be discharged, meaning the debtor will still be responsible. Some, like student loans or child support, are stated outright. Others are left to the court’s interpretation, based on evidence presented in adversary proceedings brought by the creditor.

An example of this was recently illustrated in Zullo v. Lombardo, where a homeowner asserted debts owed to him by the debtor, a remodeling contractor, were non-dischargeable under 11 U.S.C. 532(a)(6). Not all outstanding court claims will be considered non-dischargeable.

What the aforementioned statute exempts from discharge is debt that was incurred as a result of willful and malicious injury by the debtor to another entity or the property of another entity. It is up to the court to determine whether the debt in question arose from willful or malicious injury. Having an experienced bankruptcy attorney to protect your interests is essential in these types of adversary proceedings.

According to court records from the U.S. Court of Appeals for the First Circuit, the debt in question arose from a 2006 transaction in which the homeowner paid the debtor for plumbing services under contract to be performed at his home. According to the homeowner, the debtor represented himself as president of the company and insisted he was licensed to do the work that needed done.

In reality, the debtor was an apprentice, and he did not have the license required by the state to enter into such a contract, let alone perform the work.

Subsequently, the work done by the debtor (plumber) was inadequate, and the homeowner incurred further expense to have it repaired. The homeowner took the debtor to court and secured a judgment against him, which was never paid.

Later, the debtor filed for Chapter 7 bankruptcy, listing in that filing the debts owed to the homeowner per the court agreement.

The homeowner initially filed an adversary proceeding in June 2011, eight months after the bankruptcy filing. Seven months after that, the homeowner hired a different attorney who, two months later, moved for a summary judgment on the grounds that the debt owed to the homeowner was not dischargeable under 11 U.S.C. 532(a)(6).

By the time the court held a hearing, 17 months had passed since the initial bankruptcy filing. The discovery period for the bankruptcy case had concluded, and the trial was slated to start in less than a week. Further, the trial court ruled no evidence was presented that proved the debtor had willfully injured the homeowner’s property.

The court noted the claim might have been properly brought under another subsection of 11 U.S.C. 532, which excepts from discharge debt incurred for money obtained through false representation or false pretenses. However, the court held it was too late by that point to do so.

Therefore, the court granted summary judgment to the debtor.

This ruling was affirmed by the Bankruptcy Appellate Panel, and also by the federal appellate court, which found the trial court didn’t err in denying the homeowner leave to amend his complaint.

Most parties to bankruptcy cases are granted generous leave to amend their case as necessary. However, the considerable time lapse required the homeowner to show some valid reason for the delay, which the homeowner failed to do.

This is not to say that those who engage in the same type of alleged action as the debtor will have the same results. Largely, it was the failure on the part of the adversary plaintiff that resulted in an outcome that favored the debtor. Other similar cases could require a more active defense.

Contact Harris S. Ammerman, bankruptcy attorney serving Washington D.C., Maryland and Virginia, by calling (202) 638-0606.

Harris Ammerman
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