Debts arising out of willful or malicious injury or debts arising out of property settlements in divorce cases are the big ones that are dischargeable in Chapter 13 but not in Chapter 7. Clients who just went through a divorce or who are going through a divorce need to know their options. Filing for Chapter 7 relief could be the wrong decision. Discussions need to occur with the client’s family law attorney and a review of any property settlement agreements are necessary. What debts come under the “willful and malicious” category are fact intensive. An analysis needs to be done to determine if Chapter 13 would discharge such debts. Many times a client is facing a lawsuit where a willful and malicious injury could be plead in the complaint. A review of the complaint, including a review of all of the allegations against the client, is necessary. The bankruptcy may need to be filed before there any findings of fact by a state court judge.
Note that like in Chapter 7 a creditor has to still file a complaint for non-dischargeability against the debtor no later than 60 days from the meeting of creditors to ensure the following types of debts are non-dischargeable: (1) debts obtained by false pretenses or fraud or (2) fraud in a fiduciary capacity or embezzlement or larceny. Once the complaint is filed, the creditor has to serve the debtor and the debtor then has the opportunity to file an answer and dispute the allegations. The contested proceeding could ultimately end with a decision by a bankruptcy judge on whether the debt at issue is non-dischargeable or not. David Arietta has handled the defense of many non-dischargeability complaints over the years.
Call David Arietta at (925) 472-8000 for a review of your situation.