In a past blog I began a multi-issue review of cases that address the dischargeability of debts regarding property damage-malice. The relevant bankruptcy code provision is §523(a)(6). I briefly established the standard used by courts to determine dischargeability of debts involving property damage and discussed how the court applied the standard to a case involving rented property.
In the case of First Nat'l Bank of Md. v. Stanley, the United States Bankruptcy Court at Baltimore, Maryland, ruled that a debtor, whose creditor bank mistakenly extended his line of credit, and who used that windfall to purchase property that he speculated would shortly rise in value, converted the bank's money, despite his "good intentions" toward repayment, and discharge of the debt to the bank was denied as "willful and malicious" injury to the creditor under Bankruptcy Code §523(a)(6).
The Court ruled that the act or conduct at issue in Stanley was conversion - an unauthorized exercise of dominion or control over property belonging to another that seriously interferes with the owner's rights. Although a person need not know that someone else has superior ownership rights in the property to be technically liable for the tort of conversion, the Court held that the test for malice under Vaughn requires such knowledge on the debtor's part before discharge will be denied - in other words, the debtor must have engaged in a "wrongful" conversion.
In this case, the Court found that conversion was wrongful. The debtor knew that something was amiss when his credit limit on his line of credit was suddenly increased by a factor of ten. His explanation that he thought the bank had granted him a $73,000 "unsecured" line of credit was wholly irreconcilable with his knowledge that, just three months earlier, he had been approved for $2,000 less than the relatively modest secured line that they had requested. The Court pointed out that the debtor, though not a loan officer, was an accountant with one year of graduate school education; he was, by no means, unsophisticated.
The proper focus in this case was not on debtor's "good intentions", but simply on his exercise of dominion and control over funds that he knew belonged to another. The debtor's deliberate conversion of the funds is the intentional, wrongful act that prevented the discharge of this debt to the bank.
The Court found that the debtor inflicted willful and malicious injury on the bank; thus, he was not entitled to be discharged from the resultant debt.
A future blog will apply the standard used by courts to determine dischargeability of debts involving property damage to another case involving withheld payments.
In the case of First Nat'l Bank of Md. v. Stanley, the United States Bankruptcy Court at Baltimore, Maryland, ruled that a debtor, whose creditor bank mistakenly extended his line of credit, and who used that windfall to purchase property that he speculated would shortly rise in value, converted the bank's money, despite his "good intentions" toward repayment, and discharge of the debt to the bank was denied as "willful and malicious" injury to the creditor under Bankruptcy Code §523(a)(6).
The Court ruled that the act or conduct at issue in Stanley was conversion - an unauthorized exercise of dominion or control over property belonging to another that seriously interferes with the owner's rights. Although a person need not know that someone else has superior ownership rights in the property to be technically liable for the tort of conversion, the Court held that the test for malice under Vaughn requires such knowledge on the debtor's part before discharge will be denied - in other words, the debtor must have engaged in a "wrongful" conversion.
In this case, the Court found that conversion was wrongful. The debtor knew that something was amiss when his credit limit on his line of credit was suddenly increased by a factor of ten. His explanation that he thought the bank had granted him a $73,000 "unsecured" line of credit was wholly irreconcilable with his knowledge that, just three months earlier, he had been approved for $2,000 less than the relatively modest secured line that they had requested. The Court pointed out that the debtor, though not a loan officer, was an accountant with one year of graduate school education; he was, by no means, unsophisticated.
The proper focus in this case was not on debtor's "good intentions", but simply on his exercise of dominion and control over funds that he knew belonged to another. The debtor's deliberate conversion of the funds is the intentional, wrongful act that prevented the discharge of this debt to the bank.
The Court found that the debtor inflicted willful and malicious injury on the bank; thus, he was not entitled to be discharged from the resultant debt.
A future blog will apply the standard used by courts to determine dischargeability of debts involving property damage to another case involving withheld payments.
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