In the last issues of Creditor News 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 two cases involving rented property and withheld payments.
In the case of Ford Motor Credit Co. v. Rose, the United States Bankruptcy Court at Big Stone Gap, Virginia, denied a creditor's motion to declare a debt nondischargeable as a malicious injury based upon withholding payments.
In Rose, a Ford automobile dealership deliberately withheld payments to the creditor, a credit company, in order for the debtor to cover the dealership's operating expenses.
The Court held that the critical determination is whether the debtor's actions satisfy the "maliciousness" requirement of Bankruptcy Code §523(a)(6). The leading case in the 4th Circuit on the maliciousness requirement is Vaughn, in which the Court used an objective test for determining "maliciousness", but did not clearly define the limits of that test.
The Court ruled that both parties acknowledged that the debtor sold twenty-five vehicles, with a value of approximately $240,000, and failed to submit the proceeds to Ford Credit pursuant to the financing agreement. This was deliberate and intentional and so the willfulness requirement of the Bankruptcy Code §523(a)(6) was met. The Court found that the creditor failed to establish that the debtor was malicious, however.
While it was undisputed that the debtor knew that he was breaching the financing agreement, it was not clear that his actions would necessarily be expected to cause harm. The debtor asserted that the dealership had more than enough assets to adequately secure Ford Credit when he used the unremitted funds in violation of the financing agreement. The debtor was only acting to keep the business afloat and applied all of the funds to that purpose, even forsaking any salary for ten months. Further, the debtor appeared to have given total cooperation to the liquidation effort and did not personally benefit from any of the money belonging to Ford Credit. Therefore, the Court denied the creditor's motion based upon its failure to prove maliciousness.
As seen in the cases reviewed over the past few issues, property damage cases may appear simple, but they are not. Creditors frequently have the burden of proof, and, elements unproven can lose a case. Experienced counsel is needed.
Please review past issues of Creditor News on our website at www.lawplc.com.In the case of Ford Motor Credit Co. v. Rose, the United States Bankruptcy Court at Big Stone Gap, Virginia, denied a creditor's motion to declare a debt nondischargeable as a malicious injury based upon withholding payments.
In Rose, a Ford automobile dealership deliberately withheld payments to the creditor, a credit company, in order for the debtor to cover the dealership's operating expenses.
The Court held that the critical determination is whether the debtor's actions satisfy the "maliciousness" requirement of Bankruptcy Code §523(a)(6). The leading case in the 4th Circuit on the maliciousness requirement is Vaughn, in which the Court used an objective test for determining "maliciousness", but did not clearly define the limits of that test.
The Court ruled that both parties acknowledged that the debtor sold twenty-five vehicles, with a value of approximately $240,000, and failed to submit the proceeds to Ford Credit pursuant to the financing agreement. This was deliberate and intentional and so the willfulness requirement of the Bankruptcy Code §523(a)(6) was met. The Court found that the creditor failed to establish that the debtor was malicious, however.
While it was undisputed that the debtor knew that he was breaching the financing agreement, it was not clear that his actions would necessarily be expected to cause harm. The debtor asserted that the dealership had more than enough assets to adequately secure Ford Credit when he used the unremitted funds in violation of the financing agreement. The debtor was only acting to keep the business afloat and applied all of the funds to that purpose, even forsaking any salary for ten months. Further, the debtor appeared to have given total cooperation to the liquidation effort and did not personally benefit from any of the money belonging to Ford Credit. Therefore, the Court denied the creditor's motion based upon its failure to prove maliciousness.
As seen in the cases reviewed over the past few issues, property damage cases may appear simple, but they are not. Creditors frequently have the burden of proof, and, elements unproven can lose a case. Experienced counsel is needed.
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