In the case of Colonial Auto Ctr. Inc. v. Tomlin, the United States District Court at Charlottesville, Virginia, reviewed a Bankruptcy Court's decision denying a creditor summary judgment against the debtor in a motion to determine if the creditor's debtor was nondischargeable due to the debtor's prior bankruptcy case being dismissed "with prejudice".
In Tomlin the Bankruptcy Court had ruled that the words "dismissed with prejudice" meant only that the debtor could not file another bankruptcy petition for 180 days. The creditor, however, argued that the language meant that the debtor could not discharge pending debts in a later bankruptcy petition; the creditor asserted that dischargeability had a res judicata effect.
The District Court ascertained that the question before it was does an order stating only that a case is "dismissed with prejudice," which in the general legal context, the effect of precluding the subsequent litigation based upon the same claim, have, in the bankruptcy context, the effect of precluding the subsequent discharge of pending debts?
The District Court ruled that there was no reason to depart from the traditional effect of an order dismissing a case "with prejudice", and that the Bankruptcy Court erred in determining that the prior order as effecting something less than res judicata. The District Court further ruled that the debtor failed to identify any portion of the Bankruptcy Code in which Congress indicated an intention that a dismissal "with prejudice," once ordered, does not effect claim preclusion in relation to a pending debt. Accordingly, the District Court vacated the Bankruptcy Court's order denying the creditor summary judgment.