Nondischargeability Litigation: Denial Of Discharge And Other Bankruptcy Litigation

Macdonald Fernandez LLP has deep experience in both prosecuting and defending nondischargeability litigation. Notwithstanding a debtor's bankruptcy, a creditor may sue to render its claim nondischargeable pursuant to Bankruptcy Code Section 523(a), and a creditor or trustee may sue to deny the debtor's discharge entirely under Section 727(a). The most common grounds for nondischargeability are:

  • Fraud
  • Embezzlement, larceny and breach of trust
  • Willful and malicious injury
  • Certain tax claims
  • Violations of securities laws

One of the fundamental goals of the Bankruptcy Code is to give debtors a "fresh start." "[I]t gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt." Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). This is primarily done through a discharge of debt. The nondischargeability statutes discussed above are intended to sort dishonest debtors from honest debtors.

The bankruptcy discharge generally does not discharge security interests or liens. An individual in Chapter 7, and an individual and a business entity in Chapter 11, are entitled to a discharge under certain circumstances. A corporation or other business entity cannot receive a discharge in a Chapter 7 case; the assets of the entity are simply liquidated or abandoned and the shell entity effectively winds up, whether or not it is formally dissolved thereafter.

The discharge generally releases the debtor from all personal liability arising pre-petition. The discharge enjoins creditors from taking any action on account of a discharged debt, including lawsuits and contact with the debtor, such as telephone calls, correspondence and personal contact. Bankruptcy Code Section 727 governs discharge in a Chapter 7 case, Section 1141 provides for a discharge in certain Chapter 11 cases, and Section 524 provides for a discharge injunction.

To talk with us about your needs, contact us for a confidential consultation with a lawyer. Our attorneys have locations in Modesto and San Francisco and serve clients across California.