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Nondischargeability Actions: Claims Based on Intentional Wrongful Acts

creditor-rights.jpgThe primary purpose of bankruptcy is to allow a business, or an individual, an opportunity to get a fresh start. Throughout bankruptcy, highly burdensome financial obligations can be restructured so that a more sustainable path forward can be found. Accordingly, most forms of debt are dischargeable in bankruptcy. However, there are some cases in which some types of debt may be deemed non-dischargeable, specifically when a debt was incurred by fraud or through willful and malicious conduct. Creditors can take legal action to protect their rights to recover these kind of debts. If you have any questions or concerns about nondischargeable debts, please contact an experienced California creditors' rights attorney for immediate assistance.

Intentional Wrongful Acts: What Qualifies for Nondischargeability?

Section 523 of the United States Code, which outlines debtor rights and responsibilities, establishes criteria for nondischargeability claims. If you are a creditor, and you wish to bring a nondischargeability action, under the theory that the debtor committed an intentional wrongful act, you must prove that the debt was incurred as a result of:

  • Intentional fraud;
  • Intentional misconduct while acting as a fiduciary;
  • Embezzlement; or
  • A willful and malicious injury.

Ultimately, debts that are incurred as a direct result of intentional bad actions are generally not entitled to the full array of bankruptcy protections. Creditors can often stop these debts from being discharged. However, action must be taken by creditors. Typically, creditors will need to seek protection of their rights by commencing an official nondischargeability action. These actions are resolved during an adversary proceeding.

What Is an Adversary Proceeding?

An adversary proceeding is an official legal hearing that takes place at a bankruptcy court. Getting to an adversary proceeding requires that an entirely separate lawsuit be filed, but one that is still connected to the already existing bankruptcy case. Nondischargeability actions are resolved through this type of proceeding, though adversary proceedings can occur for other reasons as well. For example, a debtor could actually initiate an adversary proceeding against a creditor in response to a creditor's alleged violation of an automatic stay.

Adversary proceedings have their own case numbers, and they generally proceed much like any other lawsuit. Creditors must take these proceedings seriously. During a nondischargeability action, creditor interests should always be represented by an experienced attorney. Your attorney can help ensure that you make a strong case to protect your rights to recover debts incurred by intentional wrongful acts.

Contact Our Office Today

The passionate San Jose creditors' rights attorneys at Diemer, Whitman & Cardosi, LLP have extensive experience representing creditors in both bankruptcy court and in nonbankruptcy collection actions. Please do not hesitate to contact our San Jose office today at 408-971-6270 to schedule a free review of your case. Our firm proudly serves clients throughout the Bay Area, including in Fremont, Campbell, and Santa Cruz.

Source:

https://www.law.cornell.edu/uscode/text/11/523

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