In this case, the Bankruptcy Court held that a general judgment previously entered in the state court would not be discharged in bankruptcy.

Here, a state court judgment was entered against the debtor for $100,000. The state court judgment did not indicate that the judgment would not be subject to discharge in a later bankruptcy, however, the underlying complaint filed in that action alleged fraud on behalf of the debtor.

The Bankruptcy Court held that the state court trier of fact found that the debtor committed fraud and willful or reckless misrepresentations of material fact. Hence, since the state court had already rendered its decision, and the Bankruptcy Court declined to reajudicate the issues, the Bankruptcy Court, therefore, denied debtor’s discharge as to this one creditor. Tommy Cain v. Adam Whitley, III.,130 B.R. 105.

EDITOR’S COMMENT

When a Credit Union is suing a debtor in a state court collection action, if there is any evidence to indicate the debtor obtained the funds from the Credit Union under any of the provisions provided in the Bankruptcy Code to render the loan as nondischargeable, the Credit Union should encourage its attorney to attempt and obtain a state court judgment similar to the above case. In that manner, the burden is placed on the debtor in bankruptcy to prove the debt should nonetheless be discharged. In the above case, the creditor prevailed.

Author: Charles R. Harroun, Attorney at Law