The purpose of Chapter 7 personal bankruptcy is to provide a fresh start for an individual who has fallen behind on obligations to creditors. Most Virginia residents are aware to some degree that certain categories of debt are not dischargeable in accordance with federal law. These include student loans, child support and alimony and government taxes. However, a question remains whether or not a judgment entered against the debtor can be discharged.
At first blush, it may seem inappropriate for a debtor to be released from a judgment that was based in some form of intentional or even negligent conduct. However, in evaluating whether a judgment is dischargeable, legal scholars explain that the bankruptcy court must look to the federal exceptions to bankruptcy and not simply assume that a state case resulting in a judgment met the federal standards. This is true even if the underlying state case dealt with fraudulent conduct.
A federal exception to discharge covers actions by the debtor in which the debt was acquired by false representations, deceptive pretenses or actual fraud. In contrast, a case involving a negligent tort would likely be found to be dischargeable absent other federal exceptions. Similarly, punitive damages that are awarded by a state court are not automatically considered non-dischargeable. Instead, they will be considered on a case-by-case basis.
While personal bankruptcy issues can be complex, they must be handled according to the specifics of federal law. A bankruptcy lawyer can evaluate a case to determine what debts may be extinguished and offer guidance and counsel on the best method for moving forward.
