Ruling in Prior Litigation Precludes Relitigation of Factual Issues in Bankruptcy Nondischargeable Adversary Proceeding

When a debtor files for bankruptcy, it is principally to obtain a fresh start and
discharge of debts from creditors. But not all debts are dischargeable. The
Bankruptcy Code lists 19 categories of nondischargeable debts, which Congress
has determined are not dischargeable for public policy reasons.
Some debts are always nondischargeable, including certain taxes, child support, and
court fines and penalties, to name a few. Others are not deemed automatically
excepted from discharge, but can be when challenged by creditors. When a case
is filed, bankruptcy courts set a deadline for creditors to raise
nondischargeability issues, and creditors who wish to except a debt from
discharge must initiate an adversary proceeding (by filing a complaint) setting
forth the basis for the discharge objection. These types of debts include those
obtained by fraud or false pretenses and those resulting from a tort, among
others.
Issues related to the nondischargeability of a debt in a Chapter 7 bankruptcy were
recently examined by the United States Bankruptcy Court for the Western
District of Michigan. In the case, Trost v. Trost, Sherry Trost, the
plaintiff, sought to except from discharge debt owed by the debtors (her
stepson Zachary and his wife Kimberly) to her. The debt related to an ownership
dispute involving videotapes and other memorabilia from a television show, Michigan
Outdoors, that was created and operated by Fred Trost, Sherry's late husband
and Zachary's father. Sherry alleged that she became the owner of these assets
after Fred died, and that the debtors/defendants converted the property to
their own use. Read More ›
Tags: Chapter 7