Word Battle Over Bankruptcy Dischargeable Debt Settled by Supreme Court

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Times are hard for many people in America when it comes to financial burdens, and for some people, the answer is to file for bankruptcy and release any dischargeable debt. Every debtor needs to understand that the whole point of the Bankruptcy Code is to help “honest but unfortunate debtors” get back on their feet. With this, it is also important for debtors to understand that almost no word in the Bankruptcy Code is free from scrutiny, and if two parties argue over the interpretation of a word, then this matter can reach all the way up to the United States Supreme Court.

Sometimes a creditor wants to ensure that the debtor pays them rightfully, rather than be released from the burden through a bankruptcy. It is no secret that the Bankruptcy Code is confusing and easy to misinterpret, so a bankruptcy lawyer could save you money, time, and frustration as you fight for yourself against false accusations.

A Battle Over the Word “Respecting”

Appling (a businessman), and Lamar (a business law firm) were able to agree upon the interpretation of most of the words in the Bankruptcy Code, but there was one word that took this case all the way up to the Supreme Court—”Respecting.”

Appling was already officially sued by Lamar for $104,000 for not paying them for their services. (Granted, he didn’t pay them because he didn’t get the high $100,000 tax refund he was expecting…He also didn’t pay them any of the return that he did get because he already spent the entire refund on his business. He DID lose that case and he WAS ordered to pay the money).

The problem grew when Appling filed for Chapter 7 bankruptcy, which Lamar strongly fought. They didn’t want the outstanding bill that he never paid them to be categorized as dischargeable (releasable) debt. Understand that there are some nondischargeable debts that simply cannot be wiped away through bankruptcy.

Non-dischargeable Debt

  • Student loans (usually)
  • Federal, state, local taxes (including credit card debt incurred to pay them)
  • Debt agreed upon in marital settlements or divorce decrees (including child support and  alimony)
  • Debt collected from fraudulent acts (must be intentional and creditor must prove this)
  • Debt collected from perverse or malicious acts upon others
  • Embezzled debt
  • Larceny
  • Breaking fiduciary responsibility

The outcome of this case found itself to be hinged upon determining the exact interpretation of the word “respecting” in the Bankruptcy Code.

Although the court held to the fact that they had always simply treated “respecting” and “relating to” in the same manner, four popular dictionaries were pulled out in order to put this to rest. In the end, the court ruled in favor of Appling because they chose to see it in a broad manner like they have been, a decision that won the case for Appling. Furthermore, the misrepresentation by Appling about his tax refund wasn’t in writing, and that is a requirement to make a debt nondischargeable.

Get The Help You Need

If you are thinking about filing for bankruptcy, do you think you might have some dischargeable debts?  If so, then it is possible for you to be relieved of them if they meet certain requirements. Reach out and connect with a bankruptcy lawyer that can help you. Many offer free consultations, and even this can be extremely useful.