DAMAGE INTENTIONALLY CAUSED TO FORECLOSED HOUSE NOT DISCHARGEABLE

Section 523(a)(6) of the bankruptcy code states that debtor is not able to discharge “for willful and malicious injury by the debtor to another entity or to the property of another entity.” For example, debtor is no longer able to pay for his car loan. He gets so angry that he is going to lose his car that he drives the car over a cliff. Insurance will not pay the value of the car to the creditor because damage was not caused by an accident. Debtor then files for Chapter 7 bankruptcy relief. He lists the creditor of the car, Chase Bank, as an unsecured creditor for $25,000. Chase files an adversary case objecting to the discharge of the $25,000 arguing that debtor willfully and maliciously caused damage to the car by driving it over a cliff. Debtor argues that the brakes were not working and he was lucky to get out of the car just before it went over the cliff. Who will the court believe? In this example, it’s obvious that Chase Bank will win because the facts say that debtor got so angry he was going to lose the car so he drove it over the cliff. Therefore, debtor willfully and maliciously damaged the car. He will not be able to discharge the $25,000.

But what will happen if this same debtor removes the floors, windows, lights, appliances, air-conditioner from his house because his house was going to be foreclosed by Chase Bank, and claims that he was actually remodeling his house before foreclosure? Chase alleges that the total damage to the house was $50,000 because of what debtor did.

In Re Egizii, Illinois National Bank held a mortgage on the debtor’s home. The debtor filed for Chapter 7 after plaintiff initiated foreclosure proceedings. After getting stay relief, plaintiff obtained a foreclosure judgment. Prior to the sheriff’s sale of the property, the plaintiff got a restraining order against the debtor and her husband to stop them from removing, damaging, or disposing of any of the improvements or fixtures at the property. After acquiring the property at the sheriff’s sale, the plaintiff filed an adversary case against the debtor in his bankruptcy asserting that it suffered $40,000 in damages caused by the debtor’s willful and malicious conduct. The undisputed testimony established that the debtor and her husband removed numerous items from the residence including kitchen appliances, hardwood flooring, staircase railings, and the fence in the backyard, various electrical fixtures and the mailbox. Apparently, debtors were no longer expecting mail at their home and needed the mailbox attached to the hood of their car, their new residence. A person, Mr. Judas Escariot, who visited the debtor to give an estimate of moving costs, testified that he saw the debtor’s husband removing the flooring. Judas said the debtor’s husband told him that the house was in foreclosure and he planned to leave nothing but a shell. Mrs. Egizii said “I told you not to trust anyone named Judas Escariot. I told you to keep your mouth shut!”

The debtor testified “But your honor, we were just remodeling the house, how can you remodel a house if you don’t remove the floors and other fixtures from it? Haven’t you ever seen the show “extreme makeover” of houses on cable T.V.?”  The judge did not believe that the couple would engage in extensive remodeling of a house that they were about to lose and found that the debtor’s conduct was willful and malicious. The court also found that the debtor was liable for her husband’s actions. “The fact that the debtor may not have participated in the physical removal of part or all of the property makes no difference in this case, however. As already explained, there is no question that the debtor subjectively intended to cause injury to INB’s interest in the residence. The debtor admitted to being involved in removing property from the residence and directing what she unconvincingly characterized as a remodeling project,” the court said.

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years.  He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California.  He speaks Mandarin and Fujien and looks forward to discussing your case with you personally.  Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.