The filing of a petition under the United States Bankruptcy Code can eliminate part, or all, of an individual’s debts. This provides an opportunity for a “fresh start,” which is the underlying principle and the raison d’etre of the Bankruptcy Code. See 11 U.S.C. § 524.
The chapter 7 individual debtor may receive a general discharge under Section 727, unless specific debts are excepted from discharge under Section 523.
As we have previously discussed in our Client Alert series, certain debts may not be discharged, such as those incurred as a result of intentional bad acts such as battery, fraud and other intentional tortious conduct. See Alex Jones and Non-Dischargeable Debt; The Continuing Saga of Amber Heard and Johnny Depp: Is Bankruptcy the Next Stop and Is a “Fresh Start” Available for Amber Heard?; Debtors Behaving Badly: Non-Dischargeability of Debt Based on Debtor’s “Bad Acts”. These are called non-dischargeable debts and are governed by 11 U.S.C. § 523.
It is important to remember that preventing the discharge of such debts is not a self-actualizing process. Action must be taken by those who oppose the discharge of debts which they believe are non-dischargeable. A recent case underscores the importance of taking affirmative steps to seek non-dischargeability.
In Jane Doe v. Declyn Wallace Thornton Lauper (1:24-cv-4075-(OTW) S.D.N.Y. 2024), United States Magistrate Judge Ona T. Wang found that the Plaintiff failed to take any affirmative steps to oppose the discharge of liability under a lawsuit against the Debtor/Defendant when he received his general discharge at the conclusion of his bankruptcy case.
Plaintiff commenced the lawsuit on May 28, 2024, alleging that the Debtor/Defendant sexually assaulted her. Debtor/Defendant subsequently filed for bankruptcy on January 30, 2025 (In re Declyn Wallace Thornton Lauper, 25-10178-pb (Bankr. S.D.N.Y. 2025)), which halted the litigation because of the automatic stay provided under Section 362 of the Bankruptcy Code.
Subsequently, Debtor/Defendant received a general discharge of his debts, which included any liability arising from the lawsuit.
The Debtor/Defendant moved the District Court to dismiss the lawsuit pursuant to his Bankruptcy Court discharge, but Plaintiff argued that the District Court had concurrent jurisdiction with the Bankruptcy Court to determine whether a liability is exempt from discharge under 11 U.S.C. § 523(a)(6).
Unfortunately for the Plaintiff, the Court disagreed with Plaintiff finding that the Plaintiff had failed to object to the dischargeability of the claim and the Debtor/Defendant received his discharge, and thus the non-dischargeability of it was rendered moot.
The Plaintiff had been given notice of the bankruptcy. The Court explained that the Debtor/Defendant listed Plaintiff as a creditor in his bankruptcy petition and schedules, thereby the Plaintiff was served and notified when the bankruptcy case was filed.
Further, the Court explained that the Plaintiff was required to make an affirmative request within 60 days of the meeting of creditors for the Bankruptcy Court to hold a hearing to consider the non-dischargeability of the debt, but Plaintiff (or perhaps, better, her lawyer) failed to do so.
Judge Wang explained, “Allegations involving sexual assault are serious and survivors deserve to be heard; however, because of Defendant’s bankruptcy discharge, the Court no longer has subject matter jurisdiction to hear the case. Plaintiff’s counsel knew about the bankruptcy petition and did not ask the Bankruptcy Court to exempt Plaintiff’s claim from Defendant’s discharge Order or seek an extension of the deadline to do so. Now, the deadline has passed.” See Opinion and Order [ECF No. 39], Jane Doe v. Declyn Wallace Thornton Lauper (1:24-cv-4075-(OTW) S.D.N.Y. 2024).
As this case illustrates, a claimant cannot assume that because a debt was incurred by bad acts, that it will automatically be deemed non-dischargeable. The claimant must file a timely objection to dischargeability and must not be complacent. Failure to do so will result in a lost claim for the claimant.
Plaintiff’s situation highlights the importance of remembering to consult with insolvency lawyers whenever bankruptcy impacts a situation. At Cullen and Dykman LLP, our insolvency team, led by Matthew G. Roseman, frequently receives calls from professional colleagues asking for such guidance.
Please note this is a general overview of developments in the law and does not constitute legal advice. Nothing herein creates an attorney-client relationship between the sender and the recipient. If you have any questions regarding the provisions discussed above, or any other aspect of bankruptcy law, please contact Michael H. Traison*, Esq. (mtraison@cullenllp.com) at 312.860.4230 or Kelly McNamee*, Esq. (kmcnamee@cullenllp.com) at 516.296.9166.
*Traison, who has practiced insolvency law for almost five decades, is based in Chicago and New York City, and is recognized for his national and international practice.
*Kelly McNamee is an associate in the firm’s Bankruptcy and Creditors’ Rights department.