An understanding of whether a debt is dischargeable in bankruptcy is essential to a business and commercial litigator for at least three reasons - - (1) to structure the claims being brought in the complaint; (2) to evaluate the credibility and risk of a threat to file bankruptcy and (3) to evaluate and structure settlements. Fortunately, it is not hard for a non-bankruptcy litigation attorney to obtain a working knowledge of the dischargability of debts in bankruptcy.
Exceptions to discharge are laid out at 11 USC § 523. The exceptions that most commonly arise in the context of a commercial or business litigation are contained in the following subsections:
(a)(2) – obtaining money, property, services, or credit by false pretenses or fraud;
(a)(4) – for fraud or defalcation while acting as a fiduciary, embezzlement or larceny; and
(a)(6) - for willful and malicious injury.