Are Car Accident Debts Dischargeable in Bankruptcy?

Bankruptcy attorneys know that disaster can strike at any moment. Individuals rarely make appointments at a bankruptcy law firm when life is going well. Bankruptcy relief is for when things have gone very wrong, sometimes very unexpectedly, like in the case of a car accident. Fortunately, bankruptcy law can provide you with options to discharge debts arising from a car accident.

Property Damages

The Bankruptcy Code generally allows a debtor to discharge debts for property damage caused by an auto accident. The lone exception to this rule is Section 523(a)(6) which excepts debts from discharge “caused by willful and malicious injury by the debtor to another entity or to the property of another entity.”

The U.S. Supreme Court pointed out in Kawaauhau v. Geiger that a willful and malicious act is not the same as a negligent or even reckless act:

only acts done with the actual intent to cause injury fall within [Section 523(a)(6)’s] scope. The section’s word “willful” modifies the word “injury,” indicating that the nondischargeability takes a deliberate or intentional injury, not merely . . . a deliberate or intentional act that leads to injury.

Kawaauhau v. Geiger, 523 U.S. 57, 61–62 (1998). Most auto accidents are the result of negligence and are outside the scope of Section 523(a)(6). Even in drunk driving cases, the defendant is usually found to have exhibited actions of “reckless disregard” and not “willful and malicious.” Consequently, Section 523(a)(6) is often a losing argument in drunk driving cases involving property damage.

The exception found in Section 523(a)(6) only applies in a Chapter 7 case. There is no property damage exception in a Chapter 13 case, so any property damage caused by an auto accident is discharged in a Chapter 13 bankruptcy. 

Personal injuries

The Bankruptcy Code is less forgiving of personal injuries and contains more restrictions when discharging these debts. The most restrictive of these exceptions is found in Section 523(a)(9) which excepts from discharge any personal injuries caused by operating a vehicle while intoxicated. This exception applies to bankruptcy cases filed under Chapter 7 or Chapter 13.

A bankruptcy court may find that a state court judgment satisfies all of the necessary elements to meet the exception found in Section 523(a)(9). On the other hand, the bankruptcy court is not bound by an acquittal in a state court DUI case, since the standard of proof is different in state court criminal proceedings. A bankruptcy court may find that personal injuries are not dischargeable under Section 523(a)(9) even after the debtor was acquitted of criminal DUI (or never charged at all).