Bankruptcy Court Denies Discharge for Damages to Property from “Foreclosure Rage”

“Foreclosure rage” describes the situation when an angry homeowner, faced with a foreclosure, destroys the house or strips it of anything valuable. While not all involve complete demolition of the house, it’s common for an owner to take valuable fixtures out of a house or, worse, cause intentional damage.

A Bankruptcy Court has recently provided a remedy to a lender whose collateral was intentionally damaged: the lender was awarded a non-dischargeable debt for the amount of the damages. (See In re Zahniser, 09-B-71797, 2010 WL 5140779 (Bankr. N.D. Ill. Dec. 13, 2010)).

Under 11 U .S.C. 523(a)(6), a Bankruptcy Court can deny a discharge for debt resulting from “willful or malicious injury by the debtor to another entity or to the property of another entity.” Here, the lender argued that the damage to the house fell within this section, and the Court agreed, awarding damages for the cost of restoring the house and attorney fees.

This is a fair result, and I suspect other jurisdictions will follow this Court’s lead. It will be interesting to see how far Courts will protect lenders in this situation? What if the debtor simply removes the appliances from the house?

In this case,  the Court tried to give the Debtor the benefit of the doubt, wondering if the Debtor believed that the large appliances were his to take (and not the bank’s collateral). But, the Court refused to overlook holes in walls and the removal of other items that were inextricably affixed to the house (tiles, light fixtures, cabinets, and the fireplace).

As with most arguments, it comes down to the facts of each situation. But, given the frequency that borrowers are gutting their homes before leaving, this decision is an interesting argument for lenders, if not an antidote for foreclosure rage.

Author: David

I am a creditors rights and commercial litigation attorney in Nashville, Tennessee.

2 thoughts on “Bankruptcy Court Denies Discharge for Damages to Property from “Foreclosure Rage””

  1. I am a Paralegal with a Central Florida law firm. When assigned to draw up a request to have certain things declared non-dischargeable from a former tenants bankruptcy filing I was delighted to find your article. It gave extremely useful data for researching this issue. Thanks for posting!

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