In Re William L. Embry, Debtor. Boatmen's Bank of Tennessee v. William L. Embry
Docket: 93-5397
Court: Court of Appeals for the Sixth Circuit; December 3, 1993; Federal Appellate Court
Defendant William L. Embry appeals the District Court's denial of his motion to quash a writ of garnishment executed by Plaintiff Boatmen's Bank of Tennessee to satisfy a nondischargeable debt. Embry's appeal centers on the claim that the garnishment violated the automatic stay under 11 U.S.C. § 362(a). The background includes Embry filing a Chapter 11 bankruptcy petition, which was converted to Chapter 7, and the Bankruptcy Court ruling the debt nondischargeable. The District Court upheld this ruling, and after the Bankruptcy Court's decision, the bank garnished Embry's personal bank account. Embry argued that the garnishment violated the automatic stay, which he believed remained in effect despite the nondischargeable judgment. The District Court ruled that the stay terminated upon the Bankruptcy Court's ruling on nondischargeability. The court noted that while the automatic stay generally protects against actions to collect debts, it can terminate under certain conditions outlined in § 362(c), particularly when it concerns property not part of the bankruptcy estate. The legal issue was reviewed de novo, focusing on whether the garnishment was permissible after the nondischargeability ruling without an explicit order lifting the stay.
The defendant contends that the phrase 'the time a discharge is granted or denied' pertains to a general discharge under 11 U.S.C. Sec. 727, asserting that the plaintiff must either wait for a general discharge or seek relief from the automatic stay under 11 U.S.C. Sec. 362(d), (e), or (f) before executing on the nondischargeability judgment. The defendant highlights that section 362(b) specifies exceptions to the automatic stay but does not encompass the obligation in question. Citing the Bankruptcy Court's decision in In re Watson, the defendant notes that a nondischargeability judgment does not terminate the automatic stay, as section 362(c) lacks provisions for such termination for a nondischargeability judgment creditor. The only automatic termination occurs when property is no longer part of the estate, as outlined in subsection 362(c)(1). Thus, all creditors remain under the automatic stay until it is lifted under subsection 362(c)(2) or by court order. The Bankruptcy Court characterized a nondischargeability judgment as declaratory, effective only upon entry of a discharge under 11 U.S.C. Sec. 727.
The District Court ruled that the nondischargeability judgment constituted a denial of discharge under section 362(c)(2)(C) and lifted the automatic stay regarding the debt, adopting the Ninth Circuit Bankruptcy Panel's reasoning from Watson. The Ninth Circuit noted that section 523(a) excludes certain debts from general discharge under section 727(a), stating that requiring a creditor to wait for a general discharge could unjustly allow debtors to delay the execution against non-estate property. Consequently, the panel concluded that the automatic stay does not prevent executing a nondischargeable judgment against the debtor's property outside the estate.
The current court supports the Ninth Circuit's analysis and disagrees with decisions asserting that executing a nondischargeability judgment violates the automatic stay. It argues that allowing such execution does not blur the distinction between exceptions in section 362(b) and other nondischargeable debts. While debts listed in section 362(b) are not automatically stayed upon bankruptcy filing, nondischargeable debts under section 523(a) are subject to the automatic stay, with the presumption of nondischargeability resting on the debtor or trustee to seek relief from enforcement.
Plaintiff is unable to collect on defendant's debt without first securing a Bankruptcy Court order declaring the debt nondischargeable. During the process of obtaining this judgment, the defendant benefited from the automatic stay, which is designed to alleviate financial pressures on the debtor. The court concludes that once the Bankruptcy Court has ruled a debt as nondischargeable, the automatic stay does not prevent the execution of the judgment against the debtor's non-estate property. The District Court's decision to deny the defendant's motion to quash garnishment is affirmed. The debt, amounting to $64,000, was obtained under false pretenses related to the defendant's claimed need for funds to settle a divorce; shortly after acquiring the loan, the defendant lost the entire amount in gambling. The Bankruptcy Court determined the debt to be nondischargeable due to fraudulent misrepresentation and as a consumer debt for luxury goods, a ruling that the defendant does not appeal. Specific subsections regarding relief from the stay and sections related to the closure of bankruptcy proceedings are deemed inapplicable in this case. The court notes that its current holding aligns with prior suggestions made in similar cases.
