united-states california new-york-state bankruptcy debt
If the damages from a lawsuit force the defendant into bankruptcy, are they forgiven?
<p>Say Bob throws a pool party, and because he's secretly homicidal, he decides to poison the pool water, and many of his guests end up in the hospital. He hires a good lawyer to defend him in criminal court, and so while charges are pressed by a number of his guests his case doesn't make it to trial. However, he's sued in civil court and found to owe medical fees and compensation equalling $50,000 per guest, for 40 guests, for total damages of $2 million. Bob earns roughly $45,000 per year, and so paying back these damages would take him 45 years, therefore he decides to file for Chapter 7 bankruptcy.</p>

<p>Is he still required to pay back his $2 million in debts? What about the guests, do they simply not receive their compensation? What if they depend on this compensation to pay medical expenses?</p>

<p>There is a comprehensive overview of Chapter 7 bankruptcy at <a href="http://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics" rel="nofollow noreferrer">http://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics</a>.</p>

<p>Generally, Chapter 7 bankruptcy does <em>discharge</em> debts, so that they are no longer legally owed.  (The word "forgiven" isn't usually used in this context, since it tends to refer to voluntary action by the creditor.)  This happens <em>after</em> the debtor's assets (with certain exceptions) are liquidated by the bankruptcy trustee to pay the debts as much as possible, so in any case, the creditors would collect as much as those assets were worth.</p>

<p>There are several exceptions to discharging debts:</p>

<blockquote>
  <p>An individual receives a discharge for most of his or her debts in a chapter 7 bankruptcy case. A creditor may no longer initiate or continue any legal or other action against the debtor to collect a discharged debt. But not all of an individual's debts are discharged in chapter 7. Debts not discharged include debts for alimony and child support, certain taxes, debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit, debts for willful and malicious injury by the debtor to another entity or to the property of another entity, debts for death or personal injury caused by the debtor's operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances, and debts for certain criminal restitution orders. 11 U.S.C. § 523(a). The debtor will continue to be liable for these types of debts to the extent that they are not paid in the chapter 7 case. Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for willful and malicious injury by the debtor to another entity or to the property of another entity will be discharged unless a creditor timely files and prevails in an action to have such debts declared nondischargeable. </p>
</blockquote>

<p>In your example, if the guests can prove that Bob caused them "willful and malicious injury" then those debts will not be discharged, and Bob will continue to owe them whatever his assets didn't cover.</p>

<p>It might not help much.  They might be able to <a href="http://www.nolo.com/legal-encyclopedia/question-what-percentage-of-wages-can-28048.html" rel="nofollow noreferrer">garnish Bob's wages</a> up to 25% of his disposable income.  If we suppose Bob can show he needs half his income for basic living expenses, that leaves them $5625 per year, or $140 per guest per year.  </p>

<p>There are other reasons why Bob might not be able to successfully file Chapter 7 at all.  See the link above; for instance the rules on "abusive" filing.</p>

<p>Otherwise, yes, the debts would be discharged.  </p>

<blockquote>
  <p>What about the guests, do they simply not receive their compensation? </p>
</blockquote>

<p>Right, if the debt is discharged, they will get whatever Bob's assets can cover and then no more.  But as we've seen, Bob's income is so small relative to his debts that they were never going to receive much anyway.  A debtor can only pay what he has, court order or no.  The court can't create money out of thin air.</p>

<blockquote>
  <p>What if they depend on this compensation to pay medical expenses?</p>
</blockquote>

<p>Then that is too bad.</p>
