The federal bankruptcy system strikes a balance between the rights of debtors seeking a fresh start and the rights of creditors seeking repayment for debt. While many areas of the Bankruptcy Code provide examples of this balancing act, perhaps no area of the Code embodies this balance better than discharge of debt. Discharge of debt provides the fresh start for debtors on which the bankruptcy system rests, but the Code also protects the interests of creditors who would otherwise have their claims against the debtor discharged.
Section 523(a)(6) excepts from discharge any debt for willful and malicious injury by the debtor to another entity or to the property of another entity. Clearly, this section prohibits discharge for debts that result from a bad act of the debtor, and serves a punitive function by not allowing a debtor to use the bankruptcy system to avoid debts when the debtor acted wrongfully in incurring those debts. While the Supreme Court has had the opportunity to consider the definition of willful and malicious injury, it has done so only in the context of a tort claim, leaving courts to determine the applicability of § 523(a)(6) in the context of breach of contract claims.
This article merges traditional tort doctrine regarding levels of intent to harm, traditional contract doctrine of efficient breach, and modern developments recognizing punitive damages in contract actions to conclude that § 523(a)(6) should permit nondischargeability of intentional breaches of contract that lack business justification.