Default Judgments Are (Sometimes) Nondischargeable Under Issue Preclusion

Two decisions handed down on successive days under Illinois law explain when a default judgment will or will not result in a nondischargeable debt as a result of issue preclusion, or collateral estoppel. Bankruptcy Judge Thomas M. Lynch of Rockford, Ill., confronted the more typical case. The debtor and the plaintiff were riding their motorcycles together after dark. The front wheel of the debtor’s motorcycle hit the back of the plaintiff’s, causing both to fall off their bikes and resulting in injuries to the plaintiff. The plaintiff filed suit in Illinois state court, alleging negligence. The debtor did not respond to the complaint. The plaintiff’s counsel submitted a $1 million judgment by default, in which he inserted a handwritten section stating that the judgment was for willful and malicious conduct. The debtor filed a chapter 7 petition after entry of the judgment. The plaintiff filed a complaint alleging that the $1 million default judgment was nondischargeable under Section 523(a)(6) as a “willful and malicious injury.”

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