Friday, December 15, 2006

Barsh v. State of Maryland Central Collection Unit (In re David V. Barsh, Sr.) (Maryland U.S. Bankr. Ct.)

Decided December 12, 2006--Opinion by Chief Judge Duncan W. Keir.

Where the issue of non-dischargeability is presented by application of 11 U.S.C. §523(a)(2),(4), (6), and (15) and for cases commenced prior to October 17, 2005, the federal court having jurisdiction over the bankruptcy case has exclusive jurisdiction to determine the dischargeability issue. The exclusive jurisdiction arises by operation of the effect of 11 U.S.C. §523(c) and Federal Rule of Bankruptcy Procedure 4007. If a complaint is not timely filed, the debt is discharged. After the closing of the bankruptcy case, the state court having jurisdiction over an action for the affected debt, has concurrent jurisdiction to determine whether or not that debt was dischargeable, or non-dischargeable and consequently was, or was not discharged by the discharge injunction granted in the bankruptcy case.

A debtor, faced with a post-discharge collection action by a creditor can seek to remove that state action to the bankruptcy court pursuant to 28 U.S.C. §1452 and/or commence an adversary proceeding before the bankruptcy court seeking a restraining order against the creditor on the basis that the actions being taken by the creditor violate the discharge injunction. If the debtor does neither but instead permits the state court to determine the dischargeability other than pursuant to 11 U.S.C. §523(a)(2), (4), (6), and for pre-BAPCPA cases (15), the question may be preclusively determined by final order of the state court.

The full opinion is available in PDF.

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