Drunk Driver Can Discharge Debt for Damage to Car

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By Daniel Gill

July 11 — A secured auto lender's claim for damages to its collateral resulting when the debtor crashed the car while intoxicated was dischargeable in bankruptcy ( Avadian Credit Union v. Hamm (In re Hamm), 2016 BL 218733, Bankr. N.D. Ala., No. 15-00092, 7/7/16 ).

Judge Tamara O. Mitchell of the U.S. Bankruptcy Court for the Northern District of Alabama ruled July 7 that a drunk driver did not intend to cause damage to his dream car and therefore did not act “willfully,” a requirement to support the lender's argument that its claim for damages should not be discharged in the driver's Chapter 7 bankruptcy case.

The Bankruptcy Code was amended in 1984 to preclude a discharge for “death or personal injury” resulting from driving under the influence. However, this provision did not apply in this case, since the damage was to property (the debtor's car).

Depression, Drinking and Doomed Dream Car

Chapter 7 debtor Ricky Hamm suffered from a difficult turn of events recounted by the court in its opinion. He was first diagnosed with depression in the 1990s. In 1994 he was injured during advanced training in the army and was consequently honorably discharged. Then he began to drink heavily, the court said.

Hamm's troubles continued to mount. His face was “crushed by an industrial hammer” at work, requiring three surgeries. His fiancée left him in 2013, and his father died the following year. Depression and heavy drinking accompanied his travails.

On Sept. 6, 2014, Hamm purchased a bottle of Jagermeister, went home and “placed his keys in a drawer by the door so that he could not drive,” the court said, and then he proceeded to drink because he “didn't want to feel anything.” Hamm testified at trial that he lay down on his couch and woke up in the hospital, remembering nothing of the events in between.

Hamm apparently drove through a red light, crashed into another vehicle and totalled what he (and his mother, who also testified at trial) called his “dream car,” a limited edition 2013 Scion.

Lender's Claim

Avadian Credit Union gave Hamm his purchase money loan to buy the Scion. After the car was wrecked, Avadian received insurance proceeds but only in the amount of the car's then market value; the company was left with a deficiency claim (the full amount of its claim less the value of the proceeds it received) for more than $13,800.

In May 2015, Hamm filed for relief under Chapter 7 of the Bankruptcy Code. In Chapter 7 bankruptcy, a debtor's nonexempt assets are liquidated by a trustee, and the proceeds are distributed to creditors. Subject to certain exceptions, the debtor is awarded a discharge, effectively wiping out dischargeable debts (that is, those debts not subject to an exception).

Section 523(a) of the Bankruptcy Code allows creditors to file suit to have their individual debts declared to be non-dischargeable. In this case, Avadian filed a complaint seeking to have its deficiency claim declared non-dischargeable pursuant to Bankruptcy Code Section 523(a)(6), which creates a discharge exception for debts “for willful and malicious injury by the debtor.”

Drunk Driving and Discharge

Avadian's legal theory in support of its claim was that the debtor knew the dangers of drunk driving and nevertheless ignored those by getting behind the wheel when he was clearly intoxicated (the debtor did not dispute that he was an alcoholic, that he was drunk on the night of his accident, and that he knew the dangers of drunk driving).

Avadian claimed that the debtor therefore “willfully and maliciously” caused the injury to its collateral and that its deficiency claim should therefore not be discharged.

In the early years of the Bankruptcy Code (enacted in 1978), there was a broad split of decisions interpreting whether drunk driving constituted willful and malicious behavior supporting a finding of non-dischargeability, as discussed in Bloomberg Law: Bankruptcy Treatise, pt. II, ch. 63 (D. Michael Lynn et al. eds., 2016).

Congress addressed the discrepancy by enacting 11 U.S.C. §523(a)(9) in 1984. That provision expressly precludes a discharge for “death or personal injury” resulting from driving under the influence. However, in this case the damage was to property (the debtor's car), so subsection (a)(9) was not applicable.

Not Willful Injury

The bankruptcy court relied on the Supreme Court's ruling in Kawaauhau v. Geiger, 523 U.S. 57 (1998) which made clear that “willful” modified “injury” in the statute, “indicating that nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.”

The court concluded that the debtor did not intend to injure his beloved dream car and that although injury was certainly possible, it was not certain when he drove his car while drunk. “No matter how wrongful or inexcusable Mr. Hamm's conduct may have been, it has not been established that injury to the vehicle was substantially certain to occur as a result,” the court said.

The court therefore held that the debtor's act of driving his car while intoxicated was not willful, so the plaintiff's claim for non-dischargeability could not stand. The court did not address the second prong—whether the act was “malicious” — because a finding of non-dischargeability required both elements. Its finding that the act wasn't willful negated the need to consider the “malicious” prong.

The plaintiff Avadian Credit Union was represented by Michael A. Harrison, Key, Greer, Frawley, Key & Harrison, Birmingham, Ala. Bradford W. Botes, Bond, Botes, Reese & Shinn, PC, Birmingham, Ala. represented the defendant debtor.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bna.com

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