Bankruptcy Code Section 523(a)(6):   A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt . . . for willful and malicious injury by the debtor to another entity or to the property of another entity.

A federal jury has awarded $28.1 million to six plaintiffs (the “Beatrice 6”) for a reckless investigation and manufacturing false evidence conducted by the Gage County Sheriff’s department. The plaintiffs spent 20 years in prison for the 1985 rape and murder of Helen Wilson, but DNA testing conducted in 2008 revealed that the murder was actually committed by another individual, Bruce Allen Smith.

Following their release from prison, the plaintiffs brought suit in Nebraska federal court for the Sheriff Department’s building a case on coerced false confessions.

As a result of this judgment, Gage County has recently signed contracts with law firms to possibly file a Chapter 9 bankruptcy case.  Insurers for the county have denied coverage.

The interesting  and somewhat unusual aspect of this potential bankruptcy case is that Gage County was not in any financial distress prior to the entry of this judgment.  The bankruptcy is contemplated for the sole reason of denying payment to victims of the County’s intentional wrongdoing.

Generally, damages sustained due to “willful and malicious” injuries are not dischargeable under bankruptcy code Section 523(a)(6), but that provision of the law does not apply to Chapter 9 cases involving municipalities and public subdivisions.

So, Gage County may file bankruptcy for the sole purpose of denying payment for the intentional, willful and malicious damages inflicted on the Beatrice 6.

Although the judgment may be subject to discharge, there is certain to be objections to any plan of reorganization filed that proposes to pay less than the full court judgment.  The county still must prove it’s reorganization plan is filed in good faith and that it cannot propose to pay the entire judgment.  In the Detroit, Michigan bankruptcy case it was apparent that the city could not tax itself into solvency, but what about Gage County?  Could the county structure full payment of the judgment if the county raised real estate taxes?  By what percentage would the levy have to increase to pay the judgment?

Gage County has land valued at $3 billion in 2015 according to the Nebraska Department of Revenue.  The county collected $9 million in real estate taxes last year on a levy rate of 29.7 cents per $100 of land value.  Paying the entire $28.1 million judgment in one year would be impossible, but what about paying off the debt over 10 to 20 years?

If paying off the debt in full over 10 to 20 years is possible with only a modest increase of the tax levy, why would a bankruptcy court enable taxpayers of Gage County to avoid this obligation in a Chapter 9 plan regardless of whether the debt is subject to discharge?  How would that type of bankruptcy plan meet the burden of proposing a plan in “good faith?”

It should be an interesting year in Nebraska bankruptcy court for 2017.



Image courtesy of Flickr and Dave Nakayama