"Discovery" during a Nondischargeability Dispute with a Creditor

 Posted on March 22, 2017 in Bankruptcy Procedure

“Discovery” covers all the methods used to get at all the relevant facts in a dispute with a creditor about the discharge of a debt.

Our last blog post was about the beginning of the “adversary procedure” for deciding whether a disputed debt gets discharged. Like many other legal procedures, it starts with a formal summons and complaint, here usually filed by a creditor.

(Either a creditor or debtor can file a complaint. But since we are focusing on debts that get discharged unless a creditor objects, for our purposes we assume that it’s the creditor filing the complaint and the debtor responding to it.)

The debtor responds to the complaint with either a motion to dismiss or an answer. The motion to dismiss is appropriate when the creditor’s complaint does not make an argument clear enough to respond to. An answer states step by step what, if any, parts of the complaint the debtor agrees with and what parts the debtor does not.

So then the scene is set. Both sides have made their basic arguments clear—what they dispute and what they don’t.

The next step is to get at the facts. That’s the purpose of “discovery.”

The Discovery of the Facts

“Discovery” refers to the procedure for discovering the facts that are relevant to the dispute.

The dispute is whether or not a debt gets discharged—permanently written off in bankruptcy. In the categories of debts we are considering here, the creditor must prove certain facts or the debt IS discharged. The creditor has the “burden of proof.”

Broadly speaking, the creditor has to show that the debtor intentionally lied when incurring the debt. (Section 523(a)(2) of the U.S. Bankruptcy Code.) Or the debtor caused “willful and malicious injury” to someone or their property. (Section 523(a)(6).) (There is much more to this, and about what facts must be proven, but this is enough for today’s purposes.)

There are two major steps involved in “discovery” under federal bankruptcy rules.

Automatic Disclosure Requirements

There is a fair amount of information that both sides must automatically disclose to the other:

• the names of potential witnesses and lists of records, such as relevant documents, emails, and information on computers and in other electronic form
• contact information of all witnesses and experts
• copies of the documents and the records, or a way to get access to them

(See Federal Rules of Bankruptcy Procedure (FRBP) 7026 and Federal Rules of Civil Procedure (FRCP) 26(a) about “Required Disclosures.”)

The point of this step is to get most of the facts out quickly and efficiently. One benefit is so that the parties can determine whether their case is as strong as they first thought. Adversary proceedings often settle at this stage for this reason.

Additional Discovery Methods

Both sides can request and get more information through a number of methods. These requests have to relate to the arguments being made in the complaint and other pleadings. These methods allow the parties to:

• ask specific written questions, called interrogatories (FRBP 7033, FRCP 33)
• request that documents be produced (FRBP 7034, FRCP 34)
• ask that the other party admit certain facts (FRBP 7036, FRCP 36)
• get testimony through sworn depositions (FRBP 7030, FRCP 30)

When all the facts have been put on the table through whichever of these methods, and if the parties do not settle the matter, the adversary proceeding is ready for trial. We’ll finish with that in our next blog post two days from now.