In re Galbreath, Bankruptcy No. BK 84-50129
| Decision Date | 11 March 1988 |
| Docket Number | Bankruptcy No. BK 84-50129,Adv. No. 86-0243. |
| Citation | 83 BR 549 |
| Parties | In re Robert GALBREATH and Dorothy Galbreath, Debtor(s). Robert GALBREATH and Dorothy Galbreath, Plaintiff(s), v. ILLINOIS DEPARTMENT OF REVENUE, Defendant(s). |
| Court | U.S. Bankruptcy Court — Southern District of Illinois |
Norman R. Lawrence, Aurora, Ill., for plaintiffs.
Gale P. Stipes, Asst. Atty. Gen., State of Ill., E. St. Louis, Ill., for defendant.
This matter is before the Court on a motion for summary judgment filed by the Illinois Department of Revenue ("Department") against Robert and Dorothy Galbreath ("debtors"). Following debtors' discharge in bankruptcy under Chapter 7, the Department brought suit in state court to collect unpaid retailers' occupation taxes owed by debtors pursuant to Illinois statute. The state court found debtors' tax liabilities to be nondischargeable under federal bankruptcy law and entered judgment against debtors for the amount of unpaid taxes claimed by the Department. Debtors then filed a "motion for injunction and rule to show cause" in this Court to enjoin the Department from proceeding against them in the state court action. The Department filed the instant motion for summary judgment asserting, inter alia, that the state court's judgment entered pursuant to its concurrent jurisdiction with this Court was entitled to full faith and credit and that debtors' motion seeking to enjoin the state court action should be denied.
It is undisputed that debtors, on August 14, 1984, were discharged from bankruptcy in their Chapter 7 proceeding. While the tax liabilities in issue were listed in debtors' bankruptcy petition, neither the Department nor debtors sought a determination of dischargeability as to these liabilities, and the Department did not file a claim in the bankruptcy proceeding. Following debtors' discharge, the Department filed a complaint in state court to collect unpaid Illinois Retailers' Occupation Tax (Ill.Rev.Stat., ch. 120, par. 440 et seq.), Municipal Retailers' Occupation Tax (Ill.Rev. Stat., ch. 24, par. 8-11-1), and Regional Transportation Authority Retailers' Occupation Tax (Ill.Rev.Stat., ch. 111 2/3, par. 704.03) owed by debtors.
Debtors filed a motion in the state court to dismiss the Department's action, alleging that the tax liabilities in question had been discharged in the prior bankruptcy proceeding. The Department objected on the basis that debtors' tax liabilities were nondischargeable under § 523(a)(1)(B)(i), which excepts from discharge tax debts for which no return was filed. The state court, on April 4, 1986, entered an order denying debtors' motion, finding that debtors' tax liabilities were nondischargeable under § 523 of the Bankruptcy Code because of debtors' failure to file the required returns and pay taxes when due. See 11 U.S.C. § 523(a)(1)(B)(i). On August 18, 1986, the state court entered judgment on the pleadings for the Department in the amount of $32,646.21 plus interest.
On August 19, 1986, one day after the state court had entered final judgment, debtors filed the instant "motion for injunction and rule to show cause" in this Court to enjoin the Department from proceeding further against them in state court. The Department then moved for summary judgment, asserting that the state court had concurrent jurisdiction with this Court to determine dischargeability of the tax liabilities at issue and that, since no determination of dischargeability had been made in debtors' earlier bankruptcy proceeding, the state court properly exercised its jurisdiction in entering final judgment for the Department.
The state court's jurisdiction to determine dischargeability of debts under § 523 depends on the nature of the debt in question. While the bankruptcy court has exclusive jurisdiction to determine dischargeability of debts that arise out of fraud or willful and malicious injury (see 11 U.S.C. §§ 523(a)(2), (4) and (6)), the Department's objection to discharge of debtors' tax liabilities arose under § 523(a)(1). Section 523(a)(1) excepts from discharge under Chapter 7 certain tax debts, including those "with respect to which a return, if required, was not filed." 11 U.S.C. § 523(a)(1)(B)(i).
Unlike dischargeability questions under §§ 523(a)(2), (4) and (6), dischargeability questions under § 523(a)(1) are of the type over which the bankruptcy court has concurrent, but not exclusive, jurisdiction. 3 Collier on Bankruptcy, § 523.06, at 523-36 (15th ed. 1987). While a creditor seeking a determination of nondischargeability of its debt under §§ 523(a)(2), (4) and (6) must file an objection to discharge in the bankruptcy court or have its debt discharged (see 11 U.S.C. § 523(c) and Bankruptcy Rule 4007(c)), a creditor with a type of debt listed as nondischargeable under §§ 523(a)(1), (3), (5), (7), (8) or (9) may wait until the conclusion of the bankruptcy proceeding and then bring suit on its claim in the appropriate nonbankruptcy forum. See Advisory Committee Note, Bankruptcy Rule 4007, Norton Bankr. L. & Prac., at 267-68 (1987); R. Ginsberg, Bankruptcy, Prentice Hall Information Services, § 12,653 (1986).
Under Bankruptcy Rule 4007(a), the debtor, as well as any creditor, may file a complaint in the bankruptcy court to obtain a determination of dischargeability. Thus, the debtor may seek a determination that a particular debt is dischargeable to avoid the possibility of an enforcement action in the state court following the bankruptcy...
To continue reading
Request your trial