Opinion
No. 78 B 1166
December 11, 1978
Bankrupts — Debts Not Affected by Discharge — Conversion — Res Judicata
The fact that a state court judgement is rendered against bankrupt for "simple conversion" does not preclude the bankruptcy court from determining the nature of the conversion as it would affect dischargeability of the judgment debt pursuant to Section 17a(2) of the Bankruptcy Act.
The bankrupt contended that the debt represented by the judgement of "simple conversion" was discharged by his adjudication of bankruptcy because res judicata barred further court examination of the same issue. The bankruptcy court held that while it may not redetermine issues adjudicated by the state court, or determine whether the state court erred, it may determine whether or not the conversion was willful and/or malicious for Section 17a(2) dischargeability purposes. In this instance there was no evidence ascertainable from any of the documents submitted to the bankruptcy court concerning the state court proceedings sufficient to cause the bankruptcy court to conclude that the nature of the conversion had been determined and that the court was bound by res judicata. Therefore, the state court's finding could not, absent the bankruptcy court's determination as to the nature of the conversion, affect dischargeability of the bankrupt's debt in the present proceedings. See Sec. 17a(2) [§ 523(a)(2)] at ¶ 9228.