An agreement that an arbitrator’s award will be nondischargeable in bankruptcy is not enforceable, according to Bankruptcy Judge Catherine J. Furay of Eau Claire, Wis.
In lieu of litigation, the parties in this case agreed to arbitrate. The agreement went on to provide that an award would not be dischargeable in bankruptcy.
After the arbitrator gave the plaintiff an award of $310,000, the defendant filed a chapter 7 petition. The plaintiff filed a dischargeability complaint and a motion for summary judgment based on the arbitration award and the agreement on nondischargeability. Judge Furay denied the summary judgment motion in an opinion on Feb. 29.
Judge Furay was persuaded by a 1998 Ninth Circuit Appellate Panel opinion called Cole, which held that there are only two methods of waiving discharge of debts. First, the debtor can waive discharge of all debts in an agreement after bankruptcy approved by the judge under Section 727(a)(10). Second, the debtor can waive dischargeability of a specific debt by executing a reaffirmation agreement approved by the court under Section 524(c).
An unpublished 2005 opinion from the Sixth Circuit, Lichtenstein v. Barbanel, also played into Judge Furay’s decision. That case held that a stipulation in a prior bankruptcy waiving discharge is binding in a subsequent bankruptcy. The opinion said in dicta that a pre-bankruptcy state court stipulation waiving dischargeability is void.
Because the debtor’s waiver of discharge was pre-bankruptcy, it was unenforceable, Judge Furay held.