In re Marklin, 429 B.R. 880 (Bankr. W.D. Ky. 2010).

In April 2006, the debtors, Sherman and Rebecca Marklin, entered into an agreement with Farm Credit Services of Mid-America PCA (“Farm Credit”) for a $100,000 line of credit for the purpose of paying anticipated labor costs on the debtors’ farm. The Promissory Note and Loan Agreement executed on the line of credit was secured by a first and prior lien on the debtors’ crops.

The debtors used the loan proceeds to pay their living expenses and their labor costs in connection with the farm operation, but sold the crops that had been pledged to Farm Credit, receiving $121,834.92 yet making no payments on the debt to Farm Credit.

In January 2009, Farm Credit obtained a judgment against the debtors based upon their default of the loan. After the debtors filed a voluntary Chapter 12 bankruptcy in May 2009, Farm Credit brought an adversary proceeding seeking to have the judgment debt declared nondischargeable pursuant to 11 U.S.C. § 523(a)(6).

11 U.S.C. § 523(a)(6) provides:

(a) 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 —

(6) for willful and malicious injury by the debtor to another entity or to the property of another entity…

In considering the dischargeability of the debt, the court noted that § 523(a)(6) excepts from discharge acts that are done with “actual intent” to cause injury to another entity or person. See Kawaauhau v. Geiger, 523 U.S. 57, 61-62 (1998). Further, according to the United States Court of Appeals for the Sixth Circuit in In re Kennedy, 249 F.3d 576, 580 (6th Cir. 2001), where a debtor desires to cause the consequences of his act or believes that the consequences are substantially certain to result from it, he has committed a willful and malicious injury. Further, the debtor’s actions must be the cause of the creditor’s injury.

Because Sherman Marklin testified that (1) he knew he owed the money to Farm Credit, (2) he knew the crops served as security for the debt, and (3) he was supposed to use the crop proceeds to repay the loan, but instead willfully placed the crop proceeds into his own bank account and used the funds as if they were his own, the court found that the debtors’ intentional actions in using the crop proceeds for their own benefit met the standard for a willful and malicious injury to Farm Credit. Thus, the court declared the debt nondischargeable under 11 U.S.C. § 523(a)(6).