## Facts

- Daniel W. Hendrix and Cathy L. Hendrix filed a joint Chapter 7 bankruptcy petition; the appeal concerns Daniel Hendrix.
- Before the bankruptcy, Daniel Hendrix allegedly injured Sara A. Page in an automobile accident; Sara and Marvin Page sued him in Indiana state court.
- Hendrix carried automobile liability insurance.
- The Pages received notice of the bankruptcy after Hendrix amended schedules to add them as creditors; Hendrix later received a Chapter 7 discharge.
- After discharge, counsel appearing for Hendrix (but effectively representing the insurer) obtained state-court summary judgment against the Pages on the theory that the discharge barred the tort action.
- The Pages moved in bankruptcy court to reopen the case and modify/clarify the discharge injunction so they could continue the state tort action solely to reach insurance proceeds, with no personal recovery from Hendrix.
- The bankruptcy court granted the requested relief; the district court affirmed; Hendrix appealed.

## Issues

1. Whether a Chapter 7 discharge injunction under 11 U.S.C. § 524(a) bars a state tort action nominally against a discharged debtor when the plaintiff seeks recovery only from the debtor’s liability insurer.
2. Whether the bankruptcy court abused its discretion by reopening the bankruptcy case and modifying/clarifying the discharge injunction to permit the limited continuation of the state-court action.

## Decision

- The Seventh Circuit affirmed the district court and the bankruptcy court’s order.
- The court held that § 524(a)’s discharge injunction bars efforts to collect a debt as the debtor’s personal liability, not efforts directed solely at the debtor’s insurer.
- The court held it was proper to reopen the case and modify/clarify the discharge to permit the Pages to proceed in state court only to establish liability as a prerequisite to collecting insurance proceeds.
- The court treated prior Seventh Circuit precedent as controlling and dispositive on the discharge/insurance question.

## Legal Principles

- The discharge injunction in 11 U.S.C. § 524(a)(2) prohibits actions to collect a discharged debt “as a personal liability of the debtor.”
- A creditor may continue litigation against a discharged debtor in name only when necessary to establish liability for recovery from the debtor’s liability insurer, provided no personal collection is sought from the debtor.
- A bankruptcy court may reopen a closed case and modify or clarify the discharge injunction to prevent an overbroad reading of the discharge from improperly blocking actions aimed solely at insurance proceeds.
- Allowing such limited litigation is consistent with the debtor’s “fresh start” because it preserves the debtor from personal liability while preventing an insurer windfall.

## Conclusion

The Seventh Circuit held that a Chapter 7 discharge does not prevent tort plaintiffs from continuing a suit against the debtor solely to access liability insurance, and it affirmed the bankruptcy court’s reopening of the case to modify/clarify the discharge injunction to permit that limited state-court litigation.


In re Hendrix, 986 F.2d 195 (7th Cir. 1993)