## Facts

- In 2007, Kenneth Harlan Jenkins obtained a business loan from Heritage Banking Group (Heritage) in the principal amount of about $100,000 and executed a promissory note and commercial security agreement.
- The loan documents identified specific equipment as collateral: (1) a leaf/debris management system, (2) concrete-curbing machinery, (3) a golf cart, (4) a John Deere mule, (5) a lawn trailer, and (6) a portable generator/welder.
- The loan proceeds were to be used to purchase the listed collateral for Jenkins’s landscaping business.
- Jenkins later admitted that he never purchased the leaf/debris management system or the concrete-curbing machinery, which together were valued at $76,475.
- Jenkins’s landscaping business slowed in 2009, and he requested a modification of the note to reduce his payment; Heritage agreed to modify the payment terms.
- Jenkins sold several items of pledged equipment without remitting proceeds to the lender: the lawn trailer (2008), the mule (2009), and the golf cart (2010), receiving about $3,100 total.
- Heritage’s interest in the note and related security interest was later assigned to Trustmark National Bank (Trustmark).
- On May 8, 2014, Jenkins filed a Chapter 7 bankruptcy petition.
- Trustmark filed an adversary proceeding seeking a determination that Jenkins’s debt to Trustmark was excepted from discharge under 11 U.S.C. § 523(a)(6), arguing that Jenkins’s failure to buy some listed collateral and his unauthorized sales of other collateral caused a willful and malicious injury to Trustmark or its property.

## Issues

1. Whether Jenkins’s failure to purchase two high-value items identified as collateral with the loan proceeds constituted a willful and malicious injury to Trustmark or its property under 11 U.S.C. § 523(a)(6).
2. Whether Jenkins’s sale of secured collateral without the lender’s consent and without remitting proceeds constituted a willful and malicious injury under 11 U.S.C. § 523(a)(6).
3. Whether Trustmark proved, by a preponderance of the evidence, that Jenkins acted with the mental state required for nondischargeability under § 523(a)(6).

## Decision

- The court granted Trustmark’s complaint to determine dischargeability under 11 U.S.C. § 523.
- The court found that Jenkins’s conduct amounted to conversion of the lender’s rights in collateral and/or identifiable proceeds.
- The court held that the resulting debt owed to Trustmark was nondischargeable under § 523(a)(6) as a debt for willful and malicious injury.

## Legal Principles

- Under 11 U.S.C. § 523(a)(6), a Chapter 7 discharge does not cover a debt “for willful and malicious injury by the debtor to another entity or to the property of another entity.”
- “Willful” requires an intentional injury (or knowledge that injury is substantially certain), not merely an intentional act that later causes harm.
- “Malicious” requires a wrongful act done without just cause or excuse in conscious disregard of another’s rights.
- A debtor’s conversion of a secured creditor’s collateral, or of identifiable proceeds subject to the creditor’s rights, can satisfy § 523(a)(6) when the debtor knew of the creditor’s interest and intentionally disposed of or withheld the property in a way that harms that interest.
- The creditor bears the burden to prove nondischargeability under § 523(a)(6) by a preponderance of the evidence.

## Conclusion

In re Jenkins holds that a secured creditor’s claim can be excepted from discharge under § 523(a)(6) when a debtor obtains a loan intended to purchase specified collateral, fails to acquire major listed items, and later sells other secured equipment without consent and without turning over proceeds, causing an intentional and wrongful injury to the creditor’s property rights.


In re Jenkins, 2016 WL 3574081 (2016)