Bankr. L. Rep. P 67,606 the National Collection Agency, Inc. v. Kenneth Frank Trahan

National appeals from a judgment declaring Trahan’s debt to National dischargeable in bankruptcy. We affirm. FACTS

Trahan was required by the State of California to give security ensuring his payment of sales tax. A surety contracted with Trahan to meet the requirement by posting a $2,000 bond with the State. After Trahan failed to pay the tax, National, the surety’s assignee, brought a state court action against Trahan to recover the $2,000 the surety had paid to the State.

Trahan petitioned for voluntary bankruptcy and subsequently sought a declaration from the bankruptcy court that the debt to National was discharged in the bankruptcy proceeding. The district court affirmed the bankruptcy judge’s finding that the debt was discharged.

DISCUSSION

There is an exception to dischargeability for tax debts owed by a bankrupt to government entities. The question is whether this exception applies to a debt owed to a surety which has paid the tax debt of a bankrupt.

National contends that it has a right under California surety law to enforce every remedy that the state would have had against Trahan. National concludes that, because Trahan’s debt to the state was non-dischargeable,…