This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
The effect of a discharge in bankruptcy is that the bankrupt may, if he wishes, and if he pleads his discharge properly, use such discharge as a defense in an action based on a debt which was provable in bankruptcy and not within one of the exceptions to the bankrupt act. The discharge does not extinguish the debt. It has legal effect enough after the discharge to serve as the consideration for a new promise.1 It can be used as a set-off according to some authorities,2 though not according to others.3 The validity and effect of a discharge depends on the provisions of the law under which it was given and not on the provisions of any former law. The fact that certain debts existed under the bankrupt act of 1867 and could not be barred by a discharge obtained thereunder, and were kept alive by subsequent judgment, does not prevent them from being barred by a discharge obtained under the Bankrupt Act of 1898, if by the terms of such act they would be barred.4 A discharge was refused to a debtor in a state insolvent court. The cause of such refusal did not appear on the record, and it might have been, by virtue of a provision in the state statute controlling such proceedings, because the debtor's assets did not make more than fifty per cent of the proved claims, and a majority of his creditors in number and value would not consent to his discharge. Such refusal was held not to be such an adjudication as to prevent a discharge thereafter given him by a Federal court of bankruptcy from barring debts owing by him when such discharge was refused by the state court.5 Whether the discharge bars the debt in question must be determined in the first instance by the court in which an action on the debt is pending. The question whether a debt is contracted by fraud may be passed upon by a state court whenever such question comes before it, but its action is not necessarily conclusive upon the federal court. Under a petition to the court of bankruptcy for an injunction against issuing or serving execution on a judgment of a state court, the adjudication of the state court that such debt was created by the bankrupt's fraud was not conclusive on the bankrupt court.6
1 See Sec. 320. 1566.
2 Wilson v. Kelly, 16 S. C. 216.
3 Francis v. Dodsworth, 4 C. B. 202.
4 In re Herrman, 106 Fed. 987;
46 C. C. A. 77; affirming 102 Fed. 753.
5 Dean v. Justice, etc., 173 Mass. 453; 53 N. E. 893.