delivered the opinion of the Court.
The issue here is whether a bankruptcy court may consider evidence extrinsic to the judgment and record of a prior *128 state suit when determining whether a debt previously reduced to judgment is dischargeable under § 17 of the Bankruptcy Act, 11 U. S. C. § 35.
I
Petitioner G. Garvin Brown III was a guarantor for respondent Mark Paul Felsen and Felsen’s car dealership, Le Mans Motors, Inc. Petitioner’s guarantee secured a bank loan that financed the dealership’s trаding in Lotus, Ferrari, and Lamborghini automobiles. In 1975, the lender brought a collection suit against petitioner, respondent, and Le Mans in Colorado state court. Petitioner filed an answer to the bank’s complaint, and a cross-claim against respondent and Le Mans. The answer and the cross-claim, by incorporating the answer, alleged that respondent and Le Mans induced petitioner to sign the guarantee “by misrepresentations and non-disclosures of material facts.” App. 35. The suit was settled by a stipulation. It provided that the bank should recover jointly and severally against all three defendants, and that petitioner should have judgment against respondent and Le Mans. Neither the stipulation nor the resulting judgment indicated the cause of action on which respondent’s liability to petitioner was based. Because the case was settled, respondent’s sworn deposition was never made part of the court record.
A short time later, respondent filed a petition for voluntary bankruptcy and sought to have his debt to petitioner discharged. Through discharge, the Bankruptcy Act provides “a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt,”
Local Loan Co.
v.
Hunt,
In the bankruptcy court, petitioner sought to establish that respondent's debt to petitioner was not dischargeable. Petitioner alleged that the guarantee debt was the product of respondent’s fraud, deceit, and malicious conversion and so came within §§ 17a (2) and 17a (4). Petitioner contended that respondent had prepared false title certificates, sold automobiles out of trust, and applied the proceeds to private purposes. Respondent answered and moved for summary judgment. Respondent said that the prior state-court proceeding did not result in a finding of fraud, and contended that res judicata barred relitigatiоn of the nature of respondent’s debt to petitioner, even though the application of § 17 had not been in issue in the prior proceeding.
Before 1970, such res judicata claims were seldom heard in federal court. Traditionally, the bankruptcy court determined whether the debtor merited a discharge under § 14, but left the dischargeability under § 17 of a particular debt to the court in which the creditor sued, after bankruptcy, to enforce his prior judgment. Typically, that court was a state court. In 1970, however, Congress altered § 17 to require creditors to apply to the bankruptcy court for adjudication
*130
of certain dischargeability questions, including those arising under §§ 17a (2) and 17a (4).
2
In
In re Nicholas,
The bankruptcy court here, bound by Nicholas, somewhat reluctantly 3 confined its consideration to the judgment, pleadings, exhibits, and stipulation which were in the state-court record. It declined to hear other evidence, and it refused to consider rеspondent’s deposition that had never been made part of that record. The court concluded that, because neither the judgment nor the record showed that petitioner’s allegation of misrepresentation was the basis for the judgment on the cross-claim against respondent, the liability had not been shown to be within §§ 17a (2) and 17a (4). The court granted summary judgment for respondent and held that the debt was dischargeable. App. 44-48.
Both thе United States District Court for the District of Colorado, id., at 49, and the United States Court of Appeals for the Tenth Circuit affirmed. In an unpublished opinion, the Court of Appeals followed Nicholas, applied res judicata, and said that the prior consent decree was conclusive as to the nature of respondent’s liability. The court noted that neither the stipulation nor the judgment mentioned fraud, and the *131 court said that petitioner had not even met the state requirement that fraud be pleaded with specificity. See Colo. Rule Civ. Proc. 9 (b). The court agreed that respondent’s debt was dischargeable. App. 50-56.
Since
Nicholas
was decided, every other Court of Appeals that has considered the question has rejected res judicata and held that extrinsic evidence may be admitted in order to determine accurately the dischargeability under § 17 of a debt previously reduced to judgment in stаte court.
4
We granted certiorari to resolve this conflict.
II
Res judicata ensures the finality of decisions. Under res judicata, “a final judgment on the merits bars further claims by parties or their privies based on the same cause of action.”
Montana
v.
United States,
Bankruptcy often breeds litigation, and respondent contends that the policy of repose which underlies res judicata
*132
has particular force here. Respondent argues that petitioner chose not to press the question of fraud in the state-court proceeding even though an adjudication of fraud would have entitled petitioner to extraordinary, remedies such as exemplary damages and body execution.
5
Respondent says that because petitioner did not obtain a stipulation concerning fraud in the prior state-court proceeding, he is now barred from litigating matters that could have been concluded in the consent judgment. See
United States
v.
Armour & Co.,
Because res judicata may govern grounds and defenses not previously litigated, however, it blockades unexplored paths that may lead to truth. Nor the sake of repose, res judicata shields the fraud and the cheat as well as the honest person. It therefore is to be invoked only after careful inquiry. Petitioner contends, and we agree, that here careful inquiry reveals that neither the interests served by res judicata, the process of orderly adjudication in state courts, nor the policies of the Bankruptcy Act would be well served by foreclosing petitioner from submitting additional evidence to prove his case.
A
Respondent’s res judicata claim is unlike those customarily entertained by the courts. Por example, this case is readily distinguishable from
Chicot County Drainage Dist.
v.
Baxter
*133
State Bank, supra.
There, bondholders participated in a federal statutory proceeding for the readjustment of indebtedness and a judgment was entered. After parties from another State succeeded in having the statute declared unconstitutional, the bondholders brought a suit seeking to collect the sums that had been due before readjustment. The Court held that res judicata barred the second suit and said that the bondholders "were not the less bound by the decree” because they failed to raise the constitutional claim in the first proceeding.
Here, in contrast, petitioner readily concedes that the prior decree is binding. That is the cornerstone of his claim. He does not assert a new ground for recovery, nor does he attack the validity of the prior judgment. Rather, what he is attempting to meet here is the new defense of bankruptcy which respondent has interposed between petitioner and the sum determined to be due him. A substantial minority of state-court decisions, particularly those following
Fidelity & Casualty Co.
v.
Golombosky,
B
Respondent contends that the § 17 questions raised here, or similar issues of state law, could have been considered in the prior state-court proceeding and therefore are not “new.” Respondent argues that the state-court collection suit is the appropriate forum for resolving all debtor-creditor disputes, including those concerning dischargeability. While in some circumstances the consolidation of proceedings may be desirable, here consolidation would undercut a statutory policy in favor of resolving § 17 questions in bankruptcy court, and would forcе state courts to decide these questions at a stage when they are not directly in issue and neither party has a full incentive to litigate them. See
In re Pigge,
1. Considerations material to discharge are irrelevant to the ordinary collection proceeding. The creditor sues on the
*135
instrument which created the debt. Even if an issue similar to those created by § 17 should arise, the state-law concept is likely to differ from that adopted in thе federal statute. See 1A J. Moore, J. Mulder, & R. Oglebay, Collier on Bankruptcy ¶ 17.16 [6], p. 1650.1 (14th ed. 1978). For example, in
Davis
v.
Aetna Acceptance Co.,
When § 17 issues are not identical to those arising under state law, the parties have little incentive to litigate them. In the collection suit, the debtor’s bankruptcy is still hypothetical. The rule proposed by respondent would force an otherwise unwilling party to try § 17 questions to the hilt in order to protect himself against the mere possibility that a debtor might take bankruptcy in the future. In many cases, such litigation would prove, in the end, to have been entirely unnecessary, and it is not surprising that at least one state court has expressly refused to embroil itself in an advisory adjudication of this kind. See
Pioneer Finance & Thrift Co.
v.
Powell,
2. If a state court should expressly rule on § 17 questions, then giving finality to those rulings would undercut Congress’ intention to commit § 17 issues to the jurisdiction of the bankruptcy court. The 1970 amendments eliminated post-bankruptcy state-court collection suits as a means of resolving certain § 17 dischargeability questions. In those suits, creditors had taken advantage of debtors who were unable to retain counsel because bankruptcy had stripped them of their
*136
assets. Congress’ primary purpose was to stop that abuse. A secоndary purpose, however, was to take these § 17 claims away from state courts that seldom dealt with the federal bankruptcy laws and to give those claims to the bankruptcy court so that it could develop expertise in handling them.
7
By the express terms of the Constitution, bankruptcy law is federal law, U. S. Const., Art. I, § 8, cl. 4, and the Senate Report accompanying the amendment described the bankruptcy court’s jurisdiction over these § 17 claims as “exclusive.” S. Rep. No. 91-1173, p. 2 (1970). While Congress did not expressly confront the problem created by prebank-ruptcy state-court adjudications, it would be inconsistent with the philosophy of the 1970 amendments to adopt a policy of res judicata which takes these § 17 questions away from bankruptcy courts and forces them back into state courts. See
In re McMillan,
Respondent argues that petitionеr could have avoided such a result and preserved his dischargeability contentions for bankruptcy court review by bargaining for a stipulation that § 17 issues were not resolved by the consent judgment. It makes little sense, however, to resolve a federal discharge-ability question according to whether or not the parties in state court waived their right to engage in hypothetical litigation in an inappropriate forum.
3. Respondent аlso contends that petitioner had an adequate incentive to prove state-law fraud, which might have entailed proof identical to that required by § 17. Petitioner, however, rejected whatever lure exemplary damages and body execution may have provided. That rejection does not conclusively show that petitioner thought respondent was innocent of fraud. Petitioner may have thought those remedies would nоt be advantageous to him. 8 While respondent is certainly entitled to claim that res judicata would bar further pursuit of those extraordinary remedies in state court, their hypothetical desirability provides no basis for preventing *138 petitioner from recovering on the debt, the remedy he elected from the beginning.
C
Refusing to apply res judicata here would permit the bankruptcy court to make an accurate determination whethеr respondent in fact committed the deceit, fraud, and malicious conversion which petitioner alleges. These questions are now, for the first time, squarely in issue. They are the type of question Congress intended that the bankruptcy court would resolve. That court can weigh all the evidence, and it can also take into account whether or not petitioner's failure to press these allegations at an earlier time betrаys a weakness in his case on the merits.
Some indication that Congress intended the fullest possible inquiry arises from the history of § 17. In the 1898 Bankruptcy Act, Congress provided that only “judgments” sounding in fraud would be excepted from a bankrupt's discharge. 30 Stat. 550. In 1903, Congress substituted “liabilities” for “judgments.” 32 Stat. 798. The amendment, said the accompanying House Report, was “in the interest of justice and honest dealing and honest conduct,” and it was intended “to exclude beyond peradventure certain liabilities growing out of offenses against good morals.”
9
This broad language suggests that all debts arising out of conduct specified in § 17 should be excepted from discharge and the mere fact that a conscientious creditor has previously reduced his claim to judgment should not bar further inquiry into the true nature of the debt. Cf.
Hargadine-McKittrick Dry Goods Co.
v.
Hudson,
In sum, we reject respondent’s contention that res judicata applies here and we hold that the bankruptcy court is not confined to a review of the judgment and record in the prior *139 state-court proceedings when considering the dischargeability of respondent’s debt. Adopting the rule respondent urges would take § 17 issues out of bankruptcy courts well suited to adjudicate them, and force those issues onto state courts concerned with other matters, all for the sake of a repose the bankrupt has long since abandoned. 10 This we decline to do. The judgment of the Court of Appeals is reversed.
It is so ordered.
Notes
In 1978, Congress repealed the Bankruptcy Act, effective October 1, 1979. See Bankruptcy Reform Act of 1978, Pub. L. 95-598, § 401 (a), 92 Stat. 2682. A case commenced under the Bankruptcy Act continues to be governed by it. §403 (a), 92 Stat. 2683. Discharge provisions substantially similar to § 17 of the Bankruptcy Act appear in § 523 of the new law. 11 U. S. C. App. § 523 (1976 ed., Supp. II).
See Pub. L. 91-467, §§ 5-7, 84 Stat. 992; H. R. Rep. No. 91-1502 (1970); S. Rep. No. 91-1173 (1970).
The court observed that, in its experience, the Nicholas rule had “created more difficulties and more problems thаn it has solved.” Tr. in No. 76 B 56 (Colo., Dec. 14, 1976), p. 13.
See
In re Wright,
Two Circuits held that extrinsic evidence was admissible under pre-1970 law. See
Martin
v.
Rosenbaum,
In Colorado, body 'execution is a statutory remedy which,
under
certain circumstances, permits a creditor to have a tortious judgment debtor imprisoned at the creditor’s expense. See
Hershey
v.
People,
See
United States Credit Bureau
v.
Manning,
Other States, however, сontinued to apply res judicata and refused to admit additional evidence. See
Miller
v.
Rush,
The state decisions predating
Golombosky
are close to unanimity in adhering to res judicata. See
Aetna Casualty & Surety Co.
v.
Sentilles,
See S. Rep. No. 91-1173, pp. 2-3 (1970); H. R. Rep. No. 91-1502, p. 1 (1970). A statement by Professor Lawrence King, prepared for the National Bankruptcy Conference, included in both the House and Senate Reports and placed in the Congressional Record by Representative Wiggins, said:
“One of the strongest arguments in support of the bill is that, if the bill is passed, a single court, tо wit, the bankruptcy court, will be able to pass upon the question of dischargeability of a particular claim and it will be able to develop an expertise in resolving the problem in particular eases. The State court judges, however capable they may be, do not have enough cases to acquire sufficient experience to enable them to develop this expertise. Moreover, even under the рresent system, in the last analysis, it is the U. S. Supreme Court which has the ultimate word on the construction of section 17 of the Bankruptcy Act. . . . Since this is a Federal statute, the Federal courts necessarily have the final word as to the meaning of any terms contained therein.” S. Rep. No. 91-1173, p. 9 (1970); H. R. Rep. No. 91-1502, p. 8 (1970); 116 Cong. Rec. 34819 (1970).
See also S. Rep. No. 91-1173, p. 6 (1970) (letter of Royal E. Jackson, Chief, Division of Bankruptcy, quoting Prof. Charles Seligson).
So long as a debtor is solvent, the debtor and creditor alike may prefer a simple contract suit to complex tort litigation. Default and consent judgments are common in collection proceedings. For the creditor, the prospect of increased attorney’s fees and the likelihood of driving the debtor into bankruptcy may offset the advantages of exemplary damages or other extraordinary remedies. Bankruptcy deprives the debtor of his creditworthiness and so impairs his ability to repay. In the words of a Shakespearean creditor, fearing the worst:
“When every feather sticks in his own wing,
Which Timón will be left a naked Gull,
Which flashes now a Phoenix.” Timón of Athens, Act 2, Scene 1, in VII The Works of Shakespeare 294 (Henley ed. 1903).
Nor does body execution aid in the collection of a debt if the debtor needs to be out of jail in order to earn the money to repay the debt.
H. R. Rep. No. 1698, 57th Cong., 1st Sess., 3, 6 (1902). See 36 Cong. Rec. 1375 (1903).
This case concerns res judicata only, and not the narrower principle of collateral estoppel. Whereas res judicata forecloses all that which might have been litigated previously, collateral estoppel treats as final only those questions actually and necessarily decided in a prior suit.
Montana
v.
United States,
Because respondent does not contend that the state litigation actually and necessarily decided either fraud or any other question against petitioner, we need not and therefore do not decide whether a bankruptcy court adjudicating a § 17 question should give сollateral-estoppel effect to a prior state judgment. In another context, the Court has held that a bankruptcy court should give collateral-estoppel effect to a prior decision.
Heiser
v.
Woodruff,