Non-Dischargeability Actions (11 USC § 523)
As a general matter, bankruptcy is designed to give the debtor a “fresh
start” and wipe the slate clean of all qualifying debts. In providing
for the bankruptcy discharge, Congress intended for debtors to be able
to avoid the burden of debt following them forever. However there are
limitations on this right of debtors to discharge debts. As discussed
below, debts that were the result of a criminal action, fraud or misrepresentation,
and a few other wrongful intentional acts can be deemed “nondischargeable”
by the bankruptcy court, but it must be proven very clearly by the creditor
that the debtor had such requisite intent in most cases.
If you are facing a nondischargeability action by a creditor, or you are
a creditor who was the victim of fraud, you need a skilled bankruptcy
litigator at your side to prove your position. McFarlin LLP’s
Irvine bankruptcy litigation attorneys will properly analyze your situation and protect your rights. Call
(888) 728-0044 for a no-cost consultation on your case.
11 USC § 523(a)(2)(A) – Fraud
Section 523(a)(2)(A) gives rise to the most common nondischargeability
cause of action in bankruptcy court. This section provides an “exception
from discharge” for any debt that was procured by false representations,
misleading or fraudulent omissions or actual fraud (which can be inferred.)
To establish a claim under 523(a)(2)(A), a creditor must demonstrate the
following:
- The debtor made a representation to the creditor;
- The debtor knew at the time of the representation that it was false;
- The debtor’s intent in making the representation was to deceive;
- The creditor relied on such representation by the debtor;
- The creditor ultimately was damaged (lost money) as a result of the representation.
Additionally, if the debtor chose to omit or withhold certain material
information from the creditor with the intent to mislead or deceive, the
debtor has likely committed a fraudulent omission under the Code.
Fraudulent Intent
The subjective intent of the debtor at the time of the alleged misrepresentation
is always a contentious issue in nondischargeability actions. Obviously
to preserve his or her discharge, debtors frequently deny any sort of
overt or intentional misrepresentation. This creates an immediate issue
for the creditor pursuing a nondischargeability claim, because proving
subjective intent is a prerequisite to prevail in the claim. However,
the required intent can be “inferred” by the court using certain
criteria and the totality of the circumstances.
