Bankruptcy does not always wipe the slate clean. Some type of debts do not get discharged in a bankruptcy. This blog will explore three of the most common types of claims that do not go away. A creditor cannot merely assert that the debt owed to it is non-dischargeable; rather, the creditor must commence a formal litigation to establish that a debt cannot be discharged. The creditor must be able to demonstrate that its claim falls into a specific statutory provision within 11 U.S.C. § 523. Only then will the claim be determined to be non-dischargeable. The statutory provisions are construed strictly against the creditor and in favor of debtors.
These Debts are Commonly Challenged for Dischargeability:
Fraud in the Inception of a Transaction
11 U.S.C. § 523(a)(2)(A) states that
a discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt-(2) for money, property, services, or an extension, renewal, or refinancing or credit, to the extent obtained by (A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.
A creditor bringing an action under 11 U.S.C. §523(a)(2)(A) must prove that
(1) the debtor made the representations knowing they were false; (2) the debtor made the representations with the intent and purpose of deceiving the plaintiff; (3) the creditor justifiably relied on the debtor’s false representations; and (4) the creditor suffered a loss or damage as a proximate (direct and foreseeable) consequence of the representation having been made.
In re Antonious, 358 B.R. 172, 182 (Bankr. E.D.Pa. 2006); See also In re Nicolai, 2007 B.R. 405851 at *3 (Bankr. D.N.J. 2007).
A [c]ourt can find a false representation if the plaintiffs present proof by a preponderance of the evidence that the defendants (1) made a false or misleading statement; (2) with the intent to deceive; and (3) in order for the plaintiffs to turn over money or property to the defendants.”…“Proof of intent to deceive is measured by the debtor’s subjective intention at the time the representation was made.”“[A]ny subsequent conduct that is contrary to the original representation does not necessarily indicate that the original representation was false.”
In re Nicolai, 2007 B.R. at *3 quoting In re Hambley, 329 B.R. 382, 396 (Bankr. E.D.N.Y. 2005); In re Curtis, 2006 WL 1506209, at *8 (Bankr.C.D.Ill 2006); In re Bowden, 326 B.R. 62, 87 (Bankr. E.D. Va. 2005).
Fraud as Fiduciary
11 U.S.C. § 523(a)(4) states that “a discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny. “The scope of the term “fiduciary” under § 523(a)(4) is a question of federal law.” In re Kaczynski, 188 B.R. 770, 773 (Bankr. D.N.J. 1995); See also In re West, 339 B.R. 557, 566 (Bankr. E.D.N.Y. 2006). However, courts must look to state law “to determine when the requisite trust relationship exists.” Id.
Willful and Malicious Injury
11 U.S.C. § 523(a)(6) states that “a discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt for willful and malicious injury by the debtor to another entity or to the property of another entity.” In order to qualify as a willful injury under 11 U.S.C. § 523(a)(6), the debtor must cause a “deliberate or intentional injury, not merely a deliberate or international act that leads to injury.” Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998); In re Casini, 307 B.R. 800, 820 (3d. Cir. 2004). “Malice requires conduct that exceeds recklessness and “target[s] the creditor...at least in the sense that the conduct is certain or almost certain to cause harm.” In re Iberg, 395 B.R. 83, 91 (Bankr. E.D. Ark. 2008). “Negligent or reckless acts…do not suffice to establish that a resulting injury is “willful and malicious.”” Kawaauhau, 523 U.S. at 61.
If you are considering bankruptcy, it is important to contact an experienced bankruptcy attorney to guide you through the process and help you assess your options in light of your situation. If you have questions regarding a potential bankruptcy, call the law firm of Scura, Wigfield, Heyer, Stevens & Cammarota, LLP for a free consultation.
Whether you need to completely eliminate your debt through Chapter 7 bankruptcy, or need to reorganize your credit payments through Chapter 13 or Chapter 11, we are well qualified as a full-service bankruptcy law firm for people in these and other New Jersey counties: Passaic County, Hudson County, Essex County, Bergen County, Morris County, and Sussex County. Call us today at 973-870-0434 or toll free 888-412-5091.