Recently, I took on a case that involved a non-dischargeability action. They debtor had been accused of shorting his company some money and the other officers and directors were objecting to the discharge of the debt in the bankruptcy proceeding.

However, what the creditor’s didn’t realize is that the standards for dischargeability for false pretenses is much different than that in State Court.

Section 523(a)(2)(A) provides in part that debts for money, property, services, or an extension, renewal, or refinancing of credit are nondischargeable to the extent that they were obtained by false pretenses or false representations.

In order to determine non-dischargeability for false pretenses or false representations under Section 523(a)(2)(A) a creditor must establish each of the following elements by a preponderance of the evidence.

(1) That the debtor made a representation or prestense to the creditor that was materially false;
(2) that the debtor knew the representation or pretense was false at the time it was made;
(3) that the debtor made the representation with the intent to deceive or defraud the creditor; and
(4) that the creditor justifiably relied on the misrepresentation or pretense to its detriment.

Clearly in the elements set forth above, there has to be some standard of intent. If intent cannot be created or inferred, then the debt is going to be considered dischargeable.

There are other reasons for determining a debt to be non-dischargeable, but most of the actions for fraud are brought under this section of the code.

If you are served with an adversary proceeding for non-dischargeability of a debt, it is important you retain counsel right away. If you do not, you risk a finding of default if you don’t respond to the lawsuit. The other side has counsel and the nuances of bankruptcy law are not to be trifled with if you don’t know what you are doing. Adversary actions are serious issues as they can jeopardize your discharge and your fresh start. Worse, you might find yourself kicked out of bankruptcy court with no discharge whatsoever and a debt that will not be dischargeable when you are eligible to file for bankruptcy the next time.

Jay S. Jump
Jump Law Group
Kent, WA
www.jumplawgroup.com