Bankruptcy helps relieve the burden of credit card and loan debts, medical bills, back utilities and rent, and so forth.
But there are some debts that bankruptcy does not affect; that are “immune” from a bankruptcy discharge – the word is “non-dischargeable”. This means that when the smoke clears and the bankruptcy is over, these debts will still have to be paid.
In my previous blog, I talked about some Intentional Debt.
Here is another example of Intentional Debt: 11 USC 523(a)(2) is the part of the Bankruptcy Code that controls if a debt is discharged or not discharged. A debt is not discharged in bankruptcy if it is a debt “… for money, property, services …” (or “… an extension, renewal, or refinancing …” of a loan) if you got the loan because you used “… a statement in writing … that is materially false; (that was about your) … financial condition; on which the creditor … reasonably relied; and that the debtor (made the statement in writing) … with intent to deceive.
This time we are still talking about lying, but lying on paper specifically about your financial condition.
Wait. Wouldn’t that be included in the “false pretenses, a false representation, or actual fraud” you talked about last time? Yes, but that part of 11 USC 523(a)(2) specifically says that does NOT count to a writing about your financial condition.
I don’t know. Someone, somewhere, must have been able to worm their way around the “false pretenses, a false representation, or actual fraud” because it was something in writing about their financial condition. So the legislature added this extra part.
In this case, I am talking about writing on an application (or anything in writing) that you make $40,000.00 per year when you make $20,000.00 per year. When you put in writing that you own your car when you still have a loan on it.
It’s the Nixon problem. It’s not the fact that you did it (which is bad enough) but the fact that you lied about it – on paper.
And this specific part of the code deals with anything in writing about your financial condition. When you checked that you were NOT convicted of any crime when you were; that doesn’t count – even if you intentionally lied (and that is not something you tend to forget). Of course, the creditor can still “get” you on the “false pretenses, a false representation, or actual fraud” part.
Or can they? Remember I said that it is difficult for a creditor to win these kinds of actions. If only because a creditor – usually a company in the business of lending money – has ways to check and double-check what you say.
Did they ask for copies of your paycheck stubs? How did they verify your income? Did they NOT verify your income?
That was kind of … well … stupid wasn’t it?
A common defense as to not listing all your debt is to ask if the company got a credit report before approving the loan. Does the credit report show the unlisted credit card? Why did they approve the loan in the first place when they SAW there was a credit card not listed on the loan application?
This is especially helpful when they say “I wouldn’t have given her that loan had I known she owed that much on her Discover Card!”
And they will ALWAYS say that.
If, in the course of the lawsuit, it seems the judge is siding with the debtor – and a good attorney can tell most of the time – the attorney may pursue how the debtor got the loan? Did they get a letter saying they were pre-approved? Well, if they were pro-approved it hardly matters WHAT they put on their application, doesn’t it? J
The Court will use reasonableness and common sense with these issues. Forgetting one or two other loans on an application? That’s probably okay. Forgetting about tens of thousands of dollars’ worth of debt? That is NOT reasonable.
You forgot your name was on your brother’s car? That’s probably okay. Forgetting that you DON’T owe on the car you are currently driving? That is not reasonable.
Stating you make $35,000.00 per year when you make $40,000.00? That’s probably okay. But if you were out of work when you made the loan? That is not reasonable. Did the question ask about potential future income? We might be back to reasonable again. This is the kind of thing your attorney will ask the creditor – do you ask about his current situation? Did you follow up on the questions about potential income?
“Intent to deceive”. That is the key. Cackling with glee over your nefarious deed. Twirling your mustache. Nyah-ah-ah.
If the creditor wins and the debt is ruled non-dischargeable, it will survive the Chapter 7 bankruptcy and you will have to resume paying it when the bankruptcy case is over. In a Chapter 13, any amount not paid by the disbursing Trustee will survive, including unpaid interest (if the original loan allowed for interest). In neither kind of bankruptcy will you have to pay on the debt during the bankruptcy.
More “Intentional Debts” next time …
Copyright 2016 Michael Curry
About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.
He is also the author of books on finance and bankruptcy available on Kindle through Amazon!
Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!
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