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Debt incurred through fraud or false representation is not dischargeable in Bankruptcy

Almost everyone knows that student loans and tax debt cannot be discharged in most bankruptcy circumstances.  One relatively unknown debt that is dischargeable is found in section 523(a)(2).  Under this section debt for money, property, services, or an extension, renewal, or refinancing of credit can be non-dischargeable if obtained by false pretenses, a false representation, or actual fraud. 

What does this look like in real life? 

This issue can arise in the form of a debt created by a failed business venture. A debtor convinced his partners that they should let him run the business alone and he would manage their investments wisely. Once the business was failing, the partners filed suit against the operating partner for fraud. The operating partner filed for bankruptcy. After a lot of litigation, the partners won their suit against the operating partner for fraud and the bankruptcy court ruled the debt non-dischargeable pursuant to 523(a)(2).

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About Me

Mark L. Fowler is an Olympia, Washington attorney practicing Real Estate, Business and Bankruptcy law.

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