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? 

An Oregon debtor failed to disclose her self-employment and other income and assets when she applied for SNAP benefits.  The Oregon Department of Human Services alleged that this debtor obtained several years’ worth of benefits to which she was not entitled and that the debt created by this was non-dischargeable. The court agreed.

This issue can also 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).

Copyright Law Office of Mark L. Fowler

Disclaimer: Every effort has been made to ensure the accuracy of this publication at the time it was written. It is not intended to provide legal advice or suggest a guaranteed outcome as individual situations will differ and the law may have changed since publication. Readers considering legal action should consult with an experienced lawyer to understand current laws they may affect a case. For specific technical or legal advice on the information provided and related topics, please contact the author.