In re: Lopez, No. 09-18232-A-7 (Bankr. E.D. Calif., May 27, 2011).
In a recent 9th Circuit bankruptcy case, a California bankruptcy court assessed whether a debt should be declared non-dischargeable.
In this case, the debtor met a widower on a matchmaking service, and convinced him to lend her $60,000 over the course of a year, so that she could develop her own painting business. After the two married, it came to light that the debtor had a great deal of debt, and that she was unlikely to pay him back. Although she had a retirement account and took out a loan on her home, she did not use this money to pay her husband back, and kept its existence from him.
Under the Bankruptcy Code, a debt may not receive a discharge for debt obtained by false pretenses, false representation, or actual fraud. In the 9th Circuit, a debt is non-dischargeable under § 523(a)(2)(A) if (1) the debtor made representations (2) that at the time he or she knew were false, (3) that he or she made them with the intention and purpose of deceiving the creditor, (4) that the creditor justifiably relied on such representations, and (5) that the creditor sustained the alleged loss and damage as the proximate result of the misrepresentations that have been made. The creditor must establish these factors, and the court will construe evidence in the light most favorable to debtors so as not to inhibit the policy behind bankruptcy as a fresh start.
Here, the court held that the debtor had committed actual fraud, thereby making those debt nondischargeable in bankruptcy. The court found that the debtor actively hid her financial condition from her husband with the intention of never paying him back, and that the husband was not in the wrong for relying on what she represented to him. Although this section of the Bankruptcy Code is construed in favor of the debtor as much as possible, in this case, the evidence was overwhelming.
