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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
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Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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I filed C7 due in large part to a pending civil suit based

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I filed C7 due in large part to a pending civil suit based on an alleged breach of contract suit that also included a fraud/misrepresentation count. I thought that woudl be the end of it, but the plaintiff has now filed an AP in b-court to push the fraud count (which was weak to begin with) to avoid it being discharged. I have been told that it is even more difficult to prove this count in b-court, but I am unsure of the differences between what they have to prove in civil vs b-court tho I understand that one of the hurdles is that there is $$ available to satisfy any potential judgement and the b-court has already ruled that there is no money available for distribution. The lawyer I used to file the C& "does not do AP work" so I am back to representing myself in this as I was pro se on the civil case before the filing so I am generally familar with the necessary elements of fraud, 9B filing requirements, etc., but I am looking for direction on the b-court requirements and where to research these.
Submitted: 3 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 3 years ago.

In Lentz v. Spadoni (In re Spadoni), 271 B.R. 703, 2002 Bankr. LEXIS 26,XXXXX Dec. (LRP) 248 (B.A.P. 1st Cir. 2002), vacated by Lentz v. Spadoni (In re Spadoni), 316 F.3d 56, 2003 U.S. App. LEXIS 465,XXXXX Dec. (LRP) 191, Bankr. L. Rep. (CCH) P78782 (1st Cir. 2003), on other grounds, the Bankruptcy Appellate Panel for the 1st Federal District writes:


  • In order to establish that a debt is nondischargeable because obtained by "false pretenses, a false representation, or actual fraud," [the First Circuit Court of Appeals has] held that a creditor must show that 1) the debtor made a knowingly false representation or one made in reckless disregard of the truth, 2) the debtor intended to deceive, 3) the debtor intended to induce the creditor to rely upon the false statement, 4) the creditor actually relied upon the misrepresentation, 5) the creditor's reliance was justifiable, and 6) the reliance upon the false statement caused damage. Spigel, 260 F.3d at 32 (citing Palmacci v. Umpierrez, 121 F.3d 781, 786 (1st Cir. 1997)).


In Middlesex Sav. Bank v. Flaherty (In re Flaherty), 335 B.R. 481, 2005 Bankr. LEXIS 2614 (Bankr. D. Mass. 2005), the Mass. District Bankruptcy Court writes:

 

  • To fall within the exception to discharge under § 523(a)(2)(A), the misrepresentation must have been knowingly and fraudulently made and must have related to a material fact. Moreover, the creditor must have relied on the misrepresentation. There are two aspects to reliance: actual reliance and justifiable reliance. The creditor must have actually relied on the misrepresentation, and that reliance must have been justifiable under the circumstances. See Lentz v. Spadoni (In re Spadoni), 316 F.3d 56 (1st Cir. 2003). In Spadoni, the First Circuit discussed the requirement of reliance: "'Reasonable reliance' -- measured by an objective standard -- is a requirement under various doctrines. See, e.g., Restatement (Second) of Contracts § 139 (1981)(reliance must be reasonable in a [490] contract action). However, the Supreme Court has held that a less demanding 'intermediate' standard, which it calls 'justifiable reliance,' applies under section 523(a)(2)(A). Field v. Mans, 516 U.S. 59, 73-74, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995). In particular, the Court said that the circumstances of the reliance claim must be taken into account and that the individual is not obliged to investigate statements made to him (although he cannot shut his eyes to an obvious falsehood). See id. at 71, 116 S.Ct. 437.
Finally, in Lentz v. Spadoni (In re Spadoni), 316 F.3d 56, 2003 U.S. App. LEXIS 465,XXXXX Dec. (LRP) 191, Bankr. L. Rep. (CCH) P78782 (1st Cir. 2003), the 1st Circuit Court of Appeals writes:


In plain english, the above case law stands for the proposition that proving a fraud in bankruptcy court is something slightly less demanding that that of an ordinary court, because reasonable reliance test is replaced with a justifiable reliance test. However, in practice, the bankruptcy courts are required to consider the importance of the "fresh start" purpose of bankruptcy, so, in fact, the elements of a fraud in bankruptcy are really pretty much identical to those outside of bankruptcy.

 


Hope this helps.

 

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Customer: replied 3 years ago.
Thank you for a very thorough response and this def helps provide some direction. Two quick f.u. ?? 1) Does this pleading still have to meet the 9B requirements for fraud i.e. identifying the time, date, place, method of conveyance, etc., as in the civil court ?; and 2) If the b-court has already determined that there are no assets to distribute to creditors and/or to satisfy any judgment, does that factor into the decision as to whether to allow it to go forward and should I include this in my response as an affirmative defense ?
Expert:  socrateaser replied 3 years ago.
1) Does this pleading still have to meet the 9B requirements for fraud i.e. identifying the time, date, place, method of conveyance, etc., as in the civil court ?;

A: My first case law cite covers the elements that the plaintiff/creditor must prove in order to avoid a discharge. To wit:

  • In order to establish that a debt is nondischargeable because obtained by "false pretenses, a false representation, or actual fraud," [the First Circuit Court of Appeals has] held that a creditor must show that 1) the debtor made a knowingly false representation or one made in reckless disregard of the truth, 2) the debtor intended to deceive, 3) the debtor intended to induce the creditor to rely upon the false statement, 4) the creditor actually relied upon the misrepresentation, 5) the creditor's reliance was justifiable, and 6) the reliance upon the false statement caused damage. Spigel, 260 F.3d at 32 (citing Palmacci v. Umpierrez, 121 F.3d 781, 786 (1st Cir. 1997)).

2) If the b-court has already determined that there are no assets to distribute to creditors and/or to satisfy any judgment, does that factor into the decision as to whether to allow it to go forward and should I include this in my response as an affirmative defense ?

A: I find no case law on point suggesting that a "no asset case" eliminates the requirement of dischargeability found in Section 523(a)(2). If a creditor wants to bring an adversary proceeding to preserve the debt in a no asset Chapter 7, then the creditor can do so. Thus, this is not a viable affirmative defense, in my opinion.

Hope this helps.

NOTICE: My goal here is to educate others about the law. I am always available to answer your follow-up questions after you click Accept – however, if you do not click Accept, the website gets paid, and I receive nothing. This is true, even if you are on a subscription plan. So please click Accept, so that I will be able to continue to provide this service for others in the future.


And, if you need to contact me again, please put my user id on the title line of your question (“To Socrateaser”), and the system will send me an alert. Thanks!

socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33872
Experience: Attorney and Real Estate Broker -- Retired (mostly)
socrateaser and 2 other Bankruptcy Law Specialists are ready to help you
Customer: replied 3 years ago.
thank you for your help and direction.
Expert:  socrateaser replied 3 years ago.
You're welcome and good luck.

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