A recent decision by the United States Supreme Court indicated that false representations to creditors about one’s financial situation does not necessarily rise to the level of a non-dischargeable debt.
Ordinarily, when a person files for bankruptcy relief under Chapter 7, with the exception of certain taxes, family support, fines, and student loans, which are non-dischargeable, most other debts are dischargeable, meaning that the the court will issue a permanent injunction against creditors from collecting the debt, forever.
To overcome the dischargeability of the debt, a creditor would have to show that there was actual fraud, fraudulent representations by the debtor, embezzlement, or willful and malicious injury. Fraudulent representations in laymen terms would be to lie about something, such as your financial situation or ability to pay to a creditor.
The Supreme Court has ruled in “Lamar, Archer & Cofrin, LLP v. Appling, 584 U.S. ___ (2018)” that unless such a false representation about a person’s financial situation is in writing, even if the creditor relied on the representation to its detriment, the debt is dischargeable. In other words, as long as the lie is not in writing, intentional or not, a debtor would be able to get a discharge of the debt.
The reasoning is that over time, memories have a tendency to change. Memories can embellish representations and people can forget important facts. A writing, however, provides a clear picture of what occurred. The takeaway, I suppose, is if you plan to lie about your financial situation to a creditor, don’t put it on paper, keep it oral.
If you are under financial stress, we would be happy to assist you in resolving your creditor issues. Your first appointment is always a free consultation