A Showing of Gross Recklessness Satisfies Section 523(a)(2)(A): Denying Deceivers the Ability to Discharge Debts Related to Fraudulently Obtained Funds
11 U.S.C. Section 523(a) lists certain debts that may not be discharged through a debtor’s bankruptcy. In particular, section 523(a)(2)(A) provides that a debtor who files bankruptcy will not be discharged of debts that were obtained by “false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.” False representations, such as those described in section 523(a)(2)(A), carry a scienter requirement which requires that it be shown that an individual knowingly made false statements or representations. This requirement carries a heavy burden, as trying to prove that a person had actual knowledge that his or her statements were false is not an easy feat. To overcome this burden, courts have found that a showing of gross recklessness is enough to satisfy the scienter requirement of section 523(a)(2)(A).
This article will discuss the scienter requirement of section 523(a)(2)(A) and will address the standard and burden of proof used when examining and applying exceptions. Part I will discuss the scienter requirement and how it is applied in other areas of the law other than bankruptcy. Part II discusses the Supreme Court’s treatment of section 523(a)(2)(A) when faced with questions regarding the standard of proof required in analyzing it. Finally, Part III concludes by discussing how the same reasoning used by the Supreme Court in finding that a showing of gross recklessness satisfies the scienter requirement of 11 U.S.C. section 523(a)(4) can be utilized in showing that the same burden of proof applies to the scienter requirement of section 523(a)(2)(A).