In general, title 11 of the United States Code (the “Bankruptcy Code”) provides that an individual may be discharged of his or her debts at the conclusion of his or her bankruptcy case. A discharge relieves a debtor from liability for its unpaid pre-petition debts and acts as an injunction, barring a creditor from collecting such debts from the debtor. However, under section 523(a)(2)(A) of the Bankruptcy Code, an individual debtor cannot be discharged from any debt for money obtained by “false pretenses, a false representation, or actual fraud.”
This article explores when debtors cannot be discharged of their debts because such debts were based on fraudulent misrepresentations by the debtor to induce the creditor into loaning him or her money. Part I of this article discusses the Congressional intent in establishing rules preventing defrauders from benefitting from the “fresh start” of bankruptcy. Part II examines the scope of fraudulent misrepresentations, ranging from express fraudulent representations to silence or the concealment of material facts. Part III analyzes the varying degrees of reliance that the courts have applied to creditors when determining whether the loan was induced by the debtor’s falsification of material facts.