Debts obtained by fraud are not dischargeable in bankruptcy. Section 523 (a)(2)(A) provides for the fraud exception to discharge. It says that money obtained by ‘false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.’ When creditors file complaints to object to discharge, they normally allege fraud by stating that given the fact that debtor’s income was not sufficient to pay all his expenses including the debt owed to creditor, debtor did not have the ability to pay creditor at the time that the debt was obtained; therefore, debtor had no intention of paying creditor at the time the debt was obtained. Consequently, debtor obtained money by fraud since he had no intent to repay because he had no ability to repay.

But is the lack of ability to repay the same as lacking intent to repay? This very same distinction came into play in a trial I conducted last month for client. In that case, client bought a restaurant for $171,000. He paid a downpayment of $72,000 and signed an installment note for $100,000. Plaintiff’s position was that client defrauded her by breaching the note with nonpayment because he had no ability to repay the note at the time that he bought the restaurant. Our position was that debtor intended to repay the note from anticipated profits from the restaurant. However, the restaurant never turned a profit during 18 months of operation, causing client’s bankruptcy. Plaintiff asked that the entire purchase price of $171,000 be excepted from discharge. This is a classic distinction between ability to repay and intent to repay. Findings of facts and conclusions of law after trial are now due and have been submitted by the parties. Judgment is due next month.

《楊清泉律師專欄》ARE CASH ADVANCES TAKEN BY UNEMPLOYED DEBTOR BANKRUPTCY FRAUD (Part 2)?