The business of building contractors has been bad since the housing bubble burst. Gone are the days when homeowners can easily get a 2nd trust deed against equity in their homes for home improvement. A lot of houses are under water. Even a homeowner with a perfect credit score cannot get financing for home improvement because his house cannot qualify for a 2nd trust deed loan without equity. Going to a building contractors’ convention nowadays is just like attending a funeral. Hence, many contractors get into cash flow problems for lack of business and cannot finish projects contracted and paid for. They walk away from projects leaving clients who are angry and frustrated because they have paid for a finished house that is only halfway done. Scenarios like these are ripe for non-dischargeability claims based on fraud and deceit when contractors file for bankruptcy relief.

Like most debtors, honest contractors also qualify for debt relief and a fresh start in life in bankruptcy. But they face the possibility of defending against non-dischargeability claims from clients because it looks like the just took their clients money and did not finish the job. Client normally relies on the non-dischargeability claims of fraud and intent to cause injury against contractors to substantiate their adversarial complaints.

However, what most clients fail to understand is that as plaintiffs, they have to prove by a preponderance of evidence that the contractor had the intent to defraud and deceive them when the contract was signed to have their claims excepted from discharge. It is not enough just to allege fraud and deceit on the part of contractor.

In Re McMann, debtor was an officer and director of Wizard, a Florida corporation engaged in the construction of houses. In May 2005, the plaintiff, a limited liability company formed for the purpose of building a house for Mr. & Mrs. Straus, hired Wizard to build the house for $600,000. Five months later, after learning that liens had been placed against the property for unpaid supplies and services, and worried that the job would not be completed on time, the plaintiff repudiated the contract and sued debtor, his wife, his dog, his parakeet and Wizard. The court granted summary judgments for his dog and parakeet on the ground that they were strangers to the contract. Plaintiff also filed complaints with the Florida Department of Business and Professional Regulation (DBPR) asking the department to allow plaintiff to tar and feather debtor in public.

CONTRACTOR WINS AGAINST NONDISCHARGEABILITY CLAIMS OF CLIENT(Part II)