Sometimes one lover takes advantage of the other lover by borrowing money that is not repaid. For example, John and Mary are in a relationship. They think that they are in love with each other. John wants to invest in the stock market because all the stock market indexes are up over 25% this year. In fact the Russell 2000 small cap index is up 40% this year. Mary has been working as a registered nurse for the last 15 years, working 3 jobs, and was able to stash away $120,000 of savings in her 401K. John finds out about Mary’s 401K and convinces Mary to borrow $60,000 from that account so that he can invest it in various stocks. John promises to pay Mary back in 6 months in full plus 10% interest. Unfortunately, John is a bad stock picker and all of the stocks that he bought are now worthless. John decides to file for Chapter 7 bankruptcy relief and includes the $60,000 that he owes to Mary for discharge. Is the $60,000 dischargeable?

In Re Duhon, plaintiff lent $110,000 to the debtor believing his story that he needed cash because his money was tied up with real estate. Debtor told plaintiff, his ex-girlfriend, that he owned several rental properties. However, the truth was that debtor did not own any real estate.

Plaintiff and debtor were in love. They talked of buying a house together and getting married. Plaintiff has saved $110,000 to buy a house. She agreed to loan the money to the debtor to fund his day-trading of stocks. The loan was to be repaid in 3 months. The plaintiff said she trusted the debtor, who told her that all his money was tied up in rental properties and promised to use the money he made from day-trading to buy their first home together. Ah, true love where the lover can do no wrong. The plaintiff said she accompanied the debtor when he collected rent payments, and believed the debtor when he said he owned the properties. In fact, the properties were owned by debtor’s uncle, the Maharajah of Jaipur. To secure the loan, the debtor gave plaintiff a second mortgage on his home, a mobile home in the Ozarks, worth $5,000, named her as beneficiary of a $150,000 term life insurance policy, and gave her an undated check for $110,000. In short, plaintiff got scammed.

When the relationship soured, plaintiff asked for full payment of the $110,000. Debtor paid back $25,000 and left the balance unpaid. Plaintiff sued debtor in state court and obtained a judgment for $210,000 because the $110,000 check bounced and the court found that debtor violated the state’s ‘bad check’ law and awarded the plaintiff double the amount of the check plus $15,000 in attorney’s fees minus the $25,000 payment for a total of $210,000. Debtor filed for Chapter 7 bankruptcy relief.

Plaintiff filed an adversary complaint asking the bankruptcy court to have her ‘lover’s claim’ excepted from discharge.

The court found that the debtor intentionally misrepresented his real estate holdings in an effort to convince the plaintiff to loan him the money. Debtor did not own the rental properties, but collected the rent for his uncle, the owner. Plaintiff said she would not have loaned the money to debtor if she had known that he did not own the rental properties. She said she was blinded by love.

The court ruled that the plaintiff’s claim for the amount of the loan minus the payment was non-dischargeable pursuant to § 523(a)(2)(A). That section states that a debt arising from “false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition…” is not dischargeable.

However, the court found that the state court judgment was discharged because the undated check was only to be cashed if something happened to the debtor and it was written at a point in time when the parties agreed that the debtor did not have the funds to cover it.