Congratulations Ron Buchmeier on finally entering the ranks of the retired. After over twenty years with the firm, Ron retired from the practice of law in January 2018. Happy Retirement! We all wish you the...
Bankruptcy: The Fraud Exception While the general rule is that a person who files for bankruptcy is relieved from all debts incurred by that person before the filing of the bankruptcy, as with all general rules, there are exceptions, and one of those exceptions has been the subject of some debate in recent years. Specifically, the Bankruptcy Code does not allow a person to discharge a debt to the extent that debt was obtained by fraud. Exactly how that provision of the Bankruptcy Code was to be enforced has been the subject of some disagreement, but the Supreme Court has now offered its opinion pursuant to a case arising out of Texas. In Husky International Electronics, Inc. v. Ritz, the United States Supreme Court has found that the term “actual fraud” found in §523(a)(2)(A) of the Bankruptcy Code encompasses forms of fraud, like fraudulent conveyance schemes, that can be effected without making a false representation. In Husky, a company controlled by Ritz incurred unsecured debt to Husky. Rather than paying the debt, Ritz caused the assets of the debtor entity to be transferred to other entities owned and controlled by Ritz. Husky then filed a lawsuit against Ritz seeking to hold him personally responsible for the company’s debt citing a Texas statute which made shareholders liable for their “actual fraud”. In response, Ritz filed for Chapter 7 bankruptcy relief. Husky contended that Ritz could not discharge his obligations to Husky in bankruptcy because the inter-company transfer scheme constituted “actual fraud” pursuant to 11 U.S.C. §523(a)(2)(A). That section reads as follows: A discharge under [Chapter 7, 11, 12, or 13]...
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