Fraudulent Financial Statement, But I Only Wrote What They Told Me Too (part two)
By Kurt O'Keefe, Attorney at Law on Oct 1, 2007 in General Bankruptcy Information
Our first discussion involved a creditor suing a debtor already in bankruptcy for fraud, so that the debt would not be discharged.
The bankruptcy code imposes additional requirements on a creditor filing an exception to discharge suit based on a statement in writing.
Most creditors no longer rely on hand written application for a credit card or loan.
Many credit unions still do this.
The people in the lending department are always friendly. It is natural selection at work, the nasty people naturally incline toward working in the collection department.
That friendly person who helped you fill out the application will not be around for the review of your account after you file your bankruptcy.
The wording of the law, 523(a)(2)(B) use of a statement in writing-
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive;
As discussed earlier, the creditor has to file this suit against you in bankruptcy court, pay the filing fee, and probably an attorney, and prove each element of its case, that burden of proof being on the creditor.
If you receive such a complaint, contact your attorney immediately. Remember, she will not be automatically required to defend you in this suit. Check the retainer agreement you should have with your lawyer. You can hire another attorney to defend the suit, but you definitely need an attorney.
The financial statement has to be “materially” false.
If you stated your hair or eye color wrong, that will not be material, that is, the creditor did not rely on that fact in deciding whether to extend you credit.
This type of error also does not relate to your financial condition.
Now, if you put down your income as $200,000 per year, and it was really $50,000 per year, that might be material, and certainly relates to your financial condition.
The creditor still has to prove reasonable reliance.
Some courts have held, a creditor cannot rely on a statement about real estate ownership, or something similar, that can be easily checked against public records.
Something else that needs to be investigated, is, what are the factors this creditor relies on in the ordinary course of its business, in extending credit?
If the creditor always gets a credit report, it will not be able to claim reliance on the list of debts on your application.
This helps, if you were assisted by the credit union, or other creditor, employee, who handed you a form that had room for only three creditors, and told you not to worry about listing any more than that.
A creditor may be filing this complaint simply to bludgeon money out of you as a settlement.
The law does allow you to recover your attorney fees, if you have not settled, in that type of case.
As always, keep your attorney advised, do not assume they received the same papers you have, do not delay, you need good legal advice if this happens to you,
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