By now (unless you’ve been living under a rock), we’re all familiar with the expression, “Netflix and chill.” It’s everywhere. Flooding your Instagram feed with duplicitous memes. Halloween costumes. Really, really bad pick-up lines. Like the many trite colloquialisms that have come before it, Netflix and chill’s ubiquity has begun to wane with overuse and time.
One goal of bankruptcy for individuals is the discharge of debts, meaning that, upon the successful completion of their bankruptcy case, the debtor is no longer personally responsible for the obligations owed prior to the bankruptcy filing. There are certain exceptions to the discharge that apply to particular debts, generally for obligations on debts that are either preferred (such as certain taxes or support obligations) or debts that were incurred under circumstances perceived as bad acts (such as willful and malicious injury or fraud).
On May 16, the U.S. Supreme Court decided Husky International Electronics, Inc. v. Ritz[1], ruling that the term “actual fraud” in section 523(a)(2)(A) of the Bankruptcy Code includes forms of fraud that do not involve a fraudulent misrepresentation.
On May 16, 2016, the United States Supreme Court decided the term “actual fraud” in Bankruptcy Code § 523(a)(2)(A) encompasses forms of fraud, like fraudulent conveyance schemes, that can be effected without a false representation by a debtor. Importantly, the Husky International Electronics, Inc. v. Ritz, No. 15-145, 2016 WL 2842452 (U.S. May 16, 2016) opinion clears up a split among the lower courts on the question of whether the phrase “actual fraud” requires a false representation to be made to a creditor.
On Monday, May 16, 2016, the Supreme Court issued its decision in the case of Husky Int’l Elecs., Inc. v. Ritz, — S. Ct. —, 2016 WL 2842452 (2016) resolving a split between the Fifth and Seventh Circuit Courts of Appeal regarding the scope of the “actual fraud” exception to an individual debtor’s bankruptcy discharge. In relevant part, Section 523(a)(2)(A) of the Bankruptcy Code prohibits debtors from discharging “any debt . . . for money, property, [or] services . . . to the extent obtained, by . . .
On May 16, 2016 the United States Supreme Court issued an opinion regarding the meaning of “actual fraud” under the Bankruptcy Code. Husky Int’l Electronics, Inc. v. Ritz represents a win for creditors by making it easier to show that a debtor committed fraud. A showing of a more general fraud, as opposed to a specific false representation by the debtor, will suffice to prevent certain debts from being discharged in bankruptcy.
Background
On May 16, 2016, the U.S. Supreme Court decided Husky International Electronics, Inc. v. Ritz, No. 15-145, holding that the "actual fraud" bar to discharge under section 523(a)(2)(A) of the Bankruptcy Code encompasses an individual debtor's knowing receipt of fraudulently transferred property.
Statutory Background
On May 16, 2016, the Supreme Court of the United States handed down its opinion in Husky International Electronics, Inc. v. Ritz, Case No. 15-145.
A Supreme Court ruling this week should give creditors a powerful tool to collect their debts from debtors who try to transfer assets before seeking bankruptcy protection. The primary reason an individual may turn to personal bankruptcy is to protect assets from creditor collection while obtaining a “discharge” from debts. Such protection is increasingly necessary where an individual is being pursued by one or more creditors, particularly where those creditors may have obtained (or are about to obtain) judgments against the individual.
In a favorable ruling to creditors and bankruptcy trustees, SCOTUS issued its ruling yesterday in Husky Int'l Elecs., Inc. v. Ritz (In re Ritz) addressing a circuit split on whether “actual fraud” requires a debtor in bankruptcy to have made a false representation. The 7-1 majority found that “actual fraud” under §523(a)(2)(A) of the Bankruptcy Code to encompass fraudulent conveyance schemes, even when those schemes do not involve a false representation.