Sunday, May 23, 2010

When is a Creditor Justifiable Allowed to Rely on Fraudulent Misrepresentations per Section 523(a)(2)

In re Treadwell, 423 B.R. 309 (8th Cir. 2010). The 8th Circuit addressed the "creditor’s justifiable reliance" element of Section 523(a)(2) and noted that the Supreme Court has held that the standard to be applied to exceptions to discharge for actual fraud is "justifiable reliance," which is a lower standard than "reasonable reliance," and entails no duty to investigate.
However, it is true that the receipient of a fraudulent misrepresentation is not justified in relying upon its truth if the receipient knows that it is false or its falsity is obvious to the recipient. The Treadwell court found that the facts of the particular case did not involve obvious warning signs of falsity, and the bankruptcy court had found no evidence that an investigation would have unearthed proof of the fraud.
But, the court noted a "red flag" exception for extreme situations such as a one-eyed hourse or where a debtor tells the creditor he will not be able to repay his debt.
Warmest Regards,

Bob Schaller

Your Bankruptcy Advisor

Blog By: Attorney Robert Schaller (Bob's bio) of the Schaller Law Firm Click for Bankruptcy Lawyer Job Opportunities. You are invited to contact Attorney Schaller at 630-655-1233 or visit his website at Discharging Student Loans to learn about how the bankruptcy laws can help you.

Bob is a member of the National Bankruptcy College Attorney Network, American Bankruptcy Institute and the National Association of Consumer Bankruptcy Attorneys.

For information about Chapter 7 bankruptcy Click Here
For information about Chapter 13 bankruptcy Click Here

NOTE: Robert Schaller looks forward to the opportunity to talk with you about your legal issues. But please remember that all information on this blog is for advertising and general informational purposes only. Please read Bob's disclaimer. I recommend that you review a few other blogs that may be of interest to you. These blogs are identified in the right column and are set forth below: bankruptcy issues blog; bankruptcy and family law issues blog; bankruptcy and employment issues blog; adversary defense blog; and bankruptcy and student loan issues blog.

No comments:

Post a Comment