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Supreme Court rules that fraud incurred by a partner makes a debt accepted from discharge

by | Mar 21, 2023 | Bankruptcy, Chapter 7

In a unanimous decision, the United States Supreme Court recently determined that the fraud exception from getting a discharge in bankruptcy, applies equally when the fraud was incurred by a debtor’s former partner, and not the debtor itself.

Debts that are fraudulently incurred are one of the exceptions to a bankruptcy discharge, although not an automatic exception – it requires the creditor to file an objection. In a case arising out of California, a husband and wife were sued for not making certain disclosures when they sold the house. They lost, and then filed bankruptcy. The creditor objected, and the intermediate appellate court said that only the husband was guilty of fraud and not the wife, so they let her obligations get discharged. The Supreme Court reversed that ruling.