Bartenwerfer v. Buckley, Slip Op. 2022 October Term Docket 21-908
The United States Supreme Court issued an important ruling pertaining to the fraud exception to a debtor’s discharge.
U.S. bankruptcy law permits an eligible debtor to discharge (or be released of) liability for pre-petition debts. The laws pertaining to such discharge however contain a number of exceptions to the applicability of the discharge including any debt for money obtained by fraud.
In this case, a judgment had been entered pre-bankruptcy against husband and wife debtors by a buyer of real property that the debtors had sold her. The judgment was rooted in fraud, however the debtor-wife was unaware of the circumstances that led to the fraud. The Supreme Court was asked to decide whether the fraud exception to discharge should extend to the wife who did not personally commit the fraud, but ended up being indebted as a result of it.
The Supreme Court’s unanimous decision held that the fraud discharge exception did apply to the debtor-wife because the Bankruptcy Code section that excepts debts obtained by fraud from discharges turned on how the money was obtained (i.e. how the debt was incurred) rather than who committed the fraud to obtain it.