- Case No. 14-11278
- Adv. No. 15-1027
Issues: (1) Whether debtor committed a false representation or actual fraud within the meaning of 11 U.S.C. §523(a)(2)(A) when he induced litigant to settle a lawsuit with two of his closely held corporations that he knew were no longer in business. (2) Whether debtor's execution of an agreement settling the creditor's state court lawsuit was a false statement concerning the debtor's financial condition within the meaning of §523(a)(2)(B)?
RULING: Debtor was sole shareholder of two closely held corporations creditor had sued on a contract for architectural services. Debtor and his corporations settled the claim for $22,500, to be paid over time. Debtor knew when he signed the agreement that the corporations had not been doing business for over a year. The settling parties also agreed to entry of a consent judgment against the corporate entities and debtor. One of the defunct corporations made the only two payments on the settlement. Meanwhile at debtor's request, creditor agreed to amend the consent judgment to remove debtor, who claimed that the judgment was impairing his ability to obtain credit to pay the settlement. After the judgment was amended to remove the debtor in his individual capacity, neither he nor his corporate entities made any further payments. The bankruptcy court held that the debtor made false representations and committed actual fraud pursuant to 11 U.S.C. §523(a)(2)(A) when he induced the creditor to settle with corporations the debtor knew had not been conducting business for some time and later inducing the creditor to release him. The court also held that the settlement agreement was not a statement in writing concerning the debtor's financial condition within the meaning of §523(a)(2)(B).