2008 Recent Developments in Discharge and Dischargeability Litigation

By Hon. Keith M. Lundin

lost his job, stopped making payments and eventually ended up in Chapter 7. Relief from stay was granted and mortgagee foreclosed. All elements for nondischargeability under S 523(a)(2)(A) were present except causation: "'[I]t appears clear that [Appellant] was not and would not have been able to maintain the property. . . . When she turned [the property] over to [debtor] . . ., she was already behind on the payments, including the real estate taxes. . . . [Appellant] had the burden to prove that she could have continued to pay for [the property] and thus preserve the property, or that she had not turned it over to [Debtor] (or promptly gotten back when she asked), there was enough equity in the property for her to have sold it and realized some equity, and that she would have done so. There was no such proof presented.' . . . Essentially, the bankruptcy court found that Appellant did not have the ability, financial or otherwise, to retain the [ ] property. Based on the record before us, we cannot say that this finding is clearly erroneous. Therefore, Appellant's S 523(a)(2)(A) claim was properly denied.").

4. Reliance

Chase Bank USA, N.A. v. Park (In re Park), 375 B.R. 153 (Bankr. W.D. Pa. 2007) (In a credit card nondischargeability case, issuer of unsolicited credit card cannot claim reliance on misrepresentations with respect to other debt when it never asked debtor about assets or other debt. "[Plaintiff] argues that Debtor had some $38,000 in unsecured indebtedness and therefore knew, or should have known, that he could not repay the debt. But [Plaintiff], in extending credit on this credit card, never asked Debtor whether he had assets, nor did [it] ask if Debtor had other debts. [Plaintiff] cannot now be heard to argue that it relied on Debtor having a good balance sheet.").

a. Elements of proof under S 523(a)(2)(B)

New Falls Corp. v. Boyajian (In re Boyajian), 367 B.R. 138 (B.A.P. 9th Cir. 2007) (Downstream assignee can prove reasonable reliance for S 523(a)(2)(B) purposes notwithstanding that false financial statement was actually given to original lender long before assignment. "'[A]n assignee merely steps into the shoes of his assignor [ ]. The question of what rights and remedies pass with a given assignment depends on the interest of the parties.'. . . Imposing a requirement that New Falls prove its own reliance, independent of Epic's, not only imposes a barrier to enforcement of its assignment rights, it makes no sense when applying the remedy made available under S 523(a)(2)(B). . . . 'For purposes of [S] 523(a)(2), however, the timing of the fraud and the elements to prove fraud focus on the time when the lender . . . made the extension of credit to the Debtor. In other words, [the] assignee of the Agreement . . . steps into the shoes of its assignor . . . , and the inquiry of whether a creditor justifiably relied on Debtor's alleged misrepresentations is focused on the moment in time when that creditor extended the funds to Debtor.' . . . For purposes of S 523(a)(2)(B)(iii), the term 'creditor to whom the debtor is liable' necessarily is a temporal concept, relating to the creditor who extended credit to the debtor when the loan was made. It would be absurd to interpret it otherwise.").

Fischer Inv. Capital, Inc. v. Cohen (In re Cohen), 507 F.3d 610 (7th Cir. 2007) (Plaintiff failed to establish that hand written list of accounts receivable - some listed as "hopeful," some tied to no

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