Laws 2325

Kim Huggins

Module 7

                                                                                                                                      2-2-22

Topic Questions:

1. Under the rule of Husky, Terry did not initially obtain the loan from Alice using actual fraud within the meaning of §523(a)(2)(A). The reason being he did not originally obtain the debt using false pretenses, a false representation or actual fraud – he simply borrowed the money from Alice at the time. However, once Terry conveyed the property to Frank for less than the market value to deprive Alice of payment, then he filed for Chapter 7 Bankruptcy, it was at that time a false pretense occurred.

By filing for Chapter 7 Bankruptcy, Terry’s debt to Alice is nondischargeable since “a discharge under [Chapters 7, 11, 12, or 13] of this title does not discharge an individual debtor from any debt . . . for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation, or actual fraud.” §523(a)(2)(A).

Additionally, if Alice makes a claim against Frank for liability to her for fraudulent transfer, and Frank responds by filing under Chapter 7, Alice’s claim is not dischargeable. Just as the debtor who committed fraud by conveying property to a recipient, the recipient of the conveyance also commits fraud through this action. Thus, “if that recipient later files for bankruptcy, any debts ‘traceable to’ the fraudulent conveyance, (Field, 516 U. S., at 61; post, at 3) will be nondischargeable under §523(a)(2)(A).”

2. If this same case scenario were presented with Frank being oblivious to what Terry has done regarding undervaluing the property or the debtor’s attempt to defraud Alice, the situation could be different. In that scenario I researched how such a situation would be handled and found the following on this web site https://www.romanolaw.com/business-disputes/fraudulent-conveyance-in-bankruptcy/Links to an external site..

“Action may be taken against the immediate recipient (initial transferee) of the property or subsequent transferees. However, there are a few exceptions. First, the trustee cannot recover from a bona fide purchaser who purchases for value, in good faith, and without notice of the rights of others, or any subsequent transferee from a bona fide purchaser. In addition, an exception is made for those who made improvements to the property. They are given a lien on the property securing their interest.”

Additionally, in this case scenario under the rule of Husky, the debt Terry owes to Alice would still be nondischargeable in Terry's bankruptcy per §523(a)(2)(A). As noted in the following, “this would be a circumstance when a person who receives fraudulently conveyed assets is not necessarily (or even likely to be) a debtor on the verge of bankruptcy, but they make clear that fraudulent conveyances are not wholly incompatible with the ‘obtained by’ requirement, . . .” Intentional Fraudulent Conveyances And Bankruptcy Code §523(a)(2)(A) (uh.edu)Links to an external site.

I also based my answer on the following information I found on this web site https://www.law.uh.edu/news/faculty-news/fall2017/Cuevas.pdfLinks to an external site.

“The Bankruptcy Code §523(a)(2)(A) renders non-dischargeable debts obtained through fraud without the use of a written financial statement. 11 U.S.C. §523(a)(2)(A). Bankruptcy Code §523(a)(2)(A) states:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt-“

Reflection Questions:

1. I was really interested in the information discussed in the book about the Uniform Fraudulent Conveyance Act and the Uniform Fraudulent Transfer Act. It is nice to know that such a law exists to help provide for relief to creditors who are “victims” to this type of fraud, as I am sure this type of false misrepresentation occurs more often than one realizes. It is interesting to read the history of how these two acts came into existence as noted in the following “As early as 1571, the Statute of Elizabeth, the first Fraudulent Conveyance Act, was passed. Since that time our courts have developed a large body of case law, which largely supports the claims of “creditors and others” to set aside fraudulent conveyances.” Understanding the Fraudulent Conveyance Act | DisinheritedLinks to an external site. The noted web site article provides a great deal of information regarding these two acts which I found informative to read. It really did provide a detailed description as to how these two acts provide relief for creditors whose debtors have tried to defraud them through fraudulent acts.
2. As far as ethical issues, I would have to defer back to the material I just discussed regarding fraudulent transfers of property. This is a highly unethical move on behalf of the debtor to attempt to alleviate their debts through this method. However, any type of fraud would be considered an unethical situation, especially when the debtor then files for bankruptcy after conveying property or other assets through fraudulent means.
3. The most challenging aspect of this week’s module was understanding the discussion scenario presented for Module 7. There was a lot of information provided in the question scenario and it took a great deal of rereading and additional research to clearly understand how the scenario worked. I read more about the case on the following web sites Intentional Fraudulent Conveyances And Bankruptcy Code §523(a)(2)(A) (uh.edu)Links to an external site. and Husky Int’l Electronics, Inc. v. Ritz :: 578 U.S. ___ (2016) :: Justia US Supreme Court CenterLinks to an external site.. Reading the case on those two web sites did help me to better understand the questions that were presented in this week’s discussion.