Lee Dunham—Senior Attorney, National Legal Research Group

      It can be frustrating for creditors when a debtor files for bankruptcy, especially when the creditor has put time and expense into successfully litigating a claim in court and obtaining a judgment. Nonetheless, with limited exceptions, even judgment debts are dischargeable in bankruptcy. Among these exceptions to discharge are exceptions that apply to certain fraudulently incurred debts. To claim the benefit of these exceptions, the creditor must bring a timely filed “adversary proceeding” (a suit filed in the Bankruptcy Court, under a separate case number but under the umbrella of the larger bankruptcy case) and plead and prove that a particular debt is nondischargeable under 11 U.S.C. § 523(a)(2)(A) or (B).

      In nondischargeability actions brought pursuant to § 523(a)(2)(A), the plaintiff bears the burden of proving the elements of the claim by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291 (1991); In re Ricker, 475 B.R. 445, 455 (Bankr. E.D. Pa. 2012); In re Witmer, 541 B.R. 769, 777 (Bankr. M.D. Pa. 2015).

      A claim is nondischargeable under § 523(a)(2)(A) where the creditor proves each of the following: (1) the debtor obtained money through a material misrepresentation that, at the time, the debtor knew was false or was made with gross recklessness as to its truth; (2) the debtor intended to deceive the creditor; (3) the creditor justifiably relied on the false representation; and (4) its reliance was the proximate cause of loss. In re Rembert, 141 F.3d 277, 280-81 (6th Cir. 1998). Section 523(a)(2)(A) applies only to statements other than statements “respecting the debtor’s or an insider’s financial condition,” which fall under the narrower exception defined under § 523(a)(2)(B).

Lee Dunham—Senior Attorney, National Legal Research Group

            Student debt is the second-largest source of U.S. household debt, at nearly $1.4 trillion. Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit (accessed on Nov. 10, 2018). It is projected that nearly 40% of student loan borrowers will default by 2023. Judith Scott-Clayton, The Looming Student Loan Default Crisis Is Worse Than We Thought (accessed on Nov. 10, 2018). Many attorneys have seen increased requests for student loan advice.

            Because students are often young and legally unsophisticated at the time they borrow, many understand little about their contracts, or have lost—or never obtained—copies of the essential documents. The first step in such circumstances is to have the client contact the servicer to request copies of the promissory note and related documents, payment history, name and address of the current lender, and documentation of any transfers.