In re: Bradley

Debtor and his wife sought relief under chapter 7 of the Bankruptcy Code. Debtor owns Bradley Machinery, which sells and rents construction equipment. Bradley did not file a bankruptcy petition. Some of Bradley’s equipment was subject to security interests in favor of Lender; Debtor had personally guaranteed payment of the loans. Lender filed an adversary proceeding asserting that Debtor caused Bradley to sell equipment “out of trust,” without remitting the proceeds of the sale of collateral to Lender, constituting embezzlement under 11 U.S.C. 523(a)(4) and willful and malicious injury under section 523(a)(6). Pursuant to section 523(a)(2)(A). Lender asserted that Debtor obtained an extension of credit through false representations to Lender regarding the status of certain pieces of collateral. The Bankruptcy Court held that Lender had failed to show that the debt was nondischargeable. The Sixth Circuit Bankruptcy Appellate Panel affirmed on alternate grounds and remanded for determination of damages. Lender suffered a loss due to Debtor’s misrepresentations regarding the status of the collateral. Debtor’s subjective intent to repay is not a factor under section 523(a)(2)(A) when there is a separate specific false material misrepresentation. Debtor knew that Lender would rely on these misrepresentations when determining whether to continue to extend credit. View "In re: Bradley" on Justia Law