The Blubber

Supreme Court has ruled 9 to 0 that bankruptcy filers can’t avoid debt incurred by another’s fraud, per CNBC.

“Innocent people are sometimes held liable for fraud they did not personally commit, and, if they declare bankruptcy, [the bankruptcy code] bars discharge of that debt,” Barrett wrote. “So it is for Bartenwerfer, and we are sensitive to the hardship she faces.”

But “not all debts are dischargeable,” Barrett wrote in her ruling.

“The Code makes several exceptions to the general rule, including the one at issue in this case: Section 523(a)(2)(A) bars the discharge of ‘any debt ... for money ... to the extent obtained by ... false pretenses, a false representation, or actual fraud,’” Barrett wrote.

A U.S. Bankruptcy Court judge ruled in his favor, saying “that neither David nor Kate Bartenwerfer could discharge their debt to Buckley,” the opinion by Barrett noted.

“Based on testimony from the parties, real-estate agents, and contractors, the court found that David had knowingly concealed the house’s defects from Buckley,” Barrett wrote.

“And the court imputed David’s fraudulent intent to Kate because the two had formed a legal partnership to execute the renovation and resale project,” she added.

“As the panel saw it [a section of the bankruptcy code] barred her from discharging the debt only if she knew or had reason to know of David’s fraud,” Barrett wrote.

“But in her view, the statute is most naturally read to bar the discharge of debts for money obtained by the debtor’s fraud,” Barrett wrote.

“We disagree: Passive voice pulls the actor off the stage,” Barrett wrote.

The justice wrote that Congress, in writing the relevant section of the bankruptcy code, “framed it to ‘focu[s] on an event that occurs without respect to a specific actor, and therefore without respect to any actor’s intent or culpability.’ ”