Nurnberg Provides Insights on SCOTUS’ Recent Bankruptcy Fraud Ruling in Law360

May 17, 2016

Through its decision in in Husky International Electronics Inc. v. Ritz, the US Supreme Court has declined to establish a narrow interpretation of “actual fraud” in determining whether debts can be discharged through bankruptcy, overturning the Fifth Circuit and endorsing a broader view of a provision that bars parties from shedding debts obtained under false pretenses.

Bankruptcy & Restructuring partner and managing partner of the firm’s Chicago office, Tyler Nurnberg, commented on the significance of the High Court’s ruling for Law360:

"It’s a good result. While the issue decided was a narrow one, the case averted a serious threat to creditors, especially in the lending community, had the lower court decision been allowed to stand. The Bankruptcy Code’s discharge provisions strike a delicate balance between giving individuals who cannot pay their debts a 'fresh start,' while preventing them from using the process to escape liability for intentional misconduct. It is already difficult, some argue too difficult, for a creditor to establish that its debt was procured as a ... result of actual fraud. If the exception were narrowed to require a false representation, it would exclude other forms of intentional misconduct commonly believed to constitute fraud. Also, there is a concern in bankruptcy circles that limiting the exception to cases involving a misrepresentation would create a 'safe harbor' for unscrupulous debtors looking to evade liability for an endless variety of fraudulent schemes."

» Read the full article on Law360 (subscription required).

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