affect the decision to grant credit.” 1 Moreover,
“[t]he omission, concealment, or understatement
of liabilities will ordinarily constitute a materially
false statement.” 2
or sufficient information; (3) the creditor’s
investigation of the PFS suggests the statement
is false or not complete; or (4) the creditor does
not independently verify (or require the debtor to
verify) the accuracy of the information contained
In analyzing whether this element has been in the PFS. 5
proven, courts often examine whether the creditor
or lender would have extended the credit or made
Was the written statement made or
the loan had it known of the debtor’s true financial
published with the int ent to deceive? In order
condition.
to prove this final element, a creditor must show
that the debtor acted in bad faith as compared to
Does the written statement describe simply using poor effort to complete the PFS.
debtor’s financial condition? As with the first Because a debtor is unlikely to ever admit acting
element, if the debtor submitted a PFS as part of fraudulently, intent to deceive may be inferred
the credit approval process, a court should find where “a person knowingly or recklessly makes
a false representation which the person knows
that this element has been proven.
or should know will induce another to make a
Did the creditor actually and reasonably loan.” 6
rely on the written statement in extending
credit? In analyzing this element, courts are not Factors the court may consider in analyzing
to subjectively evaluate and judge a creditor’s this element include: (1) the nature of the
lending policy and practices or second guess relationship between the creditor and debtor; (2)
a creditor’s lending decisions. 3 However, in the sophistication of the debtor with regard to
determining the reasonableness of a creditor’s financial matters; and (3) the debtor’s reliance, if
reliance on a case by case basis, the court will any, on professionals in preparing the PFS.
consider: “(1) whether the creditor’s standard
practices in evaluating credit-worthiness were Objecting to discharge of a debt in bankruptcy can
followed and (2) whether there existed a ‘red flag’ be both time-consuming and costly. However,
that would have alerted an ordinarily prudent depending on the actions of the creditor and
lender to the possibility that the information is debtor when credit was initially extended as
inaccurate.” 4
well as the amount of debt at issue (among
other considerations), a creditor may decide that
Common scenarios in which courts have found objecting is in fact an appropriate course of action
a lack of reasonable reliance by creditor include should the debtor choose to file for bankruptcy
when: (1) the creditor knows the disclosed protection.
information is not accurate, is incomplete or
inconsistent, or the PFS is erroneous on its
face; (2) the PFS itself fails to solicit adequate
5
3
4
1 See Matter of Bogstad, 779 F.2d 370, 375 (7th Cir. 1985) (citations omitted) and Midwest Comm. Fed. Cr. Union v. Sharp (In re
Sharp), 357 B.R. 760, 765 (Bankr. N.D. Ohio 2007) (citation omitted).
2 4 Collier on Bankruptcy, ¶ 523.08, at 523–72 (15th ed. 2015).
3 Peoples Trust and Sav. Bank v. Hanselman (In re Hanselman), 454 B.R. 460, 465 (Bankr. S.D. Ind. 2011).
4 Id. at 464-65 (citation omitted).
5 See Household Fin. Corp. v. Howard (In re Howard), 73 B.R. 694, 703 (Bankr. N.D. Ind. 1987).
6 Id. at 465-66 (quotation omitted).
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