Opinion
No. 79-77 T
September 11, 1980
Former Bankruptcy Act — Discharge of Debts — False Financial Statements — Intent to Deceive
Although the financial statement submitted by the bankrupts was "technically" false, due to the omission of three outstanding debts, the court discharged the debt under Section 17a(2) of the Bankruptcy Act. Not having the intent to deceive, the bankrupt inadvertently omitted these obligations by automatically deducting one debt from his paycheck and by believing that his parents were responsible for the other. See Sec. 17a(2) at ¶ 2146, and Sec. 523(a)(2) at ¶ 9228.
[Digest of Opinion]
In applying for and obtaining a loan from the creditor, the bankrupts submitted a financial statement in which they listed their then outstanding debts. On the bottom of the form, they wrote in their own handwriting, "we have no other debts." Thereafter, the bankrupts executed a promissory note on which they subsequently became delinquent, renewed the loan, and executed a new promissory note. In connection with this later transaction, the bankrupts executed a second financial statement. Thereafter, the bankrupts filed voluntary petitions in bankruptcy.
The court, in response to the creditor's argument that the submitted statements were materially false and therefore non-dischargeable under Sec. 17a(2) of the Bankruptcy, stated that most of the obligations allegedly omitted were store charge accounts and bank credit accounts which were listed by the bankrupts in their schedules, with nothing in the record to affirmatively establish that there was a balance at the time the financial statements were executed. However, it was undisputed that the financial statements were technically false as the bankrupt omitted three obligations for a total of $611.81.
Thus, having established that the financial statements were technically false, the creditor was additionally required to establish that the false statements were made with an intent to deceive. The court found that the debts which were omitted were not substantial and their deletion was apparently inadvertent. The record reflected that the obligation to one creditor was not listed by the bankrupt because it was automatically deducted from his paycheck. The other was not listed because the bankrupt's parents were paying the indebtedness. In light of the relatively small amount of the omitted debts and the explanation offered by the bankrupts, this court was satisfied that the bankrupt failed to carry the burden of proof as to the existence of any specific and actual intent to deceive on the part of the bankrupts. Consequently, the debt under consideration was declared to be dischargeable.