Here, the debtors somehow were able to have title to their vehicles issued that did not reflect the creditor’s lien.

Debtors then filed a Chapter 7 Bankruptcy and Sears filed an adversary complaint with the Bankruptcy Court alleging the debtors committed fraud in having the creditor’s lien removed from the title.

A discharge under the Bankruptcy Code does not discharge an individual debtor from any debt for fraud or defalcation while acting in a fiduciary capacity.

The Court condemned the actions of the debtor and found them to be most reprehensible. The Court even assumed that all elements of fraud and defalcation were met by Sears.

However, the Court further found that Sears had failed to provide evidence that the debtor was “acting in a fiduciary capacity.” In addition, the Court found no evidence that the debtor’s wife, who also joined in the bankruptcy, participated in removal of the Sears lien on the vehicles’ titles.

This Court also noted that there was no evidence produced indicating the debtors acted with willful and malicious intent to injure the creditor.

Consequently, the Court held that Sears had not met its burden of proof and the debtors were nonetheless discharged of their debt to Sears. If Sears had produced evidence of the debtors’ “fiduciary capacity”, they could have prevailed.  Sears Consumer Financial Corporation v. Dennis Gibson, 129 B.R. 612.

Author: Charles R. Harroun, Attorney at Law