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06
Oct
2020

Nondischarable Debt: False Loan Application

False Credit Union Loan Application results in nondischargeable debt for Credit Union.

Here, debtor applied for several loans at the Credit Union, and on all but the last application, the debtor listed a mortgage debt on her residence.

Each of the loan applications were denied due to an unacceptable debt to income ratio, except for the last application that was approved because the debtor did not list the existing mortgage of about $57,000.

The debtor then filed a Chapter 7 bankruptcy and the Credit Union filed a complaint to exempt the debt from discharge due to debtor’s failure to list the additional $57,000 debt on the loan application (even though she had listed that debt on the prior loan applications).

Section 523(a)(2)(B) of the Bankruptcy Code provides that a debtor is not discharged from a debt for money or property obtained by: (1) the debtor’s use of a written statement; (2) that is materially false; (3) regarding the debtor’s financial condition; (4) on which the creditor reasonably relied; and (5) that the debtor caused to be made or published with intent to deceive.

Here, the Credit Union had the loan officer testify that she had relied on the last loan application supplied, even though the prior applications did in fact disclose the $57,000 debt.

The court held that the Credit Union had established partial reliance on the debtor’s application and that was sufficient to establish fraud by the debtor. Teachers Credit Union v. Geneva Johnson, 131 B.R. 848.

Author: Charles R. Harroun, Attorney at Law



This entry was posted on Tuesday, October 6th, 2020 at 9:07 am and is filed under Bankruptcy, Mortgages, National. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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