Debtor applied for a secured loan from ITT pledging as collateral a television, VCR, rifles, a stereo, “kids bikes”, a riding mower and mechanics tools. The debtor represented in written loan documentation that the tools were valued at $20,000 and the other collateral valued at $4,000, although debtor was later to reveal that he only owned about $400 to $500 in tools and that his misrepresentation on the loan documentation was only an oversight.

ITT produced no evidence that the loan officers had reviewed and relied upon the loan application submitted by debtor, although ITT did have a representative inventory the collateral at debtor’s residence.

The Bankruptcy Code permits the court to hold a creditor’s debt nondischargeable if the debtor obtains money obtained by false pretenses and if the creditor reasonably relies upon a written false misrepresentation by the debtor.

Here, the court held that ITT did not reasonably rely upon the false loan application and the court discharged this debt, only awarding ITT possession of the undersecured collateral. ITT Financial Services v. Eugene Schoenlein, 157 B.R. 824.

Author: Charles R. Harroun, Attorney at Law