By Richard Lear of Holland & Knight.
The Supreme Court held 7-1 in Husky Int’l Electronics v. Ritz that “actual fraud” under § 523(a)(2)(A) of the Bankruptcy Code does not require a false representation for a debt to be nondischargeable. In so holding, the Court resolved a split among the circuits.
Petitioner Husky International Electronics, Inc., argued that “actual fraud” under § 523(a)(2)(A) does not require a false representation, but instead encompasses other traditional forms of fraud, such as a fraudulent conveyance of property made to evade payment to creditors.
Acknowledging that “fraud” is difficult to define precisely, the Supreme Court nevertheless rejected the need to do so, stating that “[t]here is no need to adopt a definition for all times and all circumstances here because, from the beginning of English bankruptcy practice, courts and legislatures have used the term ‘fraud’ to describe a debtor’s transfer of assets that, like Ritz’s scheme, impairs a creditor’s ability to collect the debt.” The Supreme Court further recognized that the common law indicates that although fraudulent conveyances are “fraud,” fraudulent conveyances do not require a misrepresentation from a debtor to a creditor, because fraudulent conveyances are not “an inducement-based fraud.”
The full memo is available here.