A bankruptcy court may grant a discharge of remaining debts at the end of a case, allowing a fresh start for the debtor. Certain debts, however, are not eligible for discharge. A bankruptcy judge in California recently considered a creditor’s argument that an alleged debt was nondischargeable on one or more fault-based grounds, since it was incurred as a result of fraud or false pretenses, fraud by a fiduciary, or willful and malicious acts resulting in injury. 11 U.S.C. §§ 523(a)(2)(A), (a)(4), (a)(6). The judge reviewed the standard of proof for each alleged ground and ruled that the creditor failed to provide sufficient evidence to support her claims. In re Ogilvie, No. 13-bk-31179, Adv. Proc. No. 13-ap-03221, mem. dec. (N.D. Cal., Feb. 23, 2015).
A debt involving something of value obtained through “false pretenses, a false representation, or actual fraud” is not dischargeable. 11 U.S.C. § 523(a)(2)(A). The Ninth Circuit, which includes California, uses a five-part test in this sort of claim: (1) the debtor made statements or representations to the creditor, (2) which they knew at the time were false, (3) with fraudulent intent, (4) and the creditor reasonably relied on these statements or representations in making the transaction and (5) suffered damages as a result. In re Eashai, 87 F.3d 1082, 1086 (9th Cir. 1996). A creditor must establish each element by a preponderance of the evidence.
Debts incurred through fraud while acting in a fiduciary capacity are not dischargeable. 11 U.S.C. § 523(a)(4). A creditor has to prove, by a preponderance of the evidence, the existence of an express trust, the actual act of fraud, and the fiduciary relationship. In re Stanifer, 236 B.R. 709 (B.A.P. 9th Cir. 1999). Proving a trust requires evidence of a trust agreement, including “sufficient words to create a trust.” Ogilvie, mem. dec. at 9.