Source: https://www.rngbankruptcy.com/author/alexhess/
Timestamp: 2019-04-22 08:15:53+00:00

Document:
In a recent decision by Bankruptcy Judge William C. Hillman in the case of In re Kappeler, the Bankruptcy Court in Boston was presented with a Motion to Dismiss an adversary proceeding seeking to declare a debt that the Debtor thought was a dischargeable breach of contract one for a non-dischargeable fraud. The Debtor, an electrician, had been hired to do some electrical work for the plaintiff, an assisted-living facility in Blackstone, Massachusetts.
The plaintiff claimed that the Debtor had represented that he would perform the electrical work and install a fire alarm system in a competent fashion, that he would complete all work to code standards and that all work had passed inspection. The plaintiff went on to allege that the electrical work was not code compliant and did not meet the requirements for a commercial assisted-living facility, necessitating the plaintiff to pay substantial sums for correction of the work performed by the Debtor. When the Debtor filed a petition for bankruptcy protection under Chapter 7 of the Bankruptcy Code, the plaintiff brought an adversary proceeding to declare the debt owed to it to be non-dischargeable for fraud.
The Debtor responded with a Motion to Dismiss the case based upon the assertion that, among other things, the Plaintiff’s damages were caused from substandard work (i.e. a breach of contract) and not from any misrepresentation as to whether the work was “up to code” or had not been inspected (i.e. positive fraud). The court denied the Motion to Dismiss pointing out that the Debtor had been paid some $35,000 for the electrical work that he did do and therefore the claim for fraud, although needed to still be proven with evidence, the adversary proceeding’s Complaint, in fact, was “plausible” and therefore not subject to being dismissed by the court at that point in the adversary proceeding.
What does this really mean for debtors and creditors? Generally, a simple breach of a contract, by itself, does not give rise to a debt that is non-dischargeable for fraud. However, where specific representations are made about the quality of the work or whether work will be performed in a particular way, such representations may give rise to a potential adversary proceeding for non-dischargeability. By comparison, in the case of Bellas Pavers v. Stewart, the very same Judge granted a directed verdict in favor of the Debtor after the close of a plaintiff creditor’s case where the creditor (a sub-contractor) could not prove that the Debtor (the general contractor) intended not to pay the contractor at the time that the contractor was retained. Judge Hillman was affirmed by the Bankruptcy Appellate Panel for the First Circuit on an appeal defended by my firm. Which only goes to show that when differentiating between a contract claim and fraud claim, the “devil is in the details”.
In Re: Kappeler, Daniel W. (Lawyers Weekly No. 04-012-14) (16 pages) (Hillman, J.) (USBC) Jonathan Horne, of Jager Smith, for the debtor; Patrick O. Flaherty for plaintiff Ducharme Estates, Ltd. (Chapter 7 Case No. 11-18166-WCH; Adversary Proceeding No. 13-1166) (Jan. 30, 2014).
In general, student loans are considered long-term non-dischargeable debts. This means, even after your Chapter 7 or Chapter 13 Bankruptcy, you still owe and will have to repay your student loans. However, there is an exception, and it is usually used for medical and chronic illnesses, called the “Undue Hardship” test. If a Debtor can show that repayment of student loans would prove to be an “undue hardship” then the Judge can order student loans dischargeable and no longer owing. However, this test is difficult to meet, and first and foremost, a Debtor must exhaust his or her repayment options with the student loan holder (whether it be U.S. Dept. of Education, Sallie Mae, or a private bank or institution). Most notably are the two repayment plan options offered for Federal student loans: (1) Income-Based Repayment; and (2) Income-Contingent Repayment.
Under a recent bankruptcy case where the judge DENIED the debtors request to declare his student loans dischargeable, the Judge determined that the debtor did not meet his burden under the “undue hardship” test because he didn’t try or exhaust these two programs for repayment first.
Where a plaintiff Chapter 7 debtor has filed a complaint for a declaration that his student loan debt to the defendant is dischargeable, the debtor has not met his burden of establishing that it would be an undue hardship for him to repay his student loan.
“The Debtor’s other basis for seeking discharge of his student loans is a rather non‐specific argument that he has not been able to find continuous and reliable work. This, he suggests, is attributable to the market for his services, to a series of unfortunate job placements, and ultimately to an extended period of unemployment. This history does not come close to establishing that he will not be able to repay his student loans without undue hardship. … By the time of the trial, the Debtor had succeeded in locating a well‐paying, full‐time job with considerable employee benefits. His family income and benefit package had risen to a level at which the Debtor should be able to survive without exposing himself and his family to undue hardship by virtue of repaying his student loans. Therefore, the Debtor’s second basis for suggesting that his student loan should be discharged is equally unavailing.
In Re: Nargassans, Timothy Charles (Bailey, J.) (USBC) (Chapter 7 Case No. 10-12766-FJB; Adversary Proceeding No. 10-1170) (July 11, 2013).
A Boston Bankruptcy Judge recently held that a Chapter 13 Plan must include all pre-petition arrears in their plan, or it cannot be confirmed.
Where a mortgage lender has objected to confirmation of a Chapter 13 plan, the objection must be sustained and the plan cannot be confirmed unless the plan provides for a plan to cure all of the prepetition arrearage.
In Re: Everett, Ella L. (Bailey, J.) (USBC) (Chapter 13 Case No. 10-19457-FJB) (July 15, 2013).
If you have questions about your income level, and what qualifies as income for the purposes of a bankruptcy, please feel free to call our office at (617) 742-4491.
Where a debtor owes fees to the law firm that represented her in a divorce proceeding, the debt is nondischargeable under 11 U.S.C. §523(a)(2)(A).
“… Kenneally did promise to pay CKRPF for the services of its attorneys and for its expenses. She also promised to make this payment from the proceeds of the marital home, upon its sale. In making these promises, however, she tacitly but consciously reserved to herself the prerogative of paying as she saw fit in light of her then‐existing financial circumstances. I do not find that, when she made the promises, she had resolved not to pay — the evidence suggests that she did not decide whether she would pay until much later. I do find that, notwithstanding her outward promises, she had not, when she made her promises, resolvedto pay, had made no internal commitment to pay. As a promise is a commitment, her lack of commitment, resolve, and intent to pay rendered the promise false, a false representation of her intent and state of mind. ‘[A] promise made with a positive intent not to perform or without a present intent to perform satisfies §523(a)(2)(A).’ Rubin v. West (In re Rubin), 875 F.2d 755, 759 (9th Cir. 1989) (emphasis added). She made this false representation with knowledge of its falsity, knowledge that the Firm was unaware of her inward reservation, and intent to deceive and induce reliance.
In Re: Kenneally, Erin G. (Bailey, J.) (USBC) (Chapter 7 Case No. 11-22021-FJB; Adversary Proceeding No. 12-1074) (May 24, 2013).
Where a creditor has charged a debtor with fraud under 11 U.S.C. §523(a)(2)(A), the debtor is collaterally estopped from relitigating the fraud issue based on a state court jury verdict.
“The parties’ present dispute centers on whether the issue decided by the jury in the Superior Court case is identical to the issue presented in the adversary proceeding under §523(a)(2)(A). That is, whether the elements of fraud under Massachusetts law, as found by the jury based on the jury instructions, and fraud under §523(a)(2)(A) are identical. If the two standards are sufficiently identical, then the Debtor is collaterally estopped from litigating the merits of an exception to discharge under §523(a)(2)(A).
In Re: Spagnuolo, Robert E., Jr. (Lawyers Weekly No. 04-039-13) (26 pages) (Feeney, J.) (USBC) (Chapter 7 Case No. 11-10844-JNF; Adv. P. No. 11-1290) (May 15, 2013).

References: v. 
 §523
 §523
 v. 
 §523
 §523
 §523
 §523