Opinion ID: 166570
Heading Depth: 3
Heading Rank: 1

Heading: Text, Structure and Policy of the Bankruptcy Code

Text: 34 The Bankruptcy Code does not offer a definition of the phrase respecting the debtor's . . . financial condition. Nor does the Code even offer a definition of the term financial condition. However, the Code's definition of the term insolvent provides tangential support for the proposition that the phrase respecting the debtor's . . . financial condition should be construed as relating only to information on the debtor's overall financial condition. 35 The Code defines insolvent as, inter alia, the  financial condition such that the sum of [an] entity's debts is greater than all of such entity's property . . . exclusive of [certain types] of property. 11 U.S.C. § 101(32)(A) (emphasis added); see also id. § 101(32)(C) (defining a municipality's insolvency as the  financial condition such that the municipality is (i) generally not paying its debts as they become due unless such debts are the subject of a bona fide dispute; or (ii) unable to pay its debts as they become due) (emphasis added). The Code's use of the term financial condition in these definitions to refer to the difference between an entity's overall property and debts—the entity's net worth—in defining the word insolvent suggests that the term financial condition in § 523(a)(2)(A) and (B) also relates to a debtor's net worth or overall financial condition. This conclusion is buttressed by the fact that the Code uses the term financial condition to refer to an overall flow of funds—a cash flow—in defining when a municipality is insolvent. 36 Perhaps more importantly, as noted above, the text and structure of § 523(a)(2)(A) and (B) reveal that any interpretation of the phrase respecting the debtor's . . . financial condition will have opposing impacts on debtors and creditors under each of the sections. A strict reading fits better within the overall structure of the statute. The statute treats oral and written statements respecting the debtor's . . . financial condition very differently. If a debtor's oral statements respecting [his or her] financial condition later turn out to be false, debts obtained based on such statements can still be discharged under § 523(a)(2)(A). However, other fraudulent oral communications still bar from discharge debts obtained based on such communications under that provision, and under § 523(a)(2)(B) written statements respecting the debtor's . . . financial condition bar debts obtained based on them from discharge. 37 In oral communication, it is far more difficult to portray accurately one's overall financial position than to represent the condition of one particular asset or liability. After all, such communication is often informal and spontaneous, and one might simply forget a particular asset or liability when listing all of one's assets and liabilities. However, when asked to describe a particular asset or liability, one has had a particular subject called specifically to mind. Therefore, it is logical to give more leeway (and more dischargeability) to a debtor who errs in stating his or her overall position orally, since it is more likely that he or she may have made a mistake inadvertently. It is also logical to give less leeway to a debtor who makes a specific oral misrepresentation as to a particular asset, because it is less likely that such a misrepresentation is inadvertent. By the same token, it is logical to give little leeway (and less dischargeability) under § 523(a)(2)(B) to a debtor who fraudulently misstates his or her overall financial position in writing, since such communications carry an air of formality that their oral counterparts do not and are typically made after more studied consideration. 38 Thus, a strict interpretation of the phrase respecting the debtor's . . . financial condition to limit such representations to statements going to a debtor's overall financial net worth or financial condition is in keeping with the text and structure of § 523(a)(2)(A) and (B). 39