The bankruptcy court excepted part of a judgment debt from discharge under § 523(a)(2)(A).

The parties met in Arizona and dated briefly before the defendant moved back to Nebraska. The parties have differing perspectives on whether they were in a romantic relationship or merely a friendship after the defendant’s relocation, but the plaintiff agreed to lend money to the defendant to help him pay off some debts. The plaintiff drafted an agreement to loan the defendant up to $55,000, and he agreed to its terms. The plaintiff believed she would receive his truck title as collateral as soon as the truck was paid off. The parties soon revised the loan agreement to include additional debt of approximately $6,750. The defendant made payments to the plaintiff until he was laid off from his job less than two months later.

After signing the revised loan agreement and before losing his job – and unbeknownst to the plaintiff – the defendant continued to borrow from commercial lenders. He made regular monthly payments on those loans even after the job loss, although he made no serious efforts to find another job. He also withdrew funds from the plaintiff’s bank account without asking her, but when she learned about it, he told her he would pay back those withdrawals in three weeks. He subsequently defaulted on his truck loan, and the plaintiff lent him the funds to prevent repossession, reasoning that he needed the truck in order to work and earn money with which to repay her. The plaintiff also drew up a second revised loan agreement to include the bank account withdrawals and the truck payment, bringing the loan amount to $71,381. The defendant did not sign the agreement but agreed to them via text message.

When the plaintiff finally shut off the funding stream and refused to loan the defendant any more money, he stopped communicating with her. The plaintiff filed a collection action in the County Court of Dodge County, Nebraska, on August 20, 2024. She obtained a judgment and began garnishing the defendant. The defendant filed bankruptcy shortly thereafter.

The plaintiff filed this adversary proceeding to except the judgment debt from discharge under § 523(a)(2)(A) for money obtained through fraud, false pretenses, or false representations. Much of the plaintiff’s evidence consisted of print-outs of the text messages she and the defendant exchanged. However, the court found that “[t]he defendant’s written statements about his credit score, about the extent, existence, or concealment of his other debts, about his income, and about his general ability to repay are not actionable as fraud in this case as pled because they concern his financial condition.” Written statements concerning a debtor’s financial condition fall under § 523(a)(2)(B), and §§ 523(a)(2)(A) and (a)(2)(B) are mutually exclusive. Here, the plaintiff did not plead a claim under § 523(a)(2)(B).

The court evaluated the allegations of fraud separately for each loan agreement. For the original loan agreement, the plaintiff alleged the defendant falsely represented that he (1) would provide his truck as collateral for the loan; (2) would repay the loan; and (3) wanted to use the loan to become debt-free. The court found that the representation about collateral was not false because the terms of the agreement stated the defendant would sign over the truck “as soon as it was paid off.” In fact, the truck was never paid off. It was totaled in an accident, so the obligation to sign over the title was never triggered. The court also found the defendant’s statements about intending to become debt-free were not actionable under § 523(a)(2)(A) because those texts concern the defendant’s financial condition. Even if the statements were actionable, they do not establish fraud because debt-free status was the defendant’s aspiration, not a factual representation that he would never again be in debt. As to the plaintiff’s claim that the defendant falsely stated he would repay her, the court examined the timing of the defendant’s representations. The defendant demonstrated an intent to repay the original loan when it was made by making several monthly payments on it.

Likewise, with the first revised agreement, the defendant was employed and making payments when he signed it, which indicates he intended to repay the loan. That revised agreement documented amounts that had already been lent to the defendant, so the causation element of § 523(a)(2)(A) was not met. In other words, the money was not “obtained by” fraud at that point.

The second revised loan agreement covered multiple advances, so the court analyzed each. The court ruled that the defendant’s withdrawals from the plaintiff’s bank account and the advance to pay the truck loan were obtained by false pretenses and the false representation that the defendant intended to repay her. The evidence that he was continuing to pay his commercial lenders even after he stopped paying the plaintiff, and his statement that he would restore the bank withdrawals “in 3 weeks” when he had no means to do so, demonstrated his fraudulent intent. As a result, the court excepted the principal amount of $9,629 from discharge.

The bankruptcy court reiterated that a judgment lien on the debtor’s 50% interest in his house is fully avoided, but the judgment creditor may go to state court for a determination of the extent of the debtor’s interest vis-à-vis his former wife’s interest in the property, which was their marital home.

The judgment creditor is unlikely to obtain the result he desires, however, because if the debtor’s interest is determined to be 50% or less, the judgment lien has been fully avoided and the creditor is bound by the discharge injunction in § 524. If the debtor’s interest exceeds 50%, any action by the creditor concerning the excess is stayed under § 362 and the portion over 50% is property of the bankruptcy estate to be administered by the trustee, which may also cause the debtor to amend his assets and exemptions and perhaps seek additional lien avoidance.

The bankruptcy court granted summary judgment to the bank holding a perfected first-priority security interest in the proceeds of grain collateral. The debtor withheld three checks for grain sold, refusing to endorse them and turn them over to the bank. Another creditor with a fertilizer/ag chemical lien was also a defendant in this case because it was a named payee on the checks. The court found the bank’s prior perfected security interest to be paramount, so all the defendants were ordered to endorse the checks and turn them over to the bank.

The bankruptcy court granted the Chapter 7 trustee’s motion to sell residential real estate over the objection of the debtor (who lacked standing) and several holders of construction liens on the property.

While the mortgage-holder consented to the sale, a judgment lien creditor neither consented nor objected. The court noted, first, failure to object implies consent, and second, a §363 sale can occur if the non-consenting entity’s interest is in bona fide dispute. Here, the debtor is vigorously disputing the validity of the underlying judgment, so the creditor’s interest is in bona fide dispute. Even if the creditor’s implied consent is insufficient under § 362(f)(2), the sale is independently authorized under § 363(f)(4).

Likewise, the subcontractors’ interests are also objectively subject to a bona fide dispute because the debtor was not authorized to incur debt to complete construction of the house. Moreover, the post-petition filing of the construction liens violated the automatic stay, which may render them void or voidable.

The court also ruled that, contrary to the assertion of one of the creditors, there is indeed a benefit to the estate from the sale because the mortgage holder has agreed to a carve-out for unsecured creditors and because certain administrative expenses can be surcharged against the sale proceeds under § 506(c).

Finally, the court addressed the debtor’s argument that the Chapter 7 trustee is serving without a sufficient bond. The U.S. Trustee is responsible for determining the amount and sufficiency of a case trustee’s bond under §322(b) and the current bond is satisfactory to the U.S. Trustee. The court has little tolerance for the debtor’s “misguided and ill-conceived” efforts to impede the trustee and avoid liquidation of estate assets.