After a trial, the bankruptcy court found the debt at issue to be dischargeable.
Debtor had borrowed money from the bank and granted a security interest in a vehicle to secure the promissory note. The bank did not obtain the vehicle’s certificate of title or note its lien on the title. The debtor later sold the car without notifying the bank and used the proceeds to pay other business debt. He continued to make payments to the bank for two more years, until succumbing to financial pressures and filing for Chapter 7 relief.
The bank filed this adversary proceeding to except the debt from discharge under § 523(a)(2)(A) for false pretenses, false representation, or actual fraud. The court ruled there was no evidence that the debtor intended to defraud or make a false representation to the bank at the time he obtained the loan. At most, the court said, the debtor may have breached the contractual security agreement, but breaches of contract are not excepted from discharge absent evidence of fraud.