After a trial, the court ruled in the debtor’s favor in a § 523(a)(2) non-dischargeability action. The debtor had given security interests in personal property to two creditors – the bank and his father; the lien priorities are the subject of a pending state court action between the creditors. The bank filed this adversary proceeding to except the deficiency, if any, from discharge under § 523(a)(2)(A) and (B).

The court found the debtor had informed the bank about the loan from his father, and there was no evidence of a knowingly false or reckless statement by the debtor. The court also found the bank had not proven it justifiably relied on the debtor’s alleged misrepresentations about the collateral available to the bank because it had not done its due diligence. “Absent some evidence that the bank required . . . documentation [that a prior loan was paid off and the prior security interest in assets was released], the Court cannot find that the bank justifiably relied on boilerplate representations in its loan documents as to lien priority[.]”