|Debt That May Have Been Obtained by Fraud Not Dischargeable in Bankruptcy|
|Description||Supreme Court held that where parties had agreed to a settlement of a suit that claimed fraud, and then the debtor filed for bankruptcy, the settlement agreement was not dischargeable in bankruptcy because it may have been obtained by fraud.|
|Key Words||Fraud; Nondischargeability|
|C A S E S U M M A R Y|
|Facts||“This case arises out of circumstances that we outline as follows: (1) A sues B seeking money that (A says) B obtained through fraud; (2) the parties settle the lawsuit and release related claims; (3) the settlement agreement does not resolve the issue of fraud, but provides that B will pay A a fixed sum; (4) B does not pay the fixed sum; (5) B enters bankruptcy; and (6) A claims that B’s obligation to pay the fixed settlement sum is nondischargeable because, like the original debt, it is for ‘money … obtained by … fraud.” The lower courts held that the debt owed by B is discharged in bankruptcy. A, the creditor, appealed to the Supreme Court.|
Reversed. The settlement agreement does not bar the creditors from showing that the settlement debt arose out of “false pretences, a false representation, or actual fraud” and so is nondischargeable. Debt for money promised in a settlement agreement, which released the creditors’ prior claim against Chapter 7 debtors for fraud could amount to debt for money obtained by fraud within the meaning of the Bankruptcy Code’s discharge exception for debt for money obtained by fraud.
|Citation||Archer v. Warner, 123 S.Ct., 1462 (Sup. Ct., U.S., 2003)|
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