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Debt Non-Dischargeable Without Making False Representation to Creditor

| May 19, 2016 | Bankruptcy Appellate Panel |

In Husky International Electronics, Inc. v. Ritz published on May 16, 2016, the Supreme Court of the United States (“SCOTUS”) found a debt not dischargeable because of the debtor’s intercompany transfer scheme to avoid paying the debt. The debt was owed by Chrysalis Manufacturing Corp. but its director Daniel Lee Ritz, Jr. (“Ritz”) drained any assets available to pay that debt by transferring money to other entities owned by Ritz. Ritz then filed for bankruptcy when Husky came after him to recover the debt. Reversing the lower courts, the SCOTUS found the debt non-dischargeable. Even though Ritz made no direct false representation to Husky, the SCOTUS found his intercompany transfer scheme constituted actual fraud such that the debt was non-dischargeable, holding that Section 523(a)(2)(A) “encompasses fraudulent conveyance schemes, even when those schemes do not involve a false representation.” 

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