January 7, 2017

Honesty includes disclosure of all facts –Used Car Dealer Misrepresents Intent to Bank.

Background:

  • Debtor owned a used car dealership and began to have financial problems with his business debts.
  • Debtor using an auction sale contract purchased a 2007 Mercedes-Benz for $19K.
  • Car had a book value of $30K
  • Debtor represented that the car was purchased for a personal vehicle and approached the bank for a loan.

  • Bank agreed to provide financing for the car purchase after repeatedly verifying that it was not bought for resale.
  • Debtor sold the car to a friend for $30K and never informed the Bank.
  • Payments were made for the loan for a while and then stopped when he could no longer pay.
  • Debtor filed for a Chapter 13 bankruptcy.

Outcome:

  • Bank filed a Complaint objecting to the discharge of the car loan debt.
  • Debtor acted with intent to deceive the Bank and used the money he borrowed from the Bank to finance other debts.

Court Ruling:

  • The Court found that the Debtor made false representations.
  • Due to the Debtor’s intentional and malicious nature of his actions, Court ruled that the Debtor should not benefit at all.
  • Debt to the Bank could not be discharged and could not be included in the Chapter 13 Bankruptcy.
  • Intentional conversion of another’s property is a willful and malicious injury under Section 523(a)(6) of the Bankruptcy Code which was inflicted upon the Bank.