In the bankruptcy case of Davison, Christopher M.; In re (Klaes v. Davison), the debtor is unable to discharge a loan because he received the loan by using deception.
The details of the bankruptcy case:
The Chapter 7 debtor was the owner and president of Rockwell Financial Group Inc., which claimed to a financial planning firm and mortgage company. The plaintiffs (a mother and son) contacted the debtor regarding investing her workers compensation settlement in May 2004. The next month, the debtor completed the necessary forms to transfer ownership of the plaintiff’s investment to Barbara Johnson. This transfer was done to deceive the Social Security Administration on the plaintiff’s application for Social Security disability. In June 2005, Johnson withdrew $3,500 from the plaintiff’s annuity without her knowledge. The plaintiff subsequently had Johnson liquidate the funds, which she did. The plaintiff turned the money over to her son because she believed she would be ineligible for Social Security benefits if she had liquid assets. Fully aware of the plaintiff’s situation, the debtor had the plaintiff acquire a barer bond. When that bond expired, the debtor had the plaintiff execute a note to his company. The bankruptcy court ruled that the debtor could not discharge that obligation. “When Debtor borrowed money from Ms. Klaes, it was borrowed with the false representation that the money was being invested by a financial advisor through the debtor’s company, Rockwell Financial Group,” the court said. “Ms. Klaes relied totally upon Debtor to protect her only asset, which he failed to do.”
Because the debtor used deception to obtain the loan, the debt was not dischargeable in bankruptcy. Using deception to obtain credit can cause that debt to be nondischargeable in bankruptcy. That exception from bankruptcy discharge is not just limited to deception in obtain personal loans it could also apply to a mortgage, car loan or even a credit card. For example if you deceived a credit card company about the amount of money you earned and received a large credit limit based on your false income, that debt might not be discharged in bankruptcy. Honesty is the best policy when applying for credit. A false statement could come back to haunt you during any future bankruptcy.