In Florida, Can I Discharge Debts Incurred as a Result of Fraud in Bankruptcy?

Filing bankruptcy does provide a great sense of relief to borrowers, and allows them to get back on their feet financially. Unfortunately, too many people in Florida are surprised to learn that filing bankruptcy will not discharge every type of debt they carry. Debt incurred as a result of a fraudulent action or inaction is one type of debt borrowers cannot discharge during bankruptcy. In some cases, however, the creditor has the burden of proof to show that fraud occurred.

If you are filing bankruptcy, you should always work with a Florida bankruptcy lawyer that can help you through the process. If a creditor is accusing you of fraud and therefore, you are at risk for not getting a full discharge, speaking with an attorney that can defend against these accusations is essential.

Can Bankruptcy Discharge Fraud-Related Debts?

Many people assume that when you file bankruptcy, your debts are discharged and you start with a clean slate right away. This is not true and just because you file bankruptcy, it does not mean that every type of debt you carry will be discharged. If you were convicted of a crime such as embezzlement, it will stay on your record regardless of whether you file a Chapter 7 or Chapter 13 bankruptcy, even if you do not have any assets. When the bankruptcy court sees this conviction on your record, they will likely not discharge the debt because it was obtained through fraudulent acts.

The situation is sometimes different if a debt is based on a civil judgment that arose from your allegedly fraudulent actions. In these cases, the creditor accusing you of fraud has the burden of proof to show why the bankruptcy should not discharge the debt. A judge will then decide whether the debt should be discharged as part of the bankruptcy case. If the judge rules in your favor, the debt is discharged along with your other debts.

It is easy to assume that any debts classified as potentially fraudulent will not be discharged in bankruptcy. Fortunately, this is not the case and sometimes, creditors will use the argument simply so that you are still responsible for repaying that debt and they can recover their costs and profit. If you have debt that involves fraud, embezzlement, or some other type of misconduct allegations, it is critical that you speak with a Florida bankruptcy lawyer that can help you get the debt discharged to the fullest extent possible.

Requirements for Borrowers and Credits when Debts Involve Embezzlement

The definition for embezzlement states that it occurs when a person acts fraudulently while acting in a fiduciary capacity. If a creditor accuses you of this type of action after you have filed bankruptcy, they must act quickly.

According to Section 341 of the Bankruptcy Code, you will have to attend a meeting of the creditors. The judge assigned to your case is not present at this meeting and it will usually occur between 21 and 50 days after you have filed your case. During the meeting, the bankruptcy trustee will review your case. You will likely have to answer questions, and do so under oath, about your conduct, liabilities, property, financial situation, and other matters. The trustee will also make sure you understand the bankruptcy process during this meeting.

It is called a meeting of the creditors because any creditors you owe are notified of the meeting. They are given the opportunity to attend and ask you questions pertaining to the debt or any other matter concerning the administration of the case. Creditors are not required to attend these meetings, and they do not waive any rights if they do not attend. The meeting of the creditors generally only lasts between ten and fifteen minutes. However, if a creditor is accusing you of embezzlement, it may take longer.

Within 60 days of the meeting, or within 60 days of the first day if the meeting extends over several days, a creditor must initiate an adversary proceeding if they are accusing you of fraud. Essentially, adversary proceedings are lawsuits filed during the bankruptcy process.

Overall, creditors usually have approximately 90 days to initiate an adversary proceeding, as the meeting of the creditors is usually about 30 days after a borrower files for bankruptcy. Creditors do have a right to request an extension on the amount of time they have to initiate the proceeding, but they must do so within 60 days after the borrower files bankruptcy.

What Must a Creditor Prove?

Fortunately for borrowers, an accusation from a creditor about fraud is not enough to keep the debt from being discharged. To prove their argument, creditors have to prove two elements of their case.

The creditor must first prove that you acted in a fiduciary duty, or that you were acting in trust for another person. The creditor must then show that you took the property and used it for a purpose that the rightful owner did not consent to. If the owner gave you permission to use the property as you did, such as to obtain a loan, the creditor will not be able to prove their case.

After the creditor has made their arguments, a judge will then determine whether the facts of the case indicate that fraud occurred. Generally speaking, a judge will consider whether there were omissions or misrepresentations that caused loss to a victim. If a judge does determine the case involved fraud, they will not discharge the debt and that judgment would likely apply to any future bankruptcy case you file.

Our Bankruptcy Lawyers in Florida Can Help with Your Case

It is always important to work with a Florida bankruptcy lawyer when filing, but it is even more so when a creditor is claiming you acted fraudulently. At Loan Lawyers, we will defend against these arguments so you get as much debt discharged as possible, making it easier for you to move forward. Call us today at (954) 523-4357 or contact us online for a free consultation.