11 U.S.C. § 523(a)(2); Dischargeability of Debt
R&L Dist., Inc. v. McPherson, 2006 Bankr. LEXIS 589, Adv. No. 1701 (Bankr. N.D. Ga. January 25, 2006)(Drake)
Prior to the bankruptcy filing, the creditor did business with corporations owned by the debtor, which resulted in the debtor being personally liable for the corporate debts. The debtor defaulted on the debts and the creditor filed a lawsuit in state court. The creditor also claimed in the state action that the debtor fraudulently conveyed certain property to his wife and thereby defrauded plaintiff. A consent order was entered against he debtor’s wife, who admitted the marital residence was fraudulently conveyed to her, and the creditor received a default judgment against the debtor for the fraudulent conveyance. The state court specifically found that the debtor, while insolvent, conveyed the property with the actual intent to hinder, delay and defraud his creditors. After the debtor filed a bankruptcy petition, the creditor filed an adversary requesting its debt be excepted from discharge pursuant to § 523(a)(2), (4) & (6). Cross-motions for summary judgment were filed with respect to the §523(a)(2) claim.
Summary judgment was granted to the debtor. The debt owed to the creditor arise from the prior business relationship of the parties and there was no evidence that the debtor committed fraud with respect to the extension of credit. The fraudulent transfer came later, and had nothing to do with the extension of credit. Therefore, the debt at issue was not “obtained by” wrongful conduct, as required by §523(a)(2). The remaining claims remained pending.
