Is a bad check written shortly before bankruptcy filing excepted from discharge?

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Is a bad check written shortly before bankruptcy filing excepted from discharge under 11 USCS §523(a)2(A)?

To establish an exception for fraud or misrepresentation under 11 USCS § 523(a)(2) the debtor must obtain some property or money from the plaintiff in a way meeting these five elements: (1) The debtor made misrepresentations that (2) the debtor knew were false with (3) the intention to deceive the creditor, (4) the creditor reasonably relied on the representations, and (5) the creditor sustained loss and damage as the proximate result of the misrepresentation. In re Basham, 106 B.R. 453, 457, 458 (Bankr. E.D. Va. 1989). The writing of a bad check is not in itself a sufficient act to constitute exception, the creditor must still establish an intent to deceive at the time the check was written. Id. at 457. Courts can infer intent from circumstance. Id. While the court in In re Holt applied a clear and convincing evidence standard to establish intent, more recent cases apply a preponderance of the evidence standard. In re Holt, 24 B.R. 696, 698 (1982) (clear and convincing); In re Basham, 106 B.R. 453, 458 (Bankr. E.D. Va. 1989) (preponderance of the evidence). Constructive fraud is not sufficient to establish an exception for discharge. Holt, 24 B.R. at 698. Even an awareness that there are insufficient funds in the debtors bank account does not guarantee finding an intent to defraud. In re Eason, 1 B.R. 604, 607 (Bankr. E.D. Va. 1979) (the debtor testified that he intended to deposit funds in time to fulfil the check.

In general, bankruptcy courts are looking for some sort of evidence beyond just the writing of a bad check and knowledge the check was bad to infer that the debtor intended to defraud the creditor. This additional evidence in In re Basham was the debtor’s explicit assurances that that they had cash for a down payment, and that the mortgage lender had verified this as a condition for receiving a loan, both false statements assuring the creditor that the check was good. 106 B.R. at 457. In addition, any evidence that indicates that the writer never intended to have funds in his account to fulfill the check is likely to be relevant. In re Eason, 1 B.R. 604, 607. Intent to defraud can be inferred from a knowingly false statement that funds are available, at least elsewhere in the 4 th circuit. In re Peel, 2010 Bankr. LEXIS 2341 at 10 (Bankr. E.D.N.C. July 13, 2010) (referring to an unpublished opinion by the same court).

Changing Law

Although it has not been applied to bad checks, the eastern district of Virginia has recognized a reckless fraud doctrine as well, which states that a reckless disregard of the truth of the debtors ability to pay in a credit case may be used to infer intent. In re Ketaner, 154 B.R. 459, 466 (Bankr. E.D. Va, 1992). A logical analogy can be drawn between these credit cases and writing a check, as both are essentially a promise that money will be available at a certain date to pay a debt, or in the case of a check, at any given date in the near future. This does seem to be against the current standard the court follows, which states simply writing a bad check with knowledge funds are not available is not necessarily fraud. See In re Basham, 106 Bankr. 453 (Bankr. E.D. Va. 1989).

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