Omissions on Written Applications Satisfies Writing Requirement for Non-Dischargeability

Posted by NCBRC - December 27, 2018

A bankruptcy court found that the omission of income data from numerous applications for food stamps and other public-assistance benefits satisfies the requirement of a materially false written statement respecting the debtor’s financial condition for purposes of exclusion from discharge. State of Oregon v. Maxwell, (In re Maxwell), No. 17-32084, Adv. Proc. No. 17-03113 (Bankr. D. Ore. Oct. 18, 2018) (unpublished letter opinion).

In this case, Antoinette Maxwell failed, on numerous public-assistance applications, to disclose employment income and child support payments she was receiving. The State of Oregon filed an adversary complaint in her chapter 7 bankruptcy seeking an order of non-dischargeability of over $16,000 in benefits it claimed she received by reason of the fraudulent omissions.  

Section 523(a)(2)(A) excepts from discharge debts obtained by a misrepresentation not related to the debtor’s financial condition, and section 523(a)(2)(B) excepts debts obtained by a false written statement concerning the debtor’s financial condition. The state argued that the debts were nondischargeable under paragraph (2)(A) because a misrepresentation under that section has been held to include the omission of a fact the debtor has a legal obligation to disclose. The court disagreed. Paragraph (2)(A) excepts from discharge debts incurred by omission only where the misrepresentation does not go to the debtor’s overall financial condition.

In this case, the court found that paragraph (2)(B) applied because the omitted information concerning her income necessarily related to Ms. Maxwell’s financial condition. It further held that the omissions satisfied the writing requirement because they were omitted from written applications. The court went on to determine whether the state had shown that Ms. Maxwell knew the statements were false, that she intended to deceive, and that the state reasonably relied on the statements.

The court did not give credence to Ms. Maxwell’s various reasons for non-disclosure including that she forgot about employment payments, that the payments were too small to be relevant, or that the state had informed her that she need not report the payments. Nor did the court believe that she failed to disclose child support because the payments were for a child other than the one for whom she sought benefits. The court found the requisite intent to deceive in her reckless, if not intentional, omissions of relevant information and her signature on the applications under the statement that she had provided “true, correct and complete information.” The court found the state’s reliance was supported by the fact that it overpaid benefits based on information provided in application forms which complied with federal regulations, and that that reliance was reasonable despite the state’s access to her employment information through independent means.

The court added that it “needn’t decide the more challenging question whether a debtor’s total silence, when under a legal obligation to disclose facts respecting the debtor’s financial condition, could create a nondischargeable debt despite the absence of any writing.”

Maxwell Bky Or opinion


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