Failure to Disclose Employment is not a Statement under 523(a)(2)(A)

Posted by NCBRC - January 24, 2020

Failure to report a change in employment status is not a “statement respecting financial condition” within the meaning of section 523(a)(2)(A) and, therefore, a debt based on overpayment of public assistance benefits made in reliance on the non-disclosure, is nondischargeable. State of Oregon v. Mcharo, No. 19-1010 (B.A.P. 9th Cir. Jan. 9, 2020).

When applying for public assistance benefits, Blake Mcharo and his wife signed DHS0415R averring that they would inform the DHS of any change in their eligibility status. After signing the application and receiving Temporary Assistance for Needy Families (TANF) benefits, Mr. Mcharo found employment. Neither he nor his wife informed the DHS of his employment.

In the Mcharo’s chapter 7 bankruptcy, the DHS filed a claim for the amount it had overpaid in TANF benefits after Mr. Mcharo was employed. The DHS also sought an order that the debt was non-dischargeable under 523(a)(2)(A). The bankruptcy court issued a default judgment against Ms. Mcharo but declined to do the same against Mr. Mcharo, finding that his failure to report his employment was an unwritten statement respecting financial condition falling outside the purview of either section 523(a)(2)(A) or (B). The State of Oregon appealed to the Ninth Circuit Bankruptcy Appellate Panel.

Section523(a)(2)(A) excepts from discharge debts obtained by fraud “other than a statement respecting financial condition,” and paragraph (B) excepts debts based on false “written statements.” Citing Lamar, Archer, & Cofrin, LLP v. Appling, 138 S. Ct. 1752, 1757 (2018), the court recognized that debts based on false unwritten statements may be discharged.

Because there was no written statement involved that would have triggered the exception to discharge under section 523(a)(2)(B), the case turned on whether the failure to disclose his employment status was a false “statement” within the meaning of section 523(a)(2)(A), thereby taking it out from under that exception as well. The panel found that it was not. It turned to the dictionary where it found that Webster defines a statement as “the act or process of stating, reciting, or presenting orally.” The panel concluded that a representation by omission or silence does not fall within this definition.

The panel dismissed the debtor’s concern that its finding would result in punishing those who do not actively lie more harshly than those who make false statements. It found that, when providing public assistance benefits, the government relies on the continued disclosure of changes to the recipient’s status. Where the government provides assistance based on written applications, the overpayment debt does not arise until a change in status occurs after the money is extended.

As an aside, the panel noted that, after this case was decided, the bankruptcy court was faced with the same issue in Washington County Department of Housing Services v. Hall (In re Hall), No. 18-03121-DWH, 2019 WL 4281911 (Bankr. D. Or. Sept. 9, 2019), and reached the opposite conclusion it reached in Mcharo.

The panel vacated and remanded.

The State of Oregon has moved for publication of the opinion.

Mcharo 9th BAP Jan 2020

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