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09-219 Rice, Heitman & Davis S.C., v. Sasse

By: WISCONSIN LAW JOURNAL STAFF//November 1, 2010//

09-219 Rice, Heitman & Davis S.C., v. Sasse

By: WISCONSIN LAW JOURNAL STAFF//November 1, 2010//

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Bankruptcy
Fraud

An attorney could not get an exception to discharge a client’s debt on the basis that he was fraudulently induced to continue representing him.

“The plaintiff’s argument is that he ‘trusted’ the debtor, but arguably the creditor in Huang trusted the debtor to honor various prepetition representations about bankruptcy as well. A prepetition waiver of discharge ‘undermines the purpose of the Code.’ Cole, 226 B.R. at 654. The same must be said of a prepetition promise not to file bankruptcy at all, which is essentially the same as a promise to forego the primary benefit afforded by filing. Huang, 275 F.3d at 1177 (debtor’s promise ‘not [to] enter bankkurptcy’ was unenforceable). Logically, it seems inappropriate to find that a debtor’s breach of a promise not to seek a discharge could serve as the ground for a fraud claim when the debtor was simply exercising a statutory right. Indeed, in Minor the court reached this very conclusion, finding that a debtor’s breach of a promise not to seek discharge of a state court judgment did not constitute misrepresentation. 115 B.R. at 696 (the creditor’s argument that the debtor’s conduct amounted to misrepresentation was not persuasive). At best, Mr. Davis obtained an unenforceable promise from the debtor not to file bankruptcy. Turning that unenforceable promise into the basis of a nondischargeability claim would itself seem to undermine the purpose of the code, which is to grant debtors a discharge in all but those few cases in which fraud is clearly proven.”

09-219 Rice, Heitman & Davis S.C., v. Sasse

W.D.Wis., Utschig, Bankr. J.

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