09-16668-7 In re Neale

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Bankruptcy
Fraud; dismissal

Where an adversary complaint seeks to except a debt from discharge because of fraud, but fails to include allegations how the debtor defrauded the creditor, it must be dismissed.

“The bankruptcy code only authorizes a discharge for the proverbial ‘honest but unfortunate debtor.’ Grogan v. Garner, 498 U.S. 279, 287, 111 S. Ct. 654, 112 L. Ed. 2d 755 (1991). At the same time, the exceptions to discharge must be narrowly construed in favor of the code’s policy of affording debtors a fresh start in life. Gulevsky, 362 F.3d at 963. This means that creditors are obligated to demonstrate that they were truly enmeshed in the debtor’s fraudulent scheme, and that the debtor actually extracted money from them by way of fraud. When pursuing a claim, the plaintiff need not ‘lard’ the complaint with facts. Burks v. Raemisch, 555 F.3d 592, 594 (7th Cir. 2009). But a complaint also cannot be ‘threadbare.’ Limestone Dev., 520 F.3d at 804. Here, the complaint expresses Mr. Iwaszczenko’s evident distress about the loss of his life’s savings, and the Court is sympathetic to his plight. But it does not offer enough of the ‘what’ or the ‘how’ in regard to the debtor’s alleged fraud to satisfy the particularity requirements of Rule 9(b); he gives no reason why the financial statement or other representations were fraudulent. Skycom, 813 F.2d at 818. Consequently, the complaint must be dismissed for failure to state a cause of action.”

09-16668-7 In re Neale

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