U.S. Court of Appeals For the Seventh Circuit
Bankruptcy – Discharge
A debtor can discharge a debt in bankruptcy, even if his agent committed fraud, provided that the debtor himself was not complicit in the fraud.
“Sullivan’s ‘debt not the debtor’ theory is consistent with the language of the fraud exception to discharge, quoted above. But this just illustrates the limitations of literal interpretation of statutory language. If his interpretation were correct, then had Chung assigned the debt that she owed to Sullivan to some innocent third party, who as a result of the assignment became a debtor of Sullivan and later went bankrupt, the assignee could not discharge the debt in bankruptcy, because the debt had originated in fraud—even if Chung had lied to the assignee about the debt’s fraudulent origin. That would make no sense. It would be a form of attainder: an innocent person punished for the misdeed of an ancestor, or in this case an assignor.”
14-3213 Sullivan v. Glenn
Appeal from the United States District Court for the Northern District of Illinois, Zagel, J., Posner, J.