Creditors contemplating an objection to discharge proceeding pursuant to Bankruptcy Code § 523(a)(2)(A)’s fraud provision often think that a judgment in a prior state court action will automatically entitle them to judgment in bankruptcy court. Prior to reaching such conclusions, however, creditors should be mindful of several potential pitfalls.

Section 523(a)(2)(A) excepts from discharge debts obtained by “false pretenses, a false representation, or actual fraud....” Often, creditors will obtain a default judgment in state court based on a complaint that included a count of fraud.

An important component of chapter 7 bankruptcy is the discharge of debts. Congress excepted from this “fresh start” certain types of debts, including those involving fraud and deceit. In Privitera v. Curran, the First Circuit considered the discharge exception in § 523(a)(2)(B). Instead of wading into a murky circuit split involving the meaning of a “statement respecting ... financial condition,” however, the First Circuit “decide[d] the case on less controversial principles of pleading and materiality.” This case offers lessons in pleading for both debtors’ and creditors’ lawyers.

• Hon. Scott C. Clarkson - U.S. Bankruptcy Court, Central District of California; Santa Ana
• Steven D. Finestone, Esq. - Finestone Hayes LLP; San Francisco
• Charlie M. Forman - Forman Holt; Paramus, NJ
• Gary M. Kaplan - Farella Braun + Martel LLP; San Francisco
• Hon. Deborah J. Saltzman - U.S. Bankruptcy Court, Central District of California; LA