In the case of I. H. Mississippi Valley Credit Union v. O'Connor the United States Bankruptcy Court in Richmond, Virginia, reviewed the creditor's complaint objecting to dischargeability pursuant to two sections of Bankruptcy Code §523.
In O'Connor the debtor was involved in a scheme with a car dealer to buy and sell "grey market" Mercedes Benz in Germany and then bring them to the United States to be refitted for sale at a profit, after which the dealer would pay off the credit union loan and split the profits with the debtor. During the conduct of this business, the debtor provided to the credit union an inaccurate vehicle identification number (VIN) on a loan application and also failed to list a loan from another credit union on an application.
The Court found as fact that the debtor made misrepresentations as to the vehicle identification number and the existence of the Mercedes, and that the credit union relied on the existence of such an automobile in making the loan to the debtor. However, the Court found that the credit union did not meet its burden to show that the debtor knew that the representations were false when made. The debtor gave the loan officer the VIN appearing on the bill of sale from the car dealer, and although the insurance company requested from the debtor a corrected VIN for insurance purposes, the credit union presented no other relevant evidence that would show that the debtor knew that the VIN was false at the time he applied for the loan.
The credit union argued that the debtor showed reckless disregard for the truth in not checking to verify that the VIN provided by the car dealer was accurate or that there existed a Mercedes Benz automobile. The Court, however, was not inclined to find reckless disregard for the truth. In regard to the VIN, the Court noted that in a majority of automobile purchases the buyer does not compare the VIN written on the bill of sale against the VIN on the automobile itself, nor does the buyer call the VIN in to the manufacturer's corporate headquarters for verification. In regard to the Mercedes, the Court found that there was no reason for the debtor to have doubted the existence of the vehicle. The debtor's only interest in the vehicle was that it could be refitted by the car dealer and then resold at a profit. Further, the debtor had already successfully conducted two such transactions with the credit union without seeing either of the cars involved in these transactions.
The Court ruled that the debtor's representations regarding the VIN and the existence of the Mercedes Benz automobile were not made in reckless disregard to the truth. Further, the Court ruled that the credit union had failed to show any intent to deceive on the part of the debtor in making such representations. Accordingly, the Court ruled that Bankruptcy Code §523 (a)(2)(A) did not render the debt nondischargeable.
The Credit Union also raised the issue on nondischargeability based upon material false financial statements pursuant to Bankruptcy Code §523 (a)(2)(B). The Court took evidence from the credit union regarding information written by a loan officer on the loan request form as well as the written deposition of that officer. The Court found as fact that a loan to another credit union was not included on the loan request forms to the plaintiff credit union. The Court noted that in deciding the issue of materiality the Court must determine whether the credit union would have made the loan knowing of the outstanding obligation to another credit union, considering what weight the plaintiff credit union gives to its debt-to-income ratio limit. The Court noted that the evidence by the credit union was not clear as to what debt-to-income ratio would have disqualified the debtor. The Court observed that a limit of 35 percent appeared on the form, but the debtor was approved with a debt-to-income ratio higher than 35 percent. The Court decided that it was more probable than not that under the totality of circumstances of this particular fact situation that the credit union relied not on the debt-to-income ratio, but instead on the debtor's high professional salary, low living expenses, and an established relationship in which during the past ten months two $20,000 "grey market" loans were paid off about the time of the due date of the first monthly installment. The Court concluded that the credit union's reliance on the debtor's false financial statement was not reasonable. Accordingly, the Court ruled that Bankruptcy Code §523 (a)(2)(B) did not render the debt nondischargeable.
In O'Connor the debtor was involved in a scheme with a car dealer to buy and sell "grey market" Mercedes Benz in Germany and then bring them to the United States to be refitted for sale at a profit, after which the dealer would pay off the credit union loan and split the profits with the debtor. During the conduct of this business, the debtor provided to the credit union an inaccurate vehicle identification number (VIN) on a loan application and also failed to list a loan from another credit union on an application.
The Court found as fact that the debtor made misrepresentations as to the vehicle identification number and the existence of the Mercedes, and that the credit union relied on the existence of such an automobile in making the loan to the debtor. However, the Court found that the credit union did not meet its burden to show that the debtor knew that the representations were false when made. The debtor gave the loan officer the VIN appearing on the bill of sale from the car dealer, and although the insurance company requested from the debtor a corrected VIN for insurance purposes, the credit union presented no other relevant evidence that would show that the debtor knew that the VIN was false at the time he applied for the loan.
The credit union argued that the debtor showed reckless disregard for the truth in not checking to verify that the VIN provided by the car dealer was accurate or that there existed a Mercedes Benz automobile. The Court, however, was not inclined to find reckless disregard for the truth. In regard to the VIN, the Court noted that in a majority of automobile purchases the buyer does not compare the VIN written on the bill of sale against the VIN on the automobile itself, nor does the buyer call the VIN in to the manufacturer's corporate headquarters for verification. In regard to the Mercedes, the Court found that there was no reason for the debtor to have doubted the existence of the vehicle. The debtor's only interest in the vehicle was that it could be refitted by the car dealer and then resold at a profit. Further, the debtor had already successfully conducted two such transactions with the credit union without seeing either of the cars involved in these transactions.
The Court ruled that the debtor's representations regarding the VIN and the existence of the Mercedes Benz automobile were not made in reckless disregard to the truth. Further, the Court ruled that the credit union had failed to show any intent to deceive on the part of the debtor in making such representations. Accordingly, the Court ruled that Bankruptcy Code §523 (a)(2)(A) did not render the debt nondischargeable.
The Credit Union also raised the issue on nondischargeability based upon material false financial statements pursuant to Bankruptcy Code §523 (a)(2)(B). The Court took evidence from the credit union regarding information written by a loan officer on the loan request form as well as the written deposition of that officer. The Court found as fact that a loan to another credit union was not included on the loan request forms to the plaintiff credit union. The Court noted that in deciding the issue of materiality the Court must determine whether the credit union would have made the loan knowing of the outstanding obligation to another credit union, considering what weight the plaintiff credit union gives to its debt-to-income ratio limit. The Court noted that the evidence by the credit union was not clear as to what debt-to-income ratio would have disqualified the debtor. The Court observed that a limit of 35 percent appeared on the form, but the debtor was approved with a debt-to-income ratio higher than 35 percent. The Court decided that it was more probable than not that under the totality of circumstances of this particular fact situation that the credit union relied not on the debt-to-income ratio, but instead on the debtor's high professional salary, low living expenses, and an established relationship in which during the past ten months two $20,000 "grey market" loans were paid off about the time of the due date of the first monthly installment. The Court concluded that the credit union's reliance on the debtor's false financial statement was not reasonable. Accordingly, the Court ruled that Bankruptcy Code §523 (a)(2)(B) did not render the debt nondischargeable.
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