Husky Int'l Elecs., Inc. v. Ritz

Whether "actual fraud" under the Bankruptcy Code includes instances when the debtor commits a fraudulent-transfer scheme intended to cheat a creditor.

Respondent, as a partial business owner with Respondent, attempted to use a fraudulent-transfer scheme to discharge the personal debt he owed to Petitioner. Petitioner sued the Respondent in federal district court to hold Respondent personally liable for the debt. Before the claim was heard, Respondent filed for Chapter 7 bankruptcy seeking to release the personal debt owed to the Petitioner, as a result from receiving funds from Respondent's own business in the fraudulent-transfer scheme. The Fifth Circuit held a false representation by the debtor is necessary for "actual fraud" under 11 U.S.C. §523(a)(2)(A). The Petitioner argues that there is a Circuit split on the question presented and that the Fifth Circuit's position undermines the equitable purposes of the Bankruptcy code producing an "engine for fraud". The Petitioner also argues that the common-law concept of "actual fraud" includes deliberate fraudulent-transfer schemes that are actually intended to cheat a creditor.