Winter 2005-07 Loan obtained by misrepresentation survives bankruptcy

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Number 58
Winter 2005

Loan obtained by misrepresentation survives bankruptcy

A debtor who concealed information from his lender when the loan was granted must still pay it, notwithstanding a bankruptcy discharge. American Airlines Employees Federal Credit Union v. Rosario, 2004 U.S. Dist. LEXIS 26264.

Concealed information

Juan Enrique Rosario, a member of the American Airlines Employees Federal Credit Union, applied for a loan to refinance his recently-acquired automobile. Because he did not have the Registration and Certificate of Title readily available, the credit union granted him 30 days to produce them so that it could perfect a lien on the car. Rosario signed all the loan papers, but failed to inform the credit union that in fact the dealer did not have the title documents either. Rosario obtained the certificates two months later-after he had filed for bankruptcy under Chapter 7 (liquidation). He refused to deliver the same to his creditor.

Non-dischargeable debt

Quoting from a Circuit Court opinion, the U.S. District Court for the District of Puerto Rico expressed that "'certain sections of the law, like § 523(a)(2)(A), are intended to make certain that bankruptcy protection is not afforded to debtors who have obtained property by means of a fraudulent misrepresentation.'" By concealing the difficulties he knew existed for obtaining the certificates of title, Rosario made a false representation to the credit union, the court found, adding that the credit union had a justification for relying on the misrepresentation. As a result, Rosario's obligation to pay the loan survived the bankruptcy. ◙

© 2005 Goldman Antonetti & Cordova, LLC