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Answering a Creditor’s Dischargeability Complaint: an Example

Here’s an example showing how to answer a creditor’s complaint objecting to the legal write-off of a debt in bankruptcy. 

The last blog post showed, through an example, how a creditor in a Chapter 7 bankruptcy case raises an objection to the discharge of its debt. Please check that out for the full facts of the dispute and what had happened so far. Today we pick up where we left off, after the creditor has formally filed its objection to discharge.

Summary of the Loan and the Complaint

Basically, the story is that five years ago Marshall persuaded his aunt to lend him $35,000 for a business loan. He completed the required loan application without referring to a $7,500 balance he already owned on a personal family loan. He’d made payments on that personal loan perfectly. So he rationalized his omission by figuring that this existing loan was more of a positive than a negative. It demonstrated his creditworthiness on family loans instead of being any kind of detriment. Nevertheless he didn’t want to give his unpredictable aunt, Heather, a reason to not give him the new $35,000 business loan.

But five years later, for reasons explained last time, Marshall closed his auto repair business and filed bankruptcy. Heather was enraged about Marshall not paying the debt. She had her lawyer file a complaint objecting to the discharge of the $21,000 remaining balance.

Under Chapter 7 bankruptcy most debts are discharged. To avoid discharge, a creditor has to show grounds that fit within the relatively few grounds that the law allows.

Heather’s complaint alleged that Marshall had gotten the $35,000 business loan by defrauding her. Consistent with what is required in bankruptcy law, her complaint alleged that Marshall obtained the loan through a written application:

  1. that was “materially false”
  2. about his “financial condition”
  3. on which Heather had “reasonably relied,” and
  4. Marshall had not included the $7,500 owed to the other aunt “with intent to deceive” Heather.

Section 523(a)(2)(B) of the U.S. Bankruptcy Code.

If Heather is able to convince the bankruptcy judge that the facts support these four elements, she’ll win the dispute. The $21,000 remaining balance would not be discharged in Marshall’s Chapter 7 case, and he’d remain liable on it.

The Answer

Through his bankruptcy lawyer Marshall responded by filing a formal answer. In his answer he had to answer each one of Heather’s allegations directly.

1. He admitted that his omission of the $7,500 on his written application was a falsity. He lied by omission. But he denied that this omission was “materially false.”

For an inaccuracy on a financial statement to be “materially false,” courts have “examine[d] whether the lender would have made the loan had [s]he known of the debtor’s true financial condition.” Matter of Bogstag, p. 375. Marshall argued that Heather would have made the $35,000 loan even if she had known about the $7,500 balance on the earlier loan, given his perfect payment history on that loan.

2. Marshall admitted his omission about the prior loan was indeed about his “financial condition.”

3. He denied that Heather had “reasonably relied” on his omission. He believed that she had not relied on the application so much as on personal and family considerations. He didn’t know whether she’d even read the application before deciding to give him the loan. If she had read it, he suspected she hadn’t really focused on his debts or on the amounts stated. He denied this element of the complaint in the hopes of learning through the litigation process that Heather had not relied on the application at all, much less reasonable relied on it.

4. Marshall denied that he’d excluded the prior $7,500 “with intent to deceive” Heather. He hadn’t thought, or at least had hoped, that Heather wouldn’t care about that debt. In particular, he knew that Heather was having a quarrel with the other aunt who had made that prior loan. So Marshall was concerned that Heather would, out of spite, somehow use that to irrationally deny him the loan. He wasn’t trying to cheat her into making the loan. He was just trying to avoid having an irrelevant family feud mess things up.


“Discovery” is the procedure for discovering the facts relevant to the dischargeability dispute. In our next blog post we’ll show how the facts were “discovered” here in this dispute between Marshall and Heather.


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