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BAP Partially Reverses Nondischargeability Finding for Personal Loan - Heide v. Juve

May 9, 2013

The bankruptcy code forbids bankruptcy filers from discharging debts created by their own fraud. In some cases, however, whether a debt was created by fraud is hotly contested, as it was in Heide v. Juve, a decision of the Bankruptcy Appellate Panel of the Eighth Circuit. Vincent Howard and our Riverside personal bankruptcy lawyers wrote about a previous incarnation of this case, in which the BAP found genuine issues of material fact precluded summary judgment on the debt's dischargeability. In this case, the bankruptcy court's final order was on appeal. The Eighth Circuit BAP found that the record didn't support findings that all of the debt was created by fraud. It reversed as to a larger portion of the $350,490 debt, but upheld nondischargeability of $50,490 loaned separately.

Heide and Juve were friends and co-workers who sold cars at a dealership. Juve became a wholesaler of cars at a different dealership, traveling to purchase them. They agreed orally that Heide would led Juve money to buy vehicles; Heide would be repaid plus interest when the vehicle sold, plus a small fee and, if he sold the car, a commission. Heide didn't secure the loans with the vehicles, but thought there was enough equity in Juve's business to secure the loans. He did not realize Juve had other lenders with a security interest in the cars. Around 2001, they agreed that Heide would start receiving monthly interest payments, but didn't discuss repayment of principal. This agreement worked out fine until Juve started having financial problems; by 2008, there was not enough equity in the cars to secure Juve's $300,000 debt to Heide. That year, he borrowed $50,490 from Heide, ostensibly for six vehicles, but didn't buy the cars. He later admitted that he used some of the money for business expenses.

Juve was ultimately found out and his business failed. On remand from the first appellate case, the bankruptcy court found that the parties' oral agreements constituted re-extensions of credit and an assertion by Juve that the inventory could secure the loans. But on appeal, the BAP for the Eighth Circuit found that the record didn't support this. No testimony established it, and Heide acknowledged that Juve never promised he could repay the loans all at once. Furthermore, the BAP said, there's nothing in the record showing that Juve couldn't pay it back at the time the loans were made. Indeed, both parties testified that they thought there was enough equity on the car lot when Heide made a 2004 loan. And Heide didn't establish to what extent Juve was using funds for purposes other than buying more inventory, or that this was more than a breach of contract. This is insufficient to show fraud for the first $300,000 in loans, the panel said. The story is different for the $50,490 Las Vegas loan, however, and the panel upheld that nondischargeability finding.

Vincent Howard and our Costa Mesa individual bankruptcy attorneys appreciate the careful attention the BAP paid in this case to exactly which representations were fraudulent. This is important because only debts created by fraud are not dischargeable, and whether a debt is dischargeable can have a huge effect on the debtor's bankruptcy and future financial health. If Juve had to repay all $350,490, he would likely be under that obligation for a very long time, and it could affect his chances of building a new business or getting credit. At Howard Law, P.C., our Rancho Cucamonga consumer bankruptcy lawyers believe that only debts created by fraud should create that kind of burden.

If you're deep in debt and you're ready to discuss bankruptcy as an option, don't wait to call Vincent Howard and the team at Howard Law. You can send us a message through our website or call 1-800-872-5925.

Similar articles:

Eighth Circuit BAP Rules Bankruptcy Court Should Examine Whether Personal Loan Is Dischargeable - Heide et al. v. Juve et al.

First Circuit BAP Upholds Bankruptcy Court Ruling That Borrower Intended to Deceive - O'Donnell v. Toye

Ninth Circuit BAP Upholds Judgment in Favor of Discharging Alleged Fraud Debt - In re Mbunda