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

September 22, 2011

As Fontana individual bankruptcy lawyers, we were interested to see a case involving a debt made under apparently informal circumstances -- and apparently without a contract. In Heide et al. v. Juve et al., debtors David and Mona Juve do not dispute that they owe $400,000 to the Heide family. The controversy is over whether the loans were obtained through misrepresentation, as the Heides claim, and therefore should not be dischargeable. The bankruptcy court in Minnesota agreed that the debt should not be dischargeable and granted summary judgment exempting it. However, the Bankruptcy Appellate Panel of the Eighth U.S. Circuit Court of Appeals reversed and remanded that ruling, saying there were genuine issues of material fact as to whether all of the debt was obtained by misrepresentation.

Heide worked on-site at Juve's used car dealership. Juve asked Heide for a loan to increase his inventory of cars, and by the end of December of 2004, Heide had lent $300,000. The checks were made out to the dealership, Imports Plus, but Heide claims the transactions were directly with Juve, the majority shareholder of the dealership. On two separate occasions in 2007 and 2008, the Heide family again lent $50,000 to Juve. Juve made interest payments monthly until 2008, but eventually was unable to continue paying. When he and his wife filed for Chapter 7 bankruptcy, Heide brought an action seeking to exempt the $400,000 they owed him from discharge, for multiple reasons including false representations or fraud. The court eventually granted summary judgment to Heide only on the fraud claim against David Juve. The Juves appealed to the Bankruptcy Appellate Panel.

Debts are non-dischargeable under the relevant section when the debtor knowingly made a false representation, deliberately for the purpose of deceiving a creditor who relied on it, and that reliance caused damage to the creditor. In this case, parties disputed whether the loans were made to David Juve or to Imports Plus. After examining the record, the panel concluded there was no evidence that the loans were made directly to Juve. There are no loan documents, it said, but the checks were made out to Imports Plus. The bankruptcy court sided with Heide but failed to give any reasoning for doing so, the panel said, aside from Heide's disputed statements. Thus, it said summary judgment was not appropriate on this issue. It next turned to Heide's allegations that Juve misrepresented that the dealership's cars were unencumbered and easily liquidated when seeking the first $300,000 in loans. Juve denies this -- but even if the bankruptcy panel sided with Heide, it said, that's not enough to support the claim that the loans were obtained by fraud. Indeed, the panel said, evidence suggested that there were enough vehicles on the lot to liquidate as of the $300,000 loan; any misrepresentations came later. Thus, this issue was also unsuitable for summary judgment. The panel reversed on both counts and remanded to the bankruptcy court.

Our Yorba Linda personal bankruptcy attorneys are pleased to see that this debtor is going to have a chance to make his case. For a debt to be non-dischargeable in bankruptcy, an important issue must be at stake, such as fraud when the debt was issued or the health of the federal student loan program. In this case, the BAP found that Heide simply didn't have strong enough evidence to win his claim without any hearing. The decision means only that the bankruptcy court will be obliged to look into the issue further. Of course, a great deal of the arguing could have been avoided if the parties had made a written contract governing their loans. When this kind of written record doesn't exist, it's important to tell your Laguna Niguel consumer bankruptcy lawyer right away.

If you feel overwhelmed by your debt and you're starting to consider filing for bankruptcy, you should call Howard Law, P.C., to learn more about your options. For a free, confidential case evaluation, you can reach us at 1-800-872-5925 or send us an email.

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