In February 2023, the Supreme Court delivered the decision in Bartenwerfer v. Buckley, ruling that a debtor who bears liability for their partner’s fraud under common law cannot discharge that debt in bankruptcy, even if they are not personally culpable. The Court determined that the Bankruptcy Code’s dischargeability provisions aim to protect creditors from fraud, irrespective of whether the debtor in question committed the fraud. This ruling limits the traditional fresh-start policy and could indicate the emergence of a Court that strongly supports creditors’ rights.
The Court based its decision on the wording of Bankruptcy Code § 523(a)(2)(A), which prevents the discharge of debts “for money, property, [or] services . . . obtained by . . . false pretenses, a false representation, or actual fraud.” The Court found that this passive-voice language clearly prohibits the discharge of debts resulting from fraud, regardless of whether the debtor committed the fraud.
The Court dismissed arguments calling for a narrower interpretation of the dischargeability provisions to protect innocent but unfortunate debtors. The Court maintained that such an interpretation would conflict with the creditor-protection purpose of these provisions.
The Supreme Court’s ruling has received mixed responses. Some commentators applaud the decision, asserting that it is a necessary measure to safeguard creditors from fraudulent debtors. Others criticize the ruling, claiming that it unfairly targets debtors who bear no personal responsibility for any fraud.
Supporters of the decision argue that the Bankruptcy Code aims not only to provide debtors with a fresh start but also to shield creditors from dishonest debtors. They also point out that the ruling relies on a plain reading of the statute’s passive language, which does not explicitly identify the debtor as the actor.
Critics contend that it is unjust to debtors who are not personally accountable for the fraud. For instance, in the Bartenwerfer case, Kate Bartenwerfer did not personally participate in the fraud her partner allegedly committed. Additionally, critics argue that the ruling is excessively broad, applying to all types of partners and agents.
Notably, Justice Barrett wrote the opinion, whereas Justice Sotomayor has authored most of the Court’s bankruptcy-related opinions since she took the bench. This, combined with Justice Barrett’s forceful attack on the Bankruptcy Code’s fresh-start policy, may signal the emergence of a Court extraordinarily supportive of creditors’ rights.
Listen to the opinion read aloud without citations or footnotes.
- Alexander v. State, 56 Ga. 478 (1876).
- Azar v. Allina Health Servs., 139 S. Ct. 1804 (2019).
- Badgerow v. Walters, 142 S. Ct. 1310 (2022).
- Bullock v. BankChampaign, N.A., 133 S. Ct. 1754 (2013).
- Chester v. Dickerson, 9 Sickels 1 (N.Y. 1873).
- Collins v. Yellen, 141 S. Ct. 1761 (2021).
- Dean v. U.S., 129 S. Ct. 1849 (2009).
- E. I. du Pont de Nemours & Co. v. Train, 97 S. Ct. 965 (1977).
- Field v. Mans, 116 S. Ct. 437 (1995).
- Gleason v. Thaw, 35 S. Ct. 287 (1915).
- Grogan v. Garner, 111 S. Ct. 654 (1991).
- Husky Int’l Elecs., Inc. v. Ritz, 136 S. Ct. 1581 (2016).
- In re Bartenwerfer, 860 F. App’x 544 (9th Cir. 2021).
- In re Ledford, 970 F.2d 1556 (6th Cir. 1992).
- In re M.M. Winkler & Assocs., 239 F.3d 746 (5th Cir. 2001).
- In re Villa, 261 F.3d 1148 (11th Cir. 2001).
- Kawaauhau v. Geiger, 118 S. Ct. 974 (1998).
- Lamar, Archer & Cofrin, LLP v. Appling, 138 S. Ct. 1752 (2018).
- Lorillard v. Pons, 98 S. Ct. 866 (1978).
- Marrama v. Citizens Bank of Mass., 127 S. Ct. 1105 (2007).
- Matter of Walker, 726 F.2d 452 (8th Cir. 1984).
- McCord v. W. Union Tel. Co., 39 N.W. 315 (Minn. 1888).
- Strang v. Bradner, 5 S. Ct. 1038 (1885).
- Sullivan v. Glenn, 782 F.3d 378 (7th Cir. 2015).
- Swift v. Tyson, 41 U.S. (16 Pet.) 1 (1842).
- Tome v. Parkersburg Branch R. Co., 39 Md. 36 (1873).
- Tucker v. Cole, 11 N.W. 703 (Wis. 1882).
- U.S. v. Detroit Timber & Lumber Co., 26 S. Ct. 282 (1906).
- Van Buren v. United States, 141 S. Ct. 1648 (2021).
- Watson v. U.S., 128 S. Ct. 579 (2007).
- White v. Sawyer, 16 Gray 586 (Mass. 1860).
- Yee v. City of Escondido, Cal., 112 S. Ct. 1522 (1992).