SE Property Holdings LLC v. Gaddy (In re Gaddy)
SE Property Holdings LLC v. Gaddy (In re Gaddy), ___F.3d___ (11th Cir. Sept. 29, 2020) appeal #19-11699: 11th Circuit Court of Appeals holds that for a debt to be held nondischargeable per 11 USC 523(a)(2)(A), the debtor’s fraud must have occurred before the debt arises. Therefore, fraudulent transfers that the debtor made, after the debtor incurred the debt (debt was that debtor personally guaranteed a 12 million dollar loan), did NOT make the debt nondischargeable per 11 USC 523(a)(2)(A).
However, that did not leave the creditor with no remedy, in this case, because the creditor could have timely brought an adversary proceeding against debtor, to seek to deny the debtor any discharge, pursuant to 11 USC 727(a)(2), for debtor having made fraudulent transfers of debtor’s assets, to try to keep the creditor owed the 12 million dollar debt, personally guaranteed by debtor, from seeking to collect that debt from debtor’s assets, because debtor had fraudulently transferred debtor’s assets to debtor’s wife and daughter within 1 year before debtor filed debtor’s chapter 7 bankruptcy case. Creditor didn’t do that, creditor only brought a “nondischargeability” adversary proceeding, to seek to hold only the debt owed creditor to be not discharged, and did not bring a “denial of discharge” adversary proceeding. But that was creditor’s choice (and as it turned out) error. The 11th Circuit decision discusses the US Supreme Court decision, Husky International Electronics Inc. v. Ritz, 136 S. Ct. 1581 (2016), where the Supreme Court held that a debt can be nondischargeable under Section 523(a)(2)(A) if it was obtained by “actual fraud” in the absence of a misrepresentation to the creditor.