Both victims and those found violating the CFA need to consider whether the US Bankruptcy Code can wipe out the economic gains or losses set forth in a court judgment or the imposition of an administrative fine or penalty. The Bankruptcy Code (Code) permits debtors to obtain a “fresh start,” free from their existing debt. Debts obtained through fraud, however, are generally non-dischargeable under the Code (11 U.S.C. § 523(a)(2)(A)).
Under the Bankruptcy Code, a CFA award of treble damages, attorney fees and costs constitute a “debt” but because the debt is the result of fraud, a bankruptcy debtor is not per se discharged from his/her/its debt because the origin of the debt involves a finding of false pretenses, a false representation, actual fraud, or an unconscionable business practice.
Federal bankruptcy law upholds civil judgments arising from fraud and often does not discharge them. “Where a debtor has committed fraud under the bankruptcy code, he or she is not entitled to the benefit of a liberal application of relief which favors the dischargeability of bona fide debts.”
Burden of Proof for Non-Dischargeability of CFA Debt
You may recall my earlier discussion of fraud. Why does this matter, you may ask? The reason is that the Bankruptcy Code requires proof of actual fraud, which means that CFA claimants must establish by a preponderance of the evidence that the merchant debtor:
- obtained money, property, or services;
- after falsely representing a material fact, opinion, intention, or law;
- that the debtor knew at the time was false (or was made with reckless disregard for its truth);
- the debtor intended that the plaintiff rely on that statement;
- the plaintiff actually relied on the statement, and the reliance was justified; and
- the plaintiff sustained damages as the proximate result of the false representation.
The takeaway from this discussion is that a consumer fraud debt may or may not be dischargeable by the debtor if the debt arose from, or was based on, a finding of fraud by a judge, court, or jury. As in all things legal, a case-by-case analysis is required to offer an opinion about the likely legal outcome if one is proposing to discharge a consumer fraud-based debt or opposing a bankruptcy filing seeking to discharge the debt. Take heart, some CFA judgments, fines, and penalties have been discharged in bankruptcy.
We invite you to schedule a consultation with a member of our firm to discuss your case of dischargeability of a consumer fraud judgment or opposition to any attempt by the judgment debtor to discharge their debt to you in bankruptcy. Contact Fredrick P. Niemann, Esq. at (732) 863-9900 or email him at fniemann@hnlawfirm.com if you think you have a claim. He welcomes your call.
Fredrick P. Niemann Esq.
Consumer Fraud Act Attorney Serving These New Jersey Counties:
Atlantic County, Bergen County, Burlington County, Camden County, Cape May County, Cumberland County, Essex County,
Gloucester County, Hudson County, Hunterdon County, Mercer County, Middlesex County, Monmouth County,
Morris County, Ocean County, Passaic County, Salem County, Somerset County, Sussex County, Union County, Warren County