Tennessee businessmen know that a company may declare bankruptcy if it continues to experience losses and take on debt. The Supreme Court recently ruled that a fraud may lead to a dismissal of discharge of personal debt, even when it involves asset transfers that don’t create a false representation to a creditor.
Husky International Electronics, Inc. took its case all the way to the Supreme Court after Chrysalis Manufacturing Corp. failed to pay for goods and services purchased from Husky International Electronics. The director of Chrysalis, Daniel Ritz, transferred substantial funds from Chrysalis and distributed these funds to other entities he controlled. Husky then sued Ritz for the funds owed to the company. Soon after, Ritz filed for Chapter 7 bankruptcy for the Southern District of Texas, and the debts were discharged.
Husky could not prove the fact that Ritz has transferred funds from Chrysalis in order to declare bankruptcy and avoid debt. Under Texas law, there was no proof that Ritz had made the transfers to intentionally harm Husky. Husky then filed for a petition with the high court.
The Supreme Court overturned the ruling from the Texas court, therefore setting a precedent that fraud does not have to include an intentional misrepresentation directly to a creditor for that fraud to lead to dismissal of a case.
When filing for Chapter 7 bankruptcy, it is important to disclose all pertinent information to an experienced attorney. If funds are misrepresented, the trustee may refer his or her findings to prosecutors then pursue a criminal case against the debtor. Persons considering Chapter 7 bankruptcy may wish to consult an attorney about their case.