Digital Library: New Supreme Court Ruling–When Is a Bankruptcy Debtor on the Hook for Partner’s Fraud?

March 2, 2023 — Article

On February 22, the Supreme Court in Bartenwerfer v. Buckley, 2023 WL 2144417 (U.S. Feb. 22, 2023), held that a debt incurred by business partners and obtained by fraud may not be discharged in bankruptcy even when the debtor is an innocent partner who did not commit the fraud. One can expect bankruptcy creditors to try to extend the ruling to prevent consumer debtors from discharging debts incurred through fraud by their spouses or domestic partners. This is particularly the case because the debtors in Bartenwerfer were both business and marriage partners.

This article examines the decision and the critical distinctions between the business and personal partnerships, including implications for divorced or separated debtors and victims of economic abuse and coerced debt.  The article also discusses five potential ways for these consumer debtors to distinguish the Court’s holding and preserve their right to discharge debts that were fraudulently obtained by a co-obligor.