The Ninth Circuit Bankruptcy Appellate Panel eliminated a split among the lower courts by reversing the bankruptcy court and ruling that the failure to report increased income can lead to the nondischargeability of a debt for overpayment of public assistance benefits.
A husband and wife applied for public assistance cash benefits in Oregon. They signed an agreement under oath stating that they would report changes in income. The husband was unemployed at the time. Three months later, he landed a job that he kept for 10 months.
While the husband was employed, the wife signed a statement attesting that there had been no change in the family’s income. The husband didn’t sign anything.
Eventually, the state learned that the husband had been employed and collected almost $1,300 in the overpayments. The couple filed a joint chapter 7 petition.
The state filed a complaint for a declaration that the remaining overpayments of some $3,800 were nondischargeable under Section 523(a)(2)(A). The section renders a debt nondischargeable if it was obtained by “a false representation . . . other than a statement respecting the debtor’s . . . financial condition.” Under Section 523(a)(2)(B), nondischargeability for a false statement about financial condition only results if the statement was in writing.
Neither the husband nor the wife answered the complaint.
Because the wife had signed a statement attesting to no increase in family income, the bankruptcy court entered a default judgment against the wife.
But because the husband had signed nothing, the bankruptcy court entered judgment in favor of the husband, declaring that the debt was discharged as to him. The bankruptcy court reasoned that the husband’s silence was a “statement” about financial condition that was not actionable because it was not in writing.
The BAP reversed and remanded in a February 7 opinion by Bankruptcy Judge William J. Lafferty, III of Oakland, Calif.
Denial of a default judgment is reviewed for abuse of discretion, but a court abuses its discretion by applying the wrong legal standard. Judge Lafferty proceeded to analyze whether silence is a “statement.”
In the Ninth Circuit, a fraudulent omission in the face of a duty to disclose may constitute a false representation, thus potentially bringing the husband’s nondisclosure within the rubric of Section 523(a)(2)(A). But the question remained whether silence was a “statement.”
Judge Lafferty adopted the ordinary, common meaning of “statement” because the Bankruptcy Code does not define the term. He turned to the dictionary, where, he said, the definition of “statement” “does not contemplate silence or even nonverbal communication.”
Judge Lafferty cited bankruptcy courts in Idaho and Arkansas for holding in 2015 that “a debt incurred by overpayment of government benefits because a debtor failed to disclose a change in employment status was nondischargeable under § 523(a)(2)(A).”
Judge Lafferty did not direct the bankruptcy court to enter judgment for the state. Rather, he remanded for the bankruptcy court to make findings required by Section 523(a)(2)(A).
Judge Lafferty emphasized that the BAP’s holding was limited: Where a debtor has promised in writing to report changes in financial condition, the debtor’s failure to report a change is not a “statement.”
The Ninth Circuit Bankruptcy Appellate Panel eliminated a split among the lower courts by reversing the bankruptcy court and ruling that the failure to report increased income can lead to the nondischargeability of a debt for overpayment of public assistance benefits.
A husband and wife applied for public assistance cash benefits in Oregon. They signed an agreement under oath stating that they would report changes in income. The husband was unemployed at the time. Three months later, he landed a job that he kept for 10 months.
While the husband was employed, the wife signed a statement attesting that there had been no change in the family’s income. The husband didn’t sign anything.
Eventually, the state learned that the husband had been employed and collected almost $1,300 in the overpayments. The couple filed a joint chapter 7 petition.