Legal Question in Business Law in California

Re: Bankruptcy Fraud

I agree with the previous answers. In addition, I might add that concealing assets from creditors can be a fraud in itself, having nothing to do with bankruptcy. For example, transferring property to your wife, mother, children, etc. without getting fair value in return is likely to be a fraudulent transfer, as is setting up an overseas trust and many other gimmicks debtors use to hide or shelter assets from present or possible future creditors.

Sounds like you didn't get any collateral for your loan. Wise lenders get a security interest in valuable collateral, then perfect their interest with a recorded mortgage (real property), or UCC-1 filing (personal property).

Note that ordinary fraud requires a deception, an intent to deceive, the victim's reasonable reliance upon the deception, and damage to the victim as a consequence of the deception. Here, you have no damage as a result of the statement that the debtor would file bankruptcy, and if you had relied upon that assertion, your reliance would not be reasonable nor, very likely, would your reliance be the cause of your harm. Hence, there is no fraud, because at least two and possibly three of the elements of fraud are not present.

(Note that "fraudulent transfers" as discussed in the 1st paragraph above are a different species of fraud, defined by statute, and have different elements of proof as set up in the Uniform Fraudulent Transfers Act).

Re: Bankruptcy Fraud

Nothing you have said suggests fraud. Many people who are legitimately bankrupt have funds. What matters is whether the borrower can pay all of his debts, not whether he happens to have enough money to pay yours in particular. Even if he has $1 million in funds, he might have far more in debts and insufficient income to pay them. If so, he would qualify for bankruptcy protection.

Merely threatening to file is not bankruptcy fraud. Such fraud occurs when a petitioner lies to the bankruptcy court, which can only happen after filing.

If he files for bankruptcy you will be entitled to information about his finances. If you think he's lying to the court, you will have a chance to challenge him about it.

Re: Bankruptcy Fraud

If the borrower files bankruptcy, you might raise your issues with the trustee appointed to administer the case and/or the United States Trustee. You also may bring an adversary action in bankruptcy court to allege that your debt is not dischargeable because of the borrower's fraud. Of course, you'd have to prove there was fraud in procuring the funds from you -- i.e. a promise was made upon which you relied, but, at the outset, the borrower never intended to pay you. Those could be hard to prove without an attorney.

Re: Bankruptcy Fraud

If they file BK, you can file a non-dischargeability claim against them if you have evidence of fraud, and try to convince the court. You can file suit now, and if they don't file BK, then get your judgment and collect.