Remember that fib you told on your rental application? The one where you said that you’d never been evicted before, even though you had, eight months earlier? Guess what? It matters. At least that was the ruling in Yankah v. Mack, a recent decision from the Eastern District of Virginia. Section 523(a)(2)(B) of the Bankruptcy Code provides an exception from discharge for any creditor who extended credit to an individual based on a false statement concerning their financial condition. To have its debt survive a debtor’s bankruptcy, a creditor must prove the following: “(1) the statement must be materially false; (2) the statement must represent the debtor’s financial condition; (3) the creditor must have reasonably relied upon the statement; and (4) the debtor must have made the statement with the intent to deceive.” Typically, 523(a)(2)(B) actions arise in the context of formal financial statements that are provided by a lending institution to a prospective borrower. Banks need to know what kind of financial condition its borrowers are in before they lend money. If a borrower lies and tells the bank that they make $200,000 per year and own stock worth $100,000, when they don’t, then under 523(a)(2)(B), whatever money loaned by the bank to that borrower will not be discharged. Yankah v. Mack is significant because it broadens the meaning of “financial statement” to include statements made on a rental application and, one assumes, similar kinds of documents and applications.
It remains to be said that 523(a)(2)(B) address exceptions to discharge, not wholesale denials of discharge. What’s the difference? An exception to discharge concerns only a single creditor. A denial of discharge concerns all of a debtor’s creditors. A creditor, such as the one in Yankah v. Mack, can successfully argue that its claim should not be discharged in the bankruptcy, but that doesn’t mean that the debtor won’t still obtain a discharge of his other debts. A denial of discharge is much more serious and results in a debtor not obtaining relief from any of his obligations.