This is an email I sent to some students about my final exam in my basic bankruptcy class. In question 2, Fred the debtor owed a lot of subcontractors for work they did for him, a bank for money he borrowed to build a home, and a homeowner for a deposit that was given to him to build a house that he spent without building the house (so far at least). Hundreds of thousands of dollars in total. The issue was whether any or all of this debt would be discharged in a bankruptcy case.

Hi students,

I’ve been thinking about our conversation yesterday, especially question 2.  I think if you asked 100 people, 99 of them would tell you that it’s completely crazy to let this debtor simply walk away from all this debt.  That can’t be right!  My mother would laugh and snicker at me if I gave her this hypo and told her the guy keeps all of his property, probably continues with his life as a contractor, and walks away from the debts, by filing a few forms.    

But Congress says he can absolutely walk away.  It makes the rules.  Law school is really about learning to focus on the rules and not jump right into what’s fair and reasonable and moral and right etc. 

This guy can fill out some forms and walk away from the debts unless he committed fraud.  That’s the first rule. That what Congress said. There are no facts suggesting embezzlement, willful and malicious injury etc.  So it comes down to what’s fraud?  State the rule and then see what facts you are given to figure out if he committed fraud.  Fraud is a misstatement of material fact made to the people he owes money to; made to entice them into giving him something.  I don’t think there are any facts suggesting he cheated anyone.  Having said that, one or two in ten bankruptcy judges would deny his discharge for the reasons you all discussed in your answers.   Judges are human too.  

Anyway, that’s the lesson.  I think if you would have laid out the rule about what fraud is, then looked at the facts, you would have gotten closer to the right answer. 

One last thought, for some of you, your writing is going to hold you back, not a ton for most of you but some.  I assume it’s simply a failure to carefully review what you have written rather than a lack of skills.  But be careful with what you write.  Practice, practice, practice.  Even this email; I’ll bet I have reread it 6-8 times.  I carefully review texts I send to make sure there are no typos (which there always are some anyway of course).  In law school and on the bar exam, what you write is your entire grade.  

So good luck.  It was a fun class.  I appreciated your efforts.  JH