Supreme Court Update on Fraud

Since the Bankruptcy Reform Act of 2005, most lawyers and judges in the bankruptcy system have been of the opinion that “fraud” meant an actual fraud, an ill will or an intention to do harm.  The United States Supreme Court recently ruled in Husky International vs. Ritz that the standard was not that stringent.  In the Husky case Ritz took assets from his business that could have been used to pay Husky, moving them to other businesses that he owned.  The Bankruptcy Court and then the Court of Appeals found that those transfers were not “actual fraud.”  The United States Supreme Court in reversing declared that fraud includes fraudulent conveyance schemes even when there is no false representation.  This decision will make it easier for bankruptcy trustees and bankruptcy creditors to pursue debtors who try to unfairly and unjustly use the system to their benefit.