Bartenwerfer v. Buckley: liability for a partner’s fraud and discharge

The underlying debt already existed

The case arose from a real-estate sale and a judgment based on misrepresentations about the property. Kate Bartenwerfer sought to discharge a debt for which she was liable even though the bankruptcy proceedings found that she lacked the relevant knowledge of her partner’s fraud.

That sequence is critical. The Supreme Court considered the discharge treatment of an existing debt. It did not create a new universal rule making any spouse or business associate liable for another person’s misconduct.

The fraud exception does not always require the debtor’s own fraud

The Court held that section 523(a)(2)(A) precluded discharge of the debt regardless of the debtor’s own culpability in the circumstances presented. The provision focuses on money obtained by fraud, and its wording does not impose the debtor-specific conduct requirement urged by Bartenwerfer.

The Court also relied on historical precedent involving fraud by a partner and Congress’s subsequent statutory wording. It rejected an appeal to the fresh-start policy as a basis for narrowing the text beyond its terms.

Liability and dischargeability are separate inquiries

The opinion explained that section 523(a)(2)(A) takes the debt as it finds it. Applicable nonbankruptcy law determines whether the debtor is liable for another person’s fraud in the first place. The bankruptcy exception then determines whether qualifying liability can be discharged.

In practice, a file review should identify the judgment or other basis for liability, the relevant relationship, the findings about fraud, and the exception actually invoked. Simply asserting personal innocence may not answer the discharge question, but mere association with a wrongdoer does not establish liability either.

What this note covers

This summary concerns the February 22, 2023 Supreme Court opinion. It does not determine liability under any particular state’s partnership or agency law and does not survey later decisions. The different wording of neighboring discharge exceptions also requires independent analysis.