McCrory v. Spigel (In Re Spigel)
260 F.3d 27 | Court of Appeals for the First Circuit | 2001
What This Case Means for Subcontractors
Robert Spigel owed the McCrorys money from a court judgment involving fraudulent conduct. Spigel filed for bankruptcy and tried to have the debt erased. The court ruled that even though Spigel committed fraud, the debt could be discharged in bankruptcy because the fraud wasn't directly aimed at the McCrorys—it involved a third party. The key lesson: fraud must be directed at the creditor seeking payment to survive bankruptcy.
Key Takeaways
- •If a debtor defrauds someone else (not you), you likely can't use that fraud to prevent them from erasing the debt in bankruptcy
- •Indemnification judgments—where one party agrees to cover another's losses—are generally dischargeable in bankruptcy unless the fraud was specifically directed at you
- •To protect yourself from bankruptcy discharge, document that the debtor's misrepresentations were made directly to you about the transaction you're involved in
The claim must arise as a direct result of the debtor's misrepresentations or malice.
Frequently Asked Question
If a contractor commits fraud against someone else, can I still collect my judgment if they file bankruptcy?
Probably not. Courts will likely allow the debt to be discharged unless you can prove the contractor's fraud was directed specifically at you. The fraud must be connected to the debt you're owed, not to a separate transaction with a third party. Document all misrepresentations made directly to you in writing.
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