A 2023 ruling by the Supreme Court that may have implications for Americans facing bankruptcy. 

On Wednesday, February 22, 2023, the Supreme Court unanimously ruled that a California woman, Kate Bartenwerfer, could not use the U.S. bankruptcy code to avoid paying a $1.1 million debt resulting from her partner’s fraud. The original judgment in 2012 was $200,000, but a decade of interest caused the amount to balloon. The court held that Bartenwerfer owed the debt even though she was not aware her husband had falsified statements about the condition of their house when they sold it for more than $2 million to a San Francisco developer.

Interestingly, the ruling cited a Supreme Court decision in 1885 that two partners in a New York wool company were liable for debt due to fraudulent claims of a third partner even though they were not themselves guilty of wrongdoing.

This ruling establishes that a person who acted together in a partnership can be held responsible for debt resulting from fraud committed by a partner or third party, even if the person was unaware of the fraud being committed. It also highlights the importance of carefully reviewing and disclosing pertinent information when buying or selling property to avoid potential legal and financial consequences. It is important to note, that although the parties were married, the Court focused on their business partnership in its analysis.

With that brief overview noted, if you’d like to discuss this or other bankruptcy-related matters further, please feel free to reach out.