See also:
Unjust Enrichment from Spouse’s Defalcation Leads to a Nondischargeable Debt
Unjust Enrichment: Where Are We Headed?
Abstract:
Bankruptcy professionals may be surprised to learn that debt and domestic violence (DV) are connected. Professors Littwin, Adams, and Kennedy coined the term “coerced debt” to describe debt that the batterer in an abusive relationship incurs in the victim’s name using fraud or duress. The Supreme Court’s holding in Bartenwerfer v. Buckley that § 523(a)(2) can prevent the innocent spouse of someone who committed fraud from discharging debt implicates coerced debt because each coerced debt has two victims: the DV victim and the creditor. Bartenwerfer raised the possibility that creditors could prevent DV victims from discharging coerced debts due to fraud of which they were victims. Bartenwerfer v. Buckley & Coerced Debt analyzes Bartenwerfer and cases under the Nineteenth Century precedent the Court embraced to show that Bartenwerfer is much narrower than it appears. The underlying law of fraud controls, and in every case reviewed, the law of fraud requires that the spouses have a business relationship to transmit fraud liability. The professors also make the normative case that victims of coerced debt deserve discharge, illustrating their arguments with data on business debts from the first in-depth study of coerced debt.
Commentary:
Consumer bankruptcy courts increasingly face debts arising from financial abuse and coercion, especially with rising awareness of domestic economic abuse. Bartenwerfer poses risks if misapplied, but this article provides the framework for limiting its reach and protecting innocent debtors. For practitioners, the message is clear: be proactive in demanding factual and legal showings of imputation and be thoughtful about when and how to raise the coercion defense. Where a creditor asserts § 523(a)(2) based on the fraud of a debtor’s spouse, the burden falls on that creditor to prove a qualifying relationship under state partnership or agency law. Many claims will collapse under this scrutiny, including when there may be a business relationship between spouses.
In North Carolina, to impute a business relationship, a creditor must show the existence of a partnership under N.C. Gen. Stat. § 59-36, which defines a partnership as “an association of two or more persons to carry on as co-owners of a business for profit.” Courts look at multiple factors to determine whether a partnership exists:
- Joint ownership of property or business assets;
- Sharing of profits and losses;
- Joint decision-making or management;
- Representations to third parties that both spouses are business partners.
Merely owning property together, including as tenants by the entirety, or having a spouse help with incidental tasks, does not create a partnership and the existence of a coercive personal relationship should undercut other evidence. See, e.g., Hines v. Arnold, 103 N.C. App. 31, 34, 404 S.E.2d 179, 181 (1991). As a bit of humor (because, as Mark Twain said, “humor equals tragedy plus time”) related to the different contemporary uses of the word “partner“- When I was first admitted to the ICU following my fall in Colorado a year ago, after realizing that my wife was in North Carolina and would not immediately be able to get to the hospital, the nurses asked if there was anyone more nearby who they could call. When I responded that “My partner, John, is at the Broadmoor Hotel”, they were (even to me in battered and bruised condition) practically giddy that my medical emergency suddenly had even juicier aspects. Despite being clearly disappointed when I clarified that he was merely “my law partner”, they still provided amazing medical care for which I (and my spouse and also my partner) are very grateful.
