Will a mistake on a rental application render a later debt to that landlord unable to be discharged in bankruptcy?
Judge Colton dealt with this issue in an adversary proceeding that a landlord filed against bankruptcy debtors. The landlord alleged that the debtors lied on their rental application.
The Rental Application:
Specifically, the debtors had listed that both the husband and wife were employed. The husband had two jobs while the wife had one job. They also disclosed that the wife was pregnant in their application.
The application also asked the debtors to “[l]ist all credit obligations with minimum monthly payment.” The debtors listed a $130.00 payment to Aarons but failed to list three other debts. The opinion did not say whether the debtors were making payments on other debts when they filled out the credit obligation.
The debtors signed paperwork allowing the landlord to obtain their credit report but the landlord failed to pull the credit report and relied only on the rental application when approving the couple for the lease.
Circumstances that Lead to Default of the Lease:
Shortly after filling out the application and moving into the property, the husband lost one of his jobs and the wife gave birth prematurely and had to quit her job to take care of their baby.
The Debtors ended up defaulting on their lease and the landlord obtained a judgment against them for $5,620.73 plus interest.
The landlord argued to the bankruptcy court that his judgment debt should not be discharged because the debtors made materially false statements to him when they listed their income on their application and when they failed to list three debts.
The Legal Overview:
The Court first noted that the creditor bears the burden of proving that debt is non-dischargeable and quotes another opinion that states:
Courts narrowly construe exceptions to discharge to allow the “honest but unfortunate debtor” to receive their statutorily prescribed fresh start. Accordingly, if a court determines a debt is non-dischargeable the reasons “must be real and substantial, not merely technical and conjectural.” “[I]f there is room for an inference of honest intent, the question of non-dischargeability must be resolved in favor of the debtor. Criswell Chevrolet, Inc. v. Prifti (In re Prifti), Adv. No. 8:21-ap-00055-RCT, 2021 WL 3629313, at *2 (Bankr. M.D. Fla. Aug. 16, 2021) (internal footnotes with citations omitted)
Next, the Court lists the elements that the landlord must prove to prevail. Specifically, the landlord “must show that the judgment debt resulted from: (1) a materially false written statement; (2) respecting Debtors’ financial condition; (3) made by Debtors with an intent to deceive; (4) on which Plaintiff reasonably relied.
The Court’s Opinion:
The Court reasoned that the landlord in this case has failed to carry his burden of proof for two reasons.
First, the Court reviewed the financial disclosures that the debtors made retarding their income and concluded that their financial statements were accurate when they made the disclosure.
Second, the Court reviewed the debt disclosures in the application. The actual text of the question asked by the landlord was “[l]ist all credit obligations with minimum monthly payment” which the Court found “vague and confusing[.]” The landlord argued to the Court that his question should have made further disclosures even if payments weren’t currently being made on a debt which the Court rejected.
The Court ended its opinion allowing the Debtors to seek attorney’s fees under § 523(d) because of the egregious nature of the landlord’s claims.
This case illustrated the importance for consumers to fill out applications honestly and completely. It also shows the importance of drafting applications clearly so that a third party cannot construe a question to be vague or confusing.
Here is a link to the full opinion.
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