In re Barbato

398 F.2d 572 (3d Cir. 1968)



Under 11 U.S.C.S. § 32(c), a discharge must be withheld if the debtor provided a materially inaccurate financial statement to a creditor with careless and with reckless indifference to the actual facts.


In order to obtain payment bonds, a general contractor provided appellant creditor with financial statements in which he greatly understated his outstanding obligations. In a bankruptcy action, the court discharged the debt owed to appellant, and a divided appellate panel affirmed the discharge. In an en banc opinion, the appellate court reversed the order and remanded the matter for further proceedings as the district court failed to address the issue of the bankrupt's blameworthiness in the provision of the misleading financial statements.



Did the contractor forfeit his right to a discharge by inducing the bonding company to become his surety through "a materially false statement in writing respecting his financial condition"?




Specifically, 11 U.S.C.S. § 32(c) required that a discharge be withheld if a bankrupt party provided materially inaccurate statements with careless and reckless indifference to the actual facts. Once it was established that the bankrupt benefited from issuing the false statement, he bore the burden of establishing that his conduct was not coupled with a blameworthy attitude or state of mind.

Click here to view the full text case and earn your Daily Research Points.