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A Bankruptcy Case For All the HGTV Fans Out There

The United States Supreme Court recently decided a personal bankruptcy case that sounds like something you might see on HGTV. The case, Bartenwerfer v. Buckley, involves the sale of a house that had hidden defects despite being fixed up and flipped. 

Fraudulent Flippers 

David and Kate Bartenwerfer co-owned a house that they decided to flip for a profit. David took charge of the project. “He hired an architect, structural engineer, designer, and general contractor; he monitored their work, reviewed invoices, and signed checks. Kate, on the other hand, was largely uninvolved.”

The couple sold the house to a buyer named Kieran Buckley who soon “discovered several defects that the Bartenwerfers had not divulged: a leaky roof, defective windows, a missing fire escape, and permit problems.” 

Buckley sued the Bartenwerfers, and a jury found in his favor — awarding him over $200,000 in damages. The Bartenwerfers were unable to pay this or their other creditors, so they jointly declared bankruptcy. 

Kate successfully persuaded the bankruptcy court that she should not be liable for the debt related to the shoddy home renovation because she was not involved with it. David was the one who had overseen the rehab and sale.

Buckley appealed, and the Ninth Circuit overturned the bankruptcy court’s decision, ruling that Kate’s actual knowledge of her husband’s business dealings was irrelevant since they were married and acting as partners in the transaction. 

Kate then appealed, and the United States Supreme Court agreed to hear the case. 

Supreme Court Says Wife is on the Hook For Husband’s Fraud

In a 9-0 option drafted by Justice Amy Coney Barrett, the Court held that Section 523(a)(2)(A) of the Bankruptcy Code, which prohibits the discharge of debt that was “obtained by . . . fraud”:

…obviously applies to a debtor who was the fraudster. But sometimes a debtor is liable for fraud that she did not personally commit—for example, deceit practiced by a partner or an agent. We must decide whether the bar extends to this situation too. It does. Written in the passive voice, §523(a)(2)(A) turns on how the money was obtained, not who committed fraud to obtain it. 

This ruling is not surprising, but it is important. There aren’t a huge number of bankruptcy cases filed in the Milwaukee area where fraud is alleged, but there are many cases filed where one partner had no idea what sort of shady deals their partner was making.

Hanson & Payne frequently represents couples that have decided one partner will be in charge of the finances. It is often not until they get to our office and we start to discuss their case that the partner who does not deal with the finances realizes what a mess they are in. Fortunately, there are steps we can take to help put things right. 

A Milwaukee Area Bankruptcy Firm You Can Trust

Hanson & Payne is a full-service bankruptcy law firm based in Milwaukee. We help debtors and creditors navigate the bankruptcy process and chart a path forward. Please contact us today to schedule a meeting.