Dischargability in Bankruptcy

Even if you win a fraud case, the defendant may seek protection of the bankruptcy court. Under the United States constitution, only congress can make bankruptcy laws. The states have the right to set the level of protection of debtors through exemptions to what property a judgment can reach. In Oregon and Washington these exemptions (including the homestead exemption) are quite modest.

One of the purposes of seeking to prove fraud is to make the debt nondischargeable by the debtor in bankruptcy. However merely because you win a fraud case, the debtor is not automatically prevented from obtaining bankruptcy protection. The fraud must be the type that is itemized in the bankruptcy code. Section 523 of the code describes the exemptions to bankruptcy discharge. If the debtor has filed a Chapter 13 bankruptcy and the plan is confirmed (making payments over 3-5 years), most of Section 523 is non applicable: the fraud is discharged if the debtor completes the plan.