What does a creditor if debtor who wrote NSF dishonored check files bankruptcy?

Full question:

I have a dishonored check for $35k. What if the person files bankruptcy and put this amount on it. Will she be still liable to pay the amount or not. What if I file report before she files bankruptcy?

• Category: Bankruptcy
• Date: 04/07/2025
• State: Idaho

Answer:

If a vendor/seller received a check for payment of a debt and the check was not honored by the bank, the debt remains. Therefore, the debt would have to be listed among the list of creditors on any bankruptcy petition filed by the debtor.

Should a debtor that files bankruptcy defraud a vendor, for example, by issuing a check when there are insufficient funds, the vendor may be able to have its claim "ride through" bankruptcy. For the vendor's NSF debt to survive a debtor's bankruptcy discharge, the vendor must file a lawsuit in the bankruptcy court to have its debt ordered nondischargable, or object to the debtor's discharge, wherein all of the debtor's debts are ordered nondischargeable.

The most common causes of action to exclude a vendor's debt from discharge are: (1) fraudulently incurred obligations; (2) fiduciary fraud and embezzlement; and (3) willful and malicious acts.

The nondischargable provisions contained in the Bankruptcy Code provide that the debtor must be an individual. Thus, if the vendor sold to a sole proprietorship, or holds a personal guarantee on a sale to a corporation, LLC or partnership, the vendor has a claim against an individual. There are no dischargable claims against a corporation, as the corporation is not endued to a discharge in bankruptcy. If the vendor sold to a corporation, and the insider of the corporation filed bankruptcy, the vendor may still have a nondischargable claim against the individual, but must establish an alter ego claim against the insider.

Where property is obtained by the debtor's false pretense, false representation or actual fraud, such claim may be exacted from discharge. Under the fraud nondischargability provision, the vendor may establish either oral or written fraud by the debtor. With the oral fraud, the vendor must establish fraud and its reasonable reliance on the debtor's representation. If the fraud is in writing, the vendor must establish that the false representation (bad check) is materially misleading and the vendor reasonably re lied on the false representation.

The vendor may also have its claim ride through bankruptcy where it can be established that the debtor defrauded the vendor while in a fiduciary capacity, such as officer of the corporate debtor. The vendor may also have its claim ride through bankruptcy where the debtor committed a willful injury.

If the vendor seeks to deny a debtor's discharge, an objection may be based on the following: (1) the debtor transferred, concealed or destroyed property within one year before the bankruptcy filing or any time after the filing; (2) the debtor concealed, destroyed or failed to keep books and records; (3) the debtor made a false oath or withheld information from an officer of the estate; (4) the debtor is unable to explain loss of his property; (5) the debtor has received a discharge in a prior bankruptcy within six years; and (6) the debtor has had a discharge waived or denied in a prior bankruptcy case.

However, with an NSF debt it is unlikely that grounds may exist to deny a debtor's discharge based on an NSF check. Many of the grounds for objecting to a discharge may also constitute federal crimes. Be mindful that the vendor must act quickly within commencing these claims, which may require filing 60 days after the first Meeting of Creditors.