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Are Bad Check Debts Dischargeable In Bankruptcy?


In Illinois, intentionally writing a bad check is a felony offense. (720 ILCS 5/17-1) The statute section is titled, "Deceptive Practices." This statute section also creates a civil cause of action against the writer of a bad check. One of the elements of the crime and the civil cause of action is a showing of intent. 

The U.S. Bankruptcy Code provides for the non-dischargeability of debts related to fraud, false pretenses, and false representations. (11 U.S.C. Sec. 523(a)(2)) These types of debts are not automatically disqualified from the discharge, but they may be deemed non-dischargeable if a creditor files the proper action in the Bankruptcy Court. 

So, if someone obtains goods or services by intentionally writing a bad check, then the debt created must be non-dischargeable so long as the creditor follows the proper procedures, right? 

Not necessarily. 

According to the Hon. Judge Schmeterer of the U.S. Bankruptcy Court for the Northern District of Illinois, merely writing a bad check does not automatically trigger 11 U.S.C. Sec. 523(a)(2). Judge Schmeterer has even held that a violation of the Illinois Deceptive Practices statute does not automatically trigger the non-dischargeability provisions of the Bankruptcy Code. 

So when are bad checks not dischargeable in a bankruptcy? It really depends on the facts of the specific case. In In Re Philopulos, Judge Schmeterer stated, "establishment of Debtor's fraudulent intent under the Illinois Deceptive Practices Act does not automatically render this debt nondischargeable under 11 USC 523." See In Re Philopulos, 313 B.R. 271 at 280 (Bkrtcy. N.D. IL. 2004).

The U.S. Bankruptcy Code contains its own test for whether a debt is nondischargeable as a fraudulent misrepresentation. The test has five elements: (1) the debtor made a statement in writing; (2) the statement was materially false; (3) the statement concerned the debtor's financial condition; (4) the debtor intended to deceive the creditor; and (5) the creditor reasonably relied on the statement.

Judge Schmeterer reasoned that tendering a check is not a representation of any kind, and therefore simply violating the Illinois Deceptive Practices Act does not satisfy the first prong of the 5-part test. Judge Schmeterer further noted that an express representation, either oral or written, would be required to trigger non-dischargeability under the U.S. Bankruptcy Code. 

This does not mean that one can pass bad checks and escape liability via a bankruptcy -- there are other means for proving fraud and false representation. Additionally, if a debtor was to write a large number of bad checks and then attempt to discharge those debts in a bankruptcy, it is arguable that such behavior would trigger an action to dismiss the bankruptcy case as a bad-faith filing. 

Regardless of whether the debt can be discharged, intentionally writing a bad check in Illinois is a felony. If the state's attorney charges someone under the Deceptive Practices Act, then a criminal penalty cannot be discharged.