This paper discusses the issuance of bad checks in Indiana. It begins with a discussion of the "old view" in which the issuance of a bad check could give rise to a non-dischargeable debt without much more than issuing the instrument. The paper then discusses the development of the current doctrine, which began as a result of the Supreme Court case in Williams v. US, 458 U.S. 279. In Williams, the Court reversed petitioner's conviction for issuance of a bad check under a federal criminal statute because "technically speaking, a check is not a factual assertion at all, and, therefore, cannot be characterized as 'true' or 'false.'" Id.
The Seventh Circuit Court of Appeals relied upon Williams to determine if the issuance of a NSF check was fraudulent. The court noted that "[a]lthough Williams involved a criminal statute and construed the word 'statement,' its reasoning governs whether [debtor's] check was a false pretense in this civil bankruptcy case." In re Scarlata, 979 F.2d 521, 525 (7th Cir. 1992). The court then reiterated the three elements required to prove non-dischargeability of an NSF check under section 523(a)(2)(A) based on fraud or false pretenses. Id. These elements are: (1) that the debtor made a statement or representation either knowing it to be false or with reckless disregard for the truth; (2) that the debtor possessed the intent to deceive when making the misrepresentation; and (3) that the plaintiff actually and reasonably relied on the misrepresentation. The final element has been altered to comport with the Supreme Court decision in Field v. Mans, 516 U.S. 59 (1992). Rather than proving a reasonable reliance, the complaining party need only prove the lesser standard of justifiable reliance. Id. What is sufficient to prove these elements varies between cases, and is fact-specific.
The paper then discusses related issues under Indiana law, including the law governing incomplete instruments and state convictions. A check that is antedated, postdated, or undated is valid under Indiana law. I.C. 26-1-3.1-113. Similarly, an incomplete instrument is not per se invalid. I.C. 26-1-3.1-115. Presumably, an incorrect or missing date or the failure to complete the check when issued would not change the analysis of dischargeability under section 523. That is, an incomplete or misdated check can be sufficient to prove that a debt is owed. And an incomplete or misdated check, by itself, is not enough to prove intent to defraud, as 'a check is not a statement." However, courts may look to these facts when examining the transaction.
Also, determinations of fraud under a state statute do not have inherently preclusive effect in bankruptcy. What constitutes 'false pretense, a false representation, or actual fraud" for purposes of section 523 is a federal, not state, question. If the state statute for fraud sufficiently mirrors the federal statute, a state determination could have preclusive effect in bankruptcy proceedings.
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