U.S. Rep. Lou Correa (D-CA) recently introduced legislation that seeks to protect people from fraud their partner committed alone.
The Bankruptcy Relief for Innocent Partners Act (H.R. 10724) would amend the Bankruptcy Code so that only the person who committed fraud is barred from discharging the resulting debt. Innocent partners would get the same fresh start as any other honest filer. The bill also protects survivors of domestic and financial abuse from being forced to stay in a relationship for financial reasons.
“If you didn’t commit the fraud, you shouldn’t carry the debt for the rest of your life,” Correa said. “For a survivor of abuse, that debt can be a chain. Abusers use debt to control their partners and keep them from leaving. This bill removes one more chain.”
The bipartisan bill was cosponsored by Rep. Laurel Lee (R-FL).
“No one should be left responsible for debt caused by a partner’s fraud they neither knew about nor participated in,” Lee said. “For victims of domestic or financial abuse, being forced to bear the financial consequences of a partner’s wrongdoing can compound an already devastating situation. The Bankruptcy Relief for Innocent Partners Act is a matter of fundamental fairness. It provides meaningful relief for innocent individuals while ensuring our bankruptcy laws hold those who commit fraud accountable.”
An example of this is Bartenwerfer v. Buckley. In this case, a couple ran a house-flipping business together, and one partner committed fraud without the other’s knowledge. After the couple filed for bankruptcy, the Supreme Court ruled that current law did not allow the innocent partner to discharge the fraud-related debt.
The bill is supported by the National Association of Consumer Bankruptcy Attorneys (NACBA).
“Bartenwerfer blurred that critical distinction in bankruptcy, allowing an innocent debtor to be saddled for life with a debt arising from misconduct they neither knew about nor could prevent,” Richard Nemeth, president at NACBA, said. “This bill would restore a simple rule: the extraordinary consequence of nondischargeability for fraud should follow the person who committed the fraud.”
The lawmakers said this issue is especially serious in abusive relationships. Half of domestic abuse survivors report experiencing “coerced debt,” where abusers use debt to maintain control and limit their partners’ economic resources.
It is also endorsed by the Center for Survivor Agency and Justice.
“Ninety-nine percent of domestic violence survivors experience economic abuse and half experience coerced debt. Beyond the hard costs, coerced debt creates an economic ripple effect by damaging credit, and preventing a survivor from accessing housing, employment and the basic resources needed to be safe. The Bankruptcy Relief for Innocent Partners Act would provide critical relief to domestic violence survivors who are burdened with debt through no fault of their own,” Erika Sussman, founder and executive director at the Center for Survivor Agency and Justice, said.