If someone lied on a credit application for a car loan, will there be an issue because of this if they file for bankruptcy?

A friend of mine lied on a car loan application to get financed. Lied about employment, source of income and verification. Now my friend is considering bankruptcy to discharge a few unsecured debt loans, credit cards (did not lie on those). If my friend wants to keep the car, payments are current, never been late, will there be an issue because of untruthful car loan application? The accounts for which seeking discharge are unrelated to this application/loan.

Asked on November 5, 2011 under Bankruptcy Law, Arizona

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

If someone lies on a credt application and the other party becomes aware of that, they may rescind the contract immediately; that is, they may void it at their choice because it was based on a false set of facts. At a minimum, they can get the car back; the bankruptcy, if he files it, may shield him from any claim for repayment of any monies loaned to him (the remaining balance on the loan), which otherwise they'd be entitled to seek immediately, though he should consult with a bankruptcy attorney to make sure that his deliberate fraud does not vitiate the protection of bankruptcy vis-a-vis this creditor.

Furthermore, he may well have committed criminal fraud, by lying to gain monies (the loan) to which he is not entitled; that is, this may qualify as a form of theft. The facts, as you write them, would seem to support criminal liabilty, since he evidently lied comprehensively and deliberately. Your friend should consult with an attorney about his situation in detail to determine his potential exposure under different scenarios.


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