Legal Definitions - fraudulent debt

A fraudulent debt refers to an obligation to pay money, goods, or services that was created through intentional deception, misrepresentation, or trickery by one party against another. Essentially, the debt exists because someone deliberately lied or misled another person or entity to gain a financial advantage, and the deceived party relied on that falsehood when entering into the agreement or transaction.

Here are some examples to illustrate this concept:

• Identity Theft for Credit: Imagine a situation where an individual steals someone else's personal information, such as their Social Security number and date of birth, to open a new credit card account in the victim's name. The perpetrator then uses this credit card to make numerous purchases, accumulating a significant balance. The debt incurred on this credit card is considered fraudulent debt because it was created through the intentional misrepresentation of identity, without the knowledge or consent of the actual person whose identity was stolen. The victim is not legally responsible for this debt because it was not legitimately incurred by them.

• Misleading Business Loan Application: Consider a business owner who applies for a substantial loan from a bank. To secure the loan, the owner intentionally falsifies their company's financial statements, inflating assets and revenue while hiding significant liabilities, to make the business appear much more profitable and stable than it actually is. Based on these fabricated documents, the bank approves and disburses the loan. The resulting loan obligation is a fraudulent debt because the borrower obtained the funds through deliberate deceit and misrepresentation of their financial health, which the bank relied upon when making its lending decision.

• Investment Scheme with False Promises: Suppose an individual convinces friends and family to "invest" money in a supposed high-return venture, promising guaranteed profits within a short period. However, the individual has no legitimate business or investment plan and intends from the outset to use the money for personal expenses, with no real intention or means to repay the "investors." The money received from the friends and family, which the individual is obligated to repay (or return with promised profits), constitutes a fraudulent debt. This is because the obligation was created based on false promises and an intentional scheme to defraud the investors, who relied on the misrepresentations about the investment's legitimacy and returns.