Bartenwerfer v. Buckley
The Supreme Court ruled unanimously that a woman could not erase in bankruptcy a debt arising from her husband and business partner's fraud, even though she was personally uninvolved in the deception.
The decision means that debtors who are legally responsible for a partner's or agent's fraud under state law cannot use bankruptcy to escape that debt, because the federal bankruptcy exception focuses on how the money was obtained — not on who did the deceiving.
“Written in the passive voice, §523(a)(2)(A) turns on how the money was obtained, not who committed fraud to obtain it.”
The majority's core statement of why the fraud exception applies even to a debtor who personally did not commit the fraud.
How it got here: After two rounds of bankruptcy-court proceedings, a federal appeals panel allowed Kate to discharge her debt; the Ninth Circuit reversed, holding the debt nondischargeable regardless of her culpability; the Supreme Court agreed to hear the case.
The Case in Depth
What happened
Kate Bartenwerfer and her then-boyfriend David jointly bought a San Francisco house intending to renovate and resell it for a profit. David ran the project while Kate was largely uninvolved. When they sold the house, both attested they had disclosed all material facts, but the buyer later discovered concealed defects — a leaky roof, defective windows, a missing fire escape, and permit problems. A California jury found both jointly liable for more than $200,000 in damages. When the couple filed for bankruptcy, the buyer sought to prevent Kate from wiping out her share of the debt.
The question before the Court
Can someone be blocked from erasing a debt in bankruptcy because her business partner committed fraud, even if she had no personal knowledge of or involvement in the deception?
The Court's answer
No — Kate Bartenwerfer could not erase her debt in bankruptcy, even though she personally did not commit the fraud. The federal bankruptcy exception bars discharge of any debt for money "obtained by false pretenses, a false representation, or actual fraud." The Court held that this provision, written in the passive voice, deliberately focuses on how the money was obtained — not on who did the deceiving — and therefore applies whether the fraud was committed by the debtor herself or by her business partner.
Two reinforcing sources of law confirmed this reading. The common law of fraud has long held that partners and agents can be responsible for each other's fraudulent acts. And in 1885 the Supreme Court applied the bankruptcy fraud exception to innocent co-partners; when Congress next overhauled bankruptcy law, it deleted the phrase "of the bankrupt" from the fraud exception — a deliberate signal that Congress embraced that rule. Kate's debt to the buyer was therefore not dischargeable, regardless of her personal innocence.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
People who enter business partnerships or employ agents can be held responsible under state law for that partner's or agent's fraud — and this ruling confirms they cannot erase that debt in bankruptcy either. Anyone who forms a business partnership, even informally, should understand that their financial exposure in bankruptcy may extend to wrongs they did not personally commit.
What changes now
Kate Bartenwerfer's debt to the buyer remains fully enforceable and cannot be erased in bankruptcy. The ruling is final. Going forward, any debtor held liable under state law for a business partner's or agent's fraud — even without personal knowledge of the wrongdoing — will be unable to discharge that debt in bankruptcy, so long as the underlying liability arises from a recognized agency or partnership relationship.
What this does not decide
The Court did not decide whether the fraud exception applies when the fraudster has no agency or partnership relationship to the debtor at all. Justice Sotomayor's concurrence explicitly flags this open question, noting that the Court's reasoning was grounded specifically in common-law principles of agency and partnership, not in fraud by a complete stranger.
Concurrences and dissents
Concurrence — Justice Sotomayor
Justice Sotomayor agreed with the unanimous result but wrote separately to emphasize the limits of what the Court decided. She noted that the ruling rests on common-law agency and partnership principles — meaning the fraud exception as interpreted here applies when the fraudster is the debtor's agent or partner, not when the wrongdoer bears no legal relationship to the debtor at all. With that understanding of the holding's scope, she joined the Court's opinion.
How the Court got there
The legal reasoning, step by step
- The Court started with the text of § 523(a)(2)(A) of the Bankruptcy Code, which bars discharge of any debt 'for money obtained by false pretenses, a false representation, or actual fraud.' The provision is written in the passive voice — it says nothing about who must have committed the fraud — and the Court read that choice as deliberate: Congress focused on the event (money obtained by fraud) without specifying the actor.
- Because the passive voice 'pulls the actor off the stage,' the Court held that Congress was agnostic about who committed the fraud. Context can sometimes narrow a passive-voice statute to a specific actor, but here the relevant backdrop — the common law of fraud — actually broadens the field: courts have long held that principals are liable for their agents' fraud and that partners are liable for fraud committed within the scope of the partnership.
- The Court rejected the argument that neighboring provisions — §§ 523(a)(2)(B) and (C), which do expressly require culpable conduct by the debtor — imply that (A) silently does too. Applying the canon that when Congress includes a requirement in some sections but omits it in others the omission is typically deliberate, the Court found the stronger inference runs the other way: (A) excludes debtor culpability from consideration precisely because (B) and (C) expressly hinge on it.
- Historical precedent cemented the reading. In Strang v. Bradner (1885), the Supreme Court had held that a partner's fraud is imputed to innocent co-partners who benefited from it, even under statutory language barring debts created by fraud 'of the bankrupt.' Thirteen years later Congress overhauled bankruptcy law and deleted the phrase 'of the bankrupt,' cutting out the strongest textual argument against the Strang outcome. The Court treated that deletion as Congress's deliberate embrace of the Strang rule.
- The Court dismissed the argument that bankruptcy law's 'fresh start' policy required a debtor-friendly result. The Bankruptcy Code balances debtor and creditor interests, and § 523 exists precisely because Congress decided some creditor interests outweigh the debtor's interest in a clean slate. Crucially, § 523(a)(2)(A) does not itself determine who is liable for another's fraud — state law does that. The bankruptcy provision simply prevents a debt, once incurred under state law, from being discharged.
Doctrinal impact
Cases affected by this decision
Reaffirms Strang v. Bradner (114 U.S. 555)
The Court confirmed that a partner's fraud is imputed to innocent co-partners and bars discharge of the resulting debt in bankruptcy.