Reference no: EM134032452

Question

Leonard and Arlene Warner sold the Warner Manufacturing Company to Elliott and Carol Archer for $610,000. A few months later the Archers sued the Warners in a state court for fraud connected with the sale. The parties settled the lawsuit for $300,000. The Warners paid the Archers $200,000 and executed a promissory note for the remaining $100,000. After the Warners failed to make the first payment on the $100,000 promissory note, the Archers sued for the payment in state court. The Warners then filed for bankruptcy under Chapter 7 of the Bankruptcy Code. The Archers claimed that the $100,000 debt was nondischargeable because it was for "money obtained by fraud." Arlene Warner claimed that the $100,000 debt was dischargeable in bankruptcy because it was a new debt for money promised in a settlement contract and thus it was not a debt for money obtained by fraud.

1. What are the arguments that the debt is dischargeable in bankruptcy?

2. What are the arguments that the debt is not dischargeable in bankruptcy?

3. Explain whether the debt is dischargeable in bankruptcy.