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February 20, 1946


The opinion of the court was delivered by: JONES

This case is before the Court on a petition by Household Finance Corporation, objecting creditor, for review of the Referee's order granting the bankrupt a discharge.

On November 28, 1941, the bankrupt obtained a loan of $ 500 from the objecting creditor. In connection with this loan he made a financial statement in which he listed the following obligations: Cleveland Trust Company, $ 550; Commonwealth Loan Company, $ 220; Aetna Finance Company, $ 130; and the May Company, $ 210. From the proceeds of the loan, the objecting creditor paid $ 237.41 to the Commonwealth Loan Company, $ 143.70 to Aetna Finance Company, and $ 118,89 to the bankrupt.

 On March 20, 1942, the bankrupt received a second loan of $ 500 from the objecting creditor; $ 426.59 of this loan represented an extension of credit on the previous loan and $ 73.41 cash was paid to the bankrupt. At the date of bankruptcy this debt had been reduced to $ 287.58. The financial statement signed by the bankrupt and his wife in connection with this loan recites:

 'The undersigned having applied to Household Finance Corporation for a loan of $ 500, for 15 months, for the purpose of showing his, her or their ability to repay the same and inducing Household Finance Corporation to make said loan, hereby represent(s) and warrant(s) to Household Finance Corporation that the following is a full, complete and correct list of all of his, her or their debts and liabilities on 3-20-42. (If no debts, so state)'

 On this statement the bankrupt listed debts of $ 426.59 owing to Household Finance Corporation and $ 450 owing to Cleveland Trust Company, and stated in his own handwriting, 'We have no other debts.' The objecting creditor contends that (under Sec. 14, sub. c, of the Bankruptcy Act, 11 U.S.C.A. § 32, sub. c) the bankrupt should be denied a discharge because he failed to list the following debts on his financial statement: 1. The Higbee Company $ 30.72 2. The May Company 20.00 3. Stone Shoe Company 30.00 4. B. R. Baker Company 7.47 5. The Bailey Company 53.00 6. William Taylor & Son Company 27.00 7. Commonwealth Loan Company 87.91 8. Geneva Bancroft 195.00 9. Basil Bancroft, Sr. 514.15 10. Harvard Business School 1,400.00 11. Ohio Loan & Discount Company (Mortgage) 300.00 12. The May Company (mortgage) 167.52 Total $ 2,832.77

 Each of the loans made by the objecting creditor was secured by a chattel mortgage which the creditor says was taken only for psychological reasons and was not recorded. The mortgages covered furniture which the bankrupt says cost $ 2,000. Prior to the date of bankruptcy, it was sold for approximately $ 400, and from the proceeds of the sale, the bankrupt paid his debt to the Ohio Loan Company and paid $ 38.09 to the objecting creditor.

 The bankrupt testified that he informed the objecting creditor of the six department store bills when he obtained the loan, that he told it he was going to use the $ 73.41 cash to pay them, and that the creditor told him he need not list them in that case. The creditor denies this and says that the bankrupt said he was going to use the money for dental work. It was not used for either of those purposes, but was used to pay the loan of Commonwealth Loan Company. Concerning that obligation, the bankrupt testified that he told the creditor, 'I owed a small balance of $ 75 to $ 80 at Commonwealth and I was going to pay them off, increase my account with them and in that way get these odds and ends straightened out.' (R. page 33).

 Regarding the liabilities to Geneva Bancroft, Basil Bancroft, Sr., and Harvard Business School, the bankrupt testified that the creditor was informed of them at the time of the first loan and that it told him they need not be listed. They were not mentioned at the time of the second loan. The creditor denies that it was ever informed of any of them.

 The $ 195 owing to Geneva Bancroft, bankrupt's former wife, is for alimony owing since 1937. Apparently, she has never attempted to collect it.

 According to the bankrupt's testimony, he told the objecting creditor about the note held by Basil Bancroft, Sr., his father, when he obtained the first loan and told it he had receipts showing that he had paid the note. He testified that the receipts were in a suit case which was stolen from his car in the fall of 1941. About six weeks after the date of the second loan, the bankrupt's father brought suit against him on the note in Lakewood Municipal Court, and on July 29, 1942, his father obtained judgment for $ 514.15.

 As to the $ 1,400 note held by Harvard Business School, the bankrupt testified that he told the creditor it was for tuition while he was studying for his master's degree and that it was barred by the statute of limitations. He said the creditor told him that, if it was barred, it need not be listed.

 The bankrupt testified that he obtained a loan of $ 300 from the Ohio Loan & Discount Company on February 21, 1942, and gave it a second mortgage on his furniture. (R. page 39) He did not explain why this obligation was not listed on his financial statement, nor was he asked for any explanation.

 The note given to the May Company on August 8, 1941 (secured by a mortgage on some of bankrupt's furniture), was not disclosed at the hearing on the discharge. At the hearing on the application for a rehearing, Mr. Burnham of the May Company testified that $ 167.52 was owing on that mortgage on March 20, 1942.

 Section 14, sub. c(3), of the Bankruptcy Act, 11 U.S.C.A. § 32, sub. c(3), provides that the bankrupt shall be granted a discharge unless the court is satisfied that the bankrupt has 'obtained money or property on credit, or obtained an extension or renewal of credit, by making or publishing or causing to be made or published in any manner whatsoever, a materially false statement in writing respecting his financial conditions.' A proviso of section 14, sub. c, provides that 'if, upon the hearing of an objection to a discharge, the objector shall show to the satisfaction of the court that there are reasonable grounds for believing that the bankrupt has committed any of the acts ...

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