Explain whether the debt is dischargeable in bankruptcy

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Reference no: EM131390640

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 asked the bankruptcy court to find the $100,000 debt nondischargeable arguing that the promissory note debt was nondischargeable because it was for ‘‘money obtained by fraud.''

Arlene Warner argued that the $100,000 debt was dischargeable in bankruptcy because it was a new debt for money promised in a settlement contract and that it was not a debt for money obtained by fraud. Explain whether the debt is dischargeable in bankruptcy.

Reference no: EM131390640

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