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 non-dischargeable, arguing that the promissory note debt was non-dischargeable 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.