Debt dischargeable under Texas Construction Trust Fund Statute

Ratliff Ready-Mix, a creditor of Barry Pledger’s construction business, argued that its claim was not dischargeable in Pledger’s bankrupcty because it arose from a violation of the Texas Construction Trust Fund Statute.  Reviewing the case law about this statute and the defenses it provides, the Fifth Circuit affirmed judgment for the debtor.  To overcome Pledger’s statutory affirmative defense, “Ratliff had to establish that the payments made by Pledger were not ‘actual expenses directly related to the construction.’ Specifically, Ratliff must show that (a) these were not payments made on the project or overhead, or (b) they were made for Pledger’s own uses rather than to benefit the health of his failing business.”  Ratliff Ready-Mix v. Pledger, No. 14-50023 (Jan. 23, 2015, unpublished).  Here, “[i]t would be hard to argue that paying taxes, repairing vehicles and equipment, and compensating employees could be categorized as anything other than maintaining the business.”

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