Opinion
Case No. 00-33208-T, Chapter 7, Adv. Proc. No. 00-3120-T
February 28, 2001
MEMORANDUM OPINION
Trial was held February 13, 2001, on plaintiff's complaint to determine dischargeability of a credit card debt under 11 U.S.C. § 523(a)(2)(A). At the conclusion of trial, the court took the ruling under advisement.
For reasons stated in this opinion, the court will enter judgment for plaintiff and determine the debt excepted from debtor's discharge.
Findings of Fact During the years 1999 and 2000, debtor was employed as manager of a Pic `N Pay shoe store in Richmond, Virginia, at an annual salary of $27,000 per year; his net monthly income was $1,775.00. His wife was employed as a sales clerk at a net salary of $600.00 per month. They had two children, and their monthly expenses were approximately $2,370.00, not including credit card debt payments or other unsecured debt.
In February 2000, debtor was notified by his employer that Pic `N Pay would be filing bankruptcy and that debtor's job would soon be terminated. Pic `N Pay filed bankruptcy in March 2000, and debtor subsequently lost his job.
Debtor and his wife filed a chapter 7 bankruptcy petition on June 5, 2000. According to their bankruptcy schedules, on the date of their petition, they had unsecured debt in the amount of $48,690.00. This sum included credit card debt in the total amount of $25,000.00. Debtor's petition reveals that he was then employed by another shoe retailer.
In 1993 the debtor had accepted an offer to open a credit card account from plaintiff First North American National Bank. This account was still active in 1999 and 2000 and frequently used by debtor. On April 5, 2000, he charged to the account a purchase of a projection television from Circuit City in the amount of $2,328.98. At the time of this purchase, his last previous balance on the account was $2,031.05. Debtor last made a payment on the account in March 2000 and made no further payments before filing his bankruptcy petition.
When debtor purchased the television on April 5th, he impliedly represented to plaintiff that he intended to pay the charge. Plaintiff justifiably relied upon debtor's implied representation and sustained loss as a result of that reliance.
However, debtor did not intend to pay for the television at the time of purchase.
Position of Parties Plaintiff.
Plaintiff argues that debtor charged a luxury item 61 days prior to filing bankruptcy at a time when debtor knew he was going to lose his job due to his employer's impending bankruptcy and liquidation. Debtor's bankruptcy schedules and family budget reveal that there was no way he could have paid his credit card charges. The circumstances of the case establish that debtor did not intend to pay for the television at the time of purchase.
Debtor.
Debtor testified that at the time he purchased the television, he intended to pay for it and believed he could pay. He had reason to believe that Pic `N Pay would not close and that he would not lose his job. Debtor stated that he hoped to receive his employer's manager of the year award for 1999, which would have resulted in an annual pay raise (or bonus) of approximately $1,500.00. He filed bankruptcy only because he was sued for a 1995 hospital bill in the amount of $16,000.00, which he did know was still owed.
Discussion and Conclusions of Law
Plaintiff has the burden to prove that debtor's credit card purchase of a projection television was a debt incurred with intent to defraud and excepted from debtor's chapter 7 discharge pursuant to 11 U.S.C. § 523(a)(2)(A). The elements to be proved are as follows:
(1) that the debtor made misrepresentation or committed other fraud;
(2) that at the time the debtor knew the conduct was fraudulent;
(3) that the debtor's conduct was with the intention and purpose of deceiving or defrauding the creditor;
(4) that the creditor relied on the debtor's representations or other fraud; and
(5) that the creditor sustained loss and damage as the proximate result of the representations of fraud.
American Express Centurion Bank Optima v. Choi (In re Choi), 203 B.R. 397, 398 (Bankr.E.D.Va. 1996) (emphasis in original) (citing Western Union Corp. v. Ketaner (In re Ketaner), 154 B.R. 459, 464-465 (Bankr.E.D.Va. 1992)).
The court has found that plaintiff justifiably relied upon debtor's implied representation that he intended to pay the charge for the television purchase. Plaintiff sustained loss as a result of debtor's implied representation. The only issues raised by the debtor are the first three elements set forth above, which may be combined for discussion.
In Choi, this court discussed the various approaches in credit card cases on the question of a debtor's fraudulent intent and knowledge and adopted a good faith or reasonable person approach to the intent issue. This approach means that even though a debtor may have subjectively intended to pay a credit card charge, the court should apply "a good faith type of test and [consider] whether a debtor was hopelessly insolvent and therefore should have known that he or she would be unable to pay" a charge when it comes due. In re Choi, 203 B.R. at 399; see also Manufacturers Hanover Trust v. Dougherty (In re Dougherty), 143 B.R. 23, 26 (Bankr.E.D.N.Y. 1992) (discussing the good faith standard for determining a credit card debtor's intent to pay).
Of course, each case must be considered on its own facts, and the credibility and plausibility of a debtor's testimony is a critical factor.
In this case, the court has noted that debtor filed his bankruptcy petition 61 days after purchasing a luxury television for $2,328.98. Under Code § 523(a)(2)(C), a luxury item in this amount purchased within 60 days before the petition date is presumed to be nondischargeable. This somewhat suspicious circumstance of debtor's filing bankruptcy just beyond the 60 day period of § 523(a)(2)(C), combined with the doubtful credibility of his testimony at trial persuades the court that debtor did not in fact intend to pay the charge associated with the television purchase.
At trial, plaintiff's counsel questioned debtor as to how he intended to pay his credit card debt when his family budget revealed no monthly income surplus over the monthly family living expenses. Debtor testified that credit card payments were included in the budget's "food" item of $600.00. This testimony was inherently incredible for a family consisting of debtor, his wife and two small children. In fact, debtor's wife subsequently testified that the scheduled food amount was just for food expenses.
The debtor initially testified that his employer had promised him a $1,500.00 raise (or bonus) from which he intended to pay for his purchase. Subsequently, he testified that this supposed pay increase was dependent on his being named manager of the year. Either version of his testimony concerning the pay raise must compete with the testimony of debtor's district manager that debtor was told in March 2000 that debtor's store would close as a result of the employer's bankruptcy.
Another crucial area of inherently doubtful testimony by debtor concerned the hospital debt which he claimed drove him to file bankruptcy. He stated at trial that the charge in question dated from 1995, that he thought it had been paid by insurance and did not know that it was still owing until the lawsuit was filed in May 2000. In other words, debtor testified that he did not know that this debt was owing on April 5th when he purchased the television. Contrary to this testimony, Schedule F to the bankruptcy petition reveals that the hospital debt was incurred during 1998.
The court recognizes that the charge in question is not so large in relation to debtor's total credit card debt. Yet, one must wonder why he would make such an extravagant purchase given his family's precarious financial condition. That debtor might have made this purchase with bankruptcy in mind gains support from the fact that both debtor's brother and sister had filed bankruptcy previously; in fact, they had advised debtor to consult their same bankruptcy attorney, who filed this case for debtor.
Finally, even if the court were to accept debtor's testimony that he believed he was to receive a salary increase of $1,500.00, the additional income would hardly have made an impact on debtor's ability to pay his unsecured debt. The court finds that debtor intended to file bankruptcy in any event at the time he purchased the television on April 5, 2000.
For these reasons, the court concludes that on April 5, 2000, when debtor purchased the television for a price of $2,328.98, (1) he misrepresented to plaintiff that he intended to pay the charge; (2) he knew this representation was false;
and
(3) he intended to defraud plaintiff by discharging the debt in bankruptcy.
Alternatively, even if debtor did not have a specific intent to defraud, his financial condition was of such a hopeless nature that he should have known that he would be unable to pay the credit card charge when it became due. See In re Choi, 203 B.R. at 399.
A separate order will be entered.