THE 74-year-old debtor applied for a Lowe’s credit card on March 15, 2008. She said she had an annual income of $48,000. But her true income was only $667 in monthly Social Security payments. GE Money Bank approved her credit application and gave her a credit line of $12,500. Sometime in May, debtor used the card to buy $5,000 worth of gift cards. She filed for Chapter 7 relief in August 2008 with an outstanding balance of $6,039 on her Lowe’s account. Before she filed for bankruptcy, debtor made three payments on the account for a total of $160. Creditor filed an adversarial case to object to the discharge of the card. Is this card dischargeable?
There are several points that support the contention of creditor that the card is not dischargeable:
Proximity in time: Debtor charged $5,000 on the account in May then filed her bankruptcy in August. Even though the law states that charges incurred 60 days pre-petition that exceed $750 are presumed non-dischargeable while debtor here bought the gift cards more than 60 days before she filed her bankruptcy, it was only 90 days pre-filing when she bought those gift cards. It is presumably dischargeable because the 60-day limit is not applicable but 90 days pre-filing is still reasonably close to the filing date. This means she probably knew that she was going to file a bankruptcy but nevertheless used $5,000 on the credit line. The proximity in time argues against dischargeability.
Luxury items: A gift card is not a necessity. Thus the $5,000 for gift cards is purchase of a luxury item. Thus, debtor will not be able to argue that the money was used for necessities. Examples of necessities are car repairs or medicines. If debtor had used the card to fix the broken transmission of her car, she would be able to argue that the money was used for necessities beyond the 60-day pre-filing period, therefore dischargeable because the presumption of non-dischargeability is not applicable.
Minimal income: Although debtor said in the application form that her yearly income was $48,000, her true income was $667 monthly in social security payments. Since her actual income was small, plaintiff can argue that she had no intent to repay creditor because she had no ability to repay her debts based on her actual income.
Misrepresentation of income: Debtor said in the application form that she made $4,000 a month. But her real income was only $8,000 a year. Plaintiff can argue that if she had revealed her true income in the application, creditor would not have given her any credit at all. Thus, creditor will argue that debtor defrauded creditor by that material misrepresentation. Therefore, the debt should not be discharged. Otherwise, debtor would be rewarded for the fraud that she perpetrated on creditor.
These are strong legal arguments against dischargeability. The court found that "The facts, as presented, support the plaintiff’s contention that any intent that the debtor had to repay the debt was not well-grounded, based as it was on her minimal income and on the supposed promise of her former husband whom she described as being in financial straits. She knew when the gift cards were purchased that the debt was beyond her ability to repay."
Regarding the alleged fraud, the court concluded that the plaintiff was justified in relying on the debtor’s representations (her income was $48,000 yearly) that she intended to repay the debt and had the ability to repay it.
Note that if the former husband was not in financial straits but had good income and financially responsible, the court may have found the debt dischargeable because it may have found that it was reasonable for debtor to rely on the promise of ex husband to pay her debts.
Thus, the court looks at the entire picture to determine if the debt is dischargeable.
If you need debt relief, contact my office. I will analyze your case personally.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803.
( Published October 10, 2009 in Asian Journal Los Angeles p. C4 )
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