Here, the U.S. Bankruptcy Court held that VISA charges on debtor’s preapproved credit card were not dischargeable in bankruptcy.

Here, the creditor sent an unsolicited credit card application to debtor for a preapproved VISA card with a $4,000 line of credit. The debtor accepted the card when she already had amassed some $29,000 in other credit card obligations. At the time the debtor accepted the new VISA card, she had a monthly income of $1,128 and fixed monthly expenses of $1,408.

Debtor’s first use of the VISA card was for a cash advance of $2,200. The funds were used to pay two house payments and other past due bills. More cash advances were taken which soon exceeded the $4,000 credit limit. No payments were ever made on the VISA card.

The court noted that the debtor is not ignorant of finances, as she is employed by a bank as a personal banker and thus, understands how the credit world operates.

The central issue in this case was whether the use of the credit card by the debtor implies a representation that the debtor had both the intent and ability to repay the obligation. A majority of the courts have adopted the “implied representation doctrine” which states that a debtor does make a representation of intent and ability to repay by merely making the charge.

Here, the debtor incurred the VISA debts at a time when she was already insolvent. The court found that at the time the charges were incurred, debtor did not have the ability to repay the charges, and that the debtor knew she did not have the ability to repay the debt. The court concluded that debtor’s actions were tantamount to fraud and held this VISA debt to be nondischargeable. Household Card Services/VISA vs. Laura Vermillion, 136 B.R. 225.

Author: Charles R. Harroun, Attorney at Law