The Bankruptcy Code provides in Title 11 U.S.C. 523(a)(2)(A) and (C), in pertinent part, that a consumer who incurs debts owed to a single creditor and aggregating more than $500 for “luxury goods” within 40 days prior to filing bankruptcy, shall not have that debt discharged in bankruptcy.

Here, debtor purchased more than $1,100 of collector Barbie dolls and accessories within 40 days of filing for bankruptcy. Debtor further sought to discharge these debts to the creditor who issued the credit card upon which the charges were placed. Creditor filed an adversary complaint with the Bankruptcy Court claiming that these Barbie doll purchases were “luxury goods” and nondischargeable under the Bankruptcy Code.

This Wisconsin Bankruptcy Court noted that the Code section cited above provides a “presumption” that the debt ought not be discharged. This “presumption” is basically a conclusion that if luxury goods are charged within 40 days prior to filing for bankruptcy, the debtor would not have had the intention to repay the debt and, therefore, such a charge could be deemed an attempt to obtain goods by fraud, and nondischargeable under the Bankruptcy Code.

In the immediate case, debtor testified that the collector Barbie dolls and accessories were purchased to give to her daughter, who already had a collection of 25 other Barbie dolls. Debtor further testified that when the new Barbie dolls were received via mail order by her, she was working as a waitress making minimum wages and did not have the ability to pay for the same. Notwithstanding debtor’s precarious financial situation, debtor testified that she intended to make the monthly charge card payments for the Barbie dolls and accessories.

The Bankruptcy Court initially noted that at first glance this case appeared to be a classic example of charges for luxury goods, which would not be discharged in bankruptcy. In fact, the Court observed that debtor’s purchases may have been even foolish and irresponsible in light of her financial circumstances.

The Court held, however, that debtor rebutted the presumption of fraudulent intent when she testified that she intended to make the monthly charge card payments on the Barbie charges. This Court, therefore, found no fraudulent intent to obtain said goods by fraud and discharged these charges in debtor’s bankruptcy. In re Johannsen, 160 B.R. 328 (Bkrtcy. W.D. Wis.).

EDITOR’S COMMENT

The case reviewed above is an example of how far some bankruptcy courts will go to favorably allow debtors to avoid repayment of obligations where, as here: (1) debtor acknowledged an inability to repay the debt; (2) the charges were for gifts of collector Barbie dolls to be given to a daughter who already had 25 other Barbie dolls; and (3) the charges were not for goods reasonably acquired for the support or maintenance of the debtor or a dependent of the debtor.

Author: Charles R. Harroun, Attorney at Law