In this case, the debtor obtained a credit card from FCC National Bank with a credit limit of $5,000. At the time debtor applied for the credit card, he was employed earning a salary of $500 per week. Shortly after obtaining the card, debtor lost his job and began incurring charges on the credit card.

Undaunted by his unemployment, within several months debtor incurred charges on this card which exceeded the $5,000 credit limit. For several months debtor made no payments on this account, even though the monthly payments were only $115.00.

Thereafter, debtor became employed at the rate of $5.00 per hour.

In addition to the charges made on this account, debtor had regular monthly payments on two automobiles, for which he and his wife were responsible, a GM card on which he owed $250, a Mastercard with a $2,000 balance and apartment rent of $800.

Debtor then filed a Chapter 7 bankruptcy which revealed additional debts to Great Western Bank of $1,070, another obligation to Norwest Bank of $2,820 and several other unsecured obligations of more than $7,000.

Title 11 of the United States Code, Section 523(a)(2)(A) is applicable to an extension of credit induced by fraudulent behavior but which is not in connection with a written statement of financial condition. A cause of action under this section may be established by proving:

“(1) That the debtor made false represen-
tations;
(2) At the time made, the debtor knew
them to be false;
(3) That the representations were made
with the intention and purpose of deceiving the creditor;
(4) That the creditor relied on the
representations; . . . .

This court noted that:

“Clearly when a consumer uses a bank credit card to make a purchase, the consumer makes no explicit representation to anyone, certainly not to the third party issuer who is far removed, at least geographically, from the purchase transaction.

The court observed that two separate lines of cases have evolved to deal with this unique type of transaction. The majority of bankruptcy courts have held that the act of using the credit card itself carries two implied representations. First, that the debtor has the intent to repay the credit card debt. Second, that the debtor has the ability to repay the debt.

Hence, a debtor who is without the ability to repay the debt at the time the charges are incurred, or when a cash advance is made, has made the requisite false representation and has the required intent to deceive.

This theory, adopted by the majority of courts, will enable the creditor to surmount the hurdle of proving the first three elements stated above. Many courts have also held that the fourth element of “reliance” by the creditor need not be proven in this situation.

This court, therefore, held the credit card debt to FCC National Bank was not dischargeable in bankruptcy. In re Branch,158 B.R. 475.

Author:  Charles R. Harroun, Attorney at Law