CASE NO. 00-05796-JKC-7, ADV. PRO. NO. 00-413United States Bankruptcy Court, S.D. Indiana, Indianapolis Division
May 16, 2000
Howard Howe, Counsel for Plaintiff.
Lee Pettay, Counsel for Defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
JAMES K. COACHYS, United States Bankruptcy Judge.
This matter comes before the Court on First North American National Bank’s (the “Bank”) Complaint to Determine Dischargeability of Debt against Defendant Lisa S. Williams, the debtor in the above-referenced case (“Williams”). The Court held a trial in this proceeding on January 25, 2000, at which the parties presented evidence and testimony and after which the Court took the matter under advisement. The Court, having reviewed the same, issues the following Findings of Fact and Conclusion of Law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
FINDINGS OF FACT
1. On August 25, 1999, Williams purchased a desktop computer, monitor, printer and accessories (the “Computer”) from Circuit City Stores, Inc. (“Circuit City”) for $1,176.45.
2. To finance this purchase, Williams opened a Circuit City Card Account with the Bank.
3. Per the Circuit City Credit Card Application, Williams represented that she “personally” earned $1400.00 per month, or $16,800.00 per year.
4. Per Paragraph 2 of the Circuit City Credit Card Agreement, Williams agreed to the following: “Promise to Pay. You promise to pay us, in accordance with the terms of this Agreement, for all purchases applied to the Account, plus Finance Charges and any other charges due under the terms of this Agreement.”
5. According to Williams, she purchased the Computer with the understanding that a friend (“Friend”) would pay for half of the Computer so that she could use it as well.
6. Williams purchased the Computer under what she understood to be a “six months same as cash” financing arrangement. According to Circuit City’s advertised offer, Williams believed that she was not required to make any payment for six months.
7. In contrast, the Bank’s representative explained that the offer required monthly payments from the date of the purchase. Interest, however, did not accrue on the purchase price until expiration of the six-month grace period. Nevertheless, the representative stated that the offer was somewhat like a “six months same as cash” financing arrangement.
8. Sometime in September or October of 1999, Williams’ husband left her and her young daughter. The couple’s marriage was dissolved sometime later, although Williams’ husband has never been located.
9. Per the terms of the divorce decree, Williams assumed the debt to the Bank for the Computer.
10. In November of 1999, Williams’ home was destroyed by fire.
11. Following the fire, Williams and her daughter moved in with Friend. Sometime later, Williams and Friend had a fight, and Williams moved out of the residence.
12. Friend retained the Computer and refused to return it to Williams.
13. Williams earned approximately $16,000 in 1999 and $15,000 in 2000.
14. Williams has failed to pay the Bank, in full or in part, for the Computer.
15. On May 16, 2000, Williams initiated a Chapter 7 bankruptcy case.
16. On August 11, 2000, the Bank filed its Complaint, which alleged that Williams’ debt to the Bank was nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A).
CONCLUSIONS OF LAW
1. Pursuant to Section 523 of the Bankruptcy Code, 11 U.S.C. § 101, et seq. (the “Code”), the Bank alleges in its Complaint that Williams’ debt for the Computer should not be discharged because when she incurred the debt she had neither the ability[1] nor the intent to pay for the Computer. Section 523 of the Code provides in relevant part:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt —
* * * * *
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by —
(A) false pretenses, a false representation, or actual fraud . . . .
2. Exceptions to discharge are to be construed strictly against a creditor and liberally in favor of the debtor. Goldberg Securities, Inc. v. Scarlata (In re Scarlata), 979 F.2d 521, 524-25 (7th Cir. 1993). The burden is on the objecting creditor to prove exceptions to discharge by a preponderance of the evidence. Id.
3. Since a debtor will rarely admit a lack of intention to repay, such intent must be inferred by the totality of the circumstances of the case at hand. Fowler Bros. v. Young (In re Young), 91 F.3d 1367, 1375 (10th Cir. 1996)
4. While the Bank does not state which of the three types of actions covered by Section 523(a)(2)(A) has taken place, the Seventh Circuit has held that a single standard applies for all claims of nondischargeability under § 523(a)(2)(A), regardless of whether the claims involve false pretenses, actual fraud or false misrepresentations. Mayer v. Spanel Internat’l Ltd., 51 F.3d 670, 674 (7th Cir. 1995).
5. To succeed under Section 523(a)(2)(A), the plaintiff must allege and prove that: (1) the debtor owes him a debt; (2) the debt is for money, property, or services; (3) the debtor obtained the money, property or services by making representations which the debtor either knew to be false or made with such reckless disregard for the truth as to constitute willful misrepresentation; (4) the debtor acted with scienter, or an intent to deceive; and (5) the plaintiff justifiably relied on the debtor’s false statement to its detriment. Scarlata, 979 F.2d at 525.
6. To satisfy the “intent to deceive” requirement, the Bank alleges that Williams had the ability, but not the intention, to repay the debt. The Bank finds support for this allegation in the fact that Williams, despite having adequate income to pay for the Computer, never made any payment to the Bank nor purchased any other merchandise using Bank credit from Circuit City.
7. Williams testified that she believed that the nature of Circuit City’s offer was “six months same as cash.” While Williams’ belief may have been erroneous, even Circuit City’s representative described the offer as being somewhat like a “six months same as cash” financing arrangement. From this, the Court concludes that Williams did not fully understand the terms of the Bank’s offer and that her failure to make any payment toward the Computer — at least initially — merely reflected her confusion.
8. The Court also disagrees that any inference about Williams’ intention to repay her debt can be drawn from the fact that she did not buy further merchandise from Circuit City. This fact is irrelevant in determining whether Williams intended to repay her indebtedness to Bank.
9. The evidence shows that Williams suffered several severe and unexpected hardships soon after purchasing the Computer that seriously affected her financial resources. The Court attributes Williams’ failure to repay her debt to the Bank to these hardships, not to any “intent to deceive” the Bank. See COLLIER ON BANKRUPTCY, ¶ 523.08[1][d] at 523-44 (15th ed. 2000) (“The failure to perform a mere promise is not sufficient to make a debt nondischargeable, even if there is no excuse for the subsequent breach. A debtor’s statement of future intention is not necessarily a misrepresentation if intervening events cause the debtor’s future actions to deviate from previously expressed intentions.” (footnote omitted)).
10. Based on the foregoing, the Bank has not established by a preponderance of the evidence that Williams possessed the requisite scienter or intent to deceive and, thus, has failed to prove that Williams incurred her debt to the Bank through fraud, false pretenses or misrepresentation. Therefore, Williams’ debt to the Bank is dischargeable pursuant to 11 U.S.C. §
11. Based on the foregoing, the Court enters judgment against the Bank and in favor of Williams on the Bank’s Complaint to Determine Dischargeability of Debt.
12. The Court shall enter an Order consistent with the above Findings and Conclusions.