In re Brawner, Bankruptcy No. 90 B 31084
| Decision Date | 05 March 1991 |
| Docket Number | Adv. No. 90 A 3122.,Bankruptcy No. 90 B 31084 |
| Parties | In re Gary E. BRAWNER and Judith A. Brawner, Debtors. SIGNET BANK CARD CENTER, Plaintiff, v. Gary E. BRAWNER, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Herbert I. Greene, Rockford, Ill., for plaintiff.
Keith S. Morse, Rockford, Ill., for defendant.
This matter comes before the Court on the Complaint to Determine Dischargeability of Debt, filed by the Plaintiff, Signet Bank Card Center (Signet). Attorney Herbert I. Greene represents Signet. Attorney Keith S. Morse represents the Defendant-Debtor, Gary E. Brawner (Debtor).
This Memorandum Opinion represents statements of fact and conclusions of law, pursuant to Bankruptcy Rule 7052.
On June 8, 1990, the Debtor, with his wife, Judith A. Brawner, filed a Voluntary Petition for bankruptcy relief under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 101-1330 (1988) (Code). The Debtor and his wife listed Signet as the holder of an unsecured claim for $3,700.00, on their Schedule A-3. Signet was listed as one of sixteen unsecured creditors holding a total of $28,148.13 in claims.
On September 4, 1990, Signet filed its Complaint, seeking to hold its claim nondischargeable. The Complaint states its claim is for $2,079.84 in cash advances and finance charges along with $1,236.59 in "purchases" and finance charges. Signet's claim arose from the Debtor's use of a Signet-issued Visa card.
On November 10, 1989, the Debtor returned a "Signet Bank Acceptance Certificate" which had been addressed to the Debtor, offering a "Credit Line up to: $5,000" until January 31, 1990. Plaintiff's Ex. 1. On January 28, 1990, Signet issued its first statement to the Debtor, indicating an $18.00 membership (card) fee, a minimum payment due of $10.00, an annual 19.8% rate of interest, and a credit limit of $3,500.00. Plaintiff's Ex. 5.
On February 28, 1990, Signet issued its second statement, indicating a previous balance of $18.00, a cash advance of $2,000.00 on February 16, 1990, six purchases totaling $169.22 between February 11 and February 19, 1990, and a minimum payment due of $76.00. Plaintiff's Ex. 4.
On February 14 and 19, the Debtor made two purchases. Id.
On March 28, 1990, Signet issued its third statement, indicating a previous balance of $2,202.43, nine purchases totaling $1,010.56 between February 22 and March 9, 1990. Plaintiff's Ex. 3. In this period, the Debtor charged $857.74 for hotel stays in one Ramada Inn and three Holiday Inns, in four different states. Id. The Debtor also charged a $71.13 tab at Bristol Bar and Grill in Kansas City, Missouri, and a $46.88 bill owed to Sonco & Sons Pools in Loves Park, Illinois. Id. Each charge was on a different day. Id. This third statement called for a minimum payment of $173.00.
On April 28, 1990, Signet issued a fourth statement, indicating a previous balance of $3,263.67, no new charges, and a minimum payment due of $272.00. Plaintiff's Ex. 2. This statement also indicated it was Signet's "third and final notice" where the Debtor's account was "seriously past due," calling for payment within seventy-two hours. Id. The Debtor never forwarded a payment to Signet. Signet cancelled the Debtor's credit line when it received notice of the Debtor's filing.
In challenging discharge, the Complaint alleges the use of "false pretenses, a false representation, or actual fraud" by the Debtor in securing credit. The Complaint also alleges the lack of either an ability to repay or a reasonable intent to repay.
The Debtor denies the allegations and argues that much of the debt owed to Signet resulted from attempts to secure employment out-of-town and that the Debtor simply became entangled in his debt, providing for "a classic case of bankruptcy."
The Debtor earned about $80,000 in 1988 as a new car manager at a local dealership. In 1989, sales slumped and the Debtor earned about $57,000. The Debtor lost his job on February 20, 1990, and became employed at another local dealership on March 20, 1990. In 1990, the Debtor earned about $36,000.
The Debtor had been accustomed to experiencing lucrative months of April. (The Debtor's income corresponded to his sales.) When the Debtor did not experience a sufficiently lucrative April of 1990, he proceeded to consult an attorney regarding bankruptcy relief.
Section 727 of the Code generally provides Chapter 7 debtors with a discharge of their debts. Section 523 of the Code provides exceptions to discharge. Courts construe the "discharge provisions" of Section 523 strictly against creditors and liberally in favor of debtors. In re Winston, 114 B.R. 566, 569-70 (Bankr.N.D.Ill. 1990). Similarly, courts construe exceptions to discharge strictly "to further the policy of affording a debtor a broad discharge and an effective fresh start." Id. at 570. Yet, "the Code limits the opportunity for a completely unencumbered new beginning to the `honest but unfortunate debtor.'" Grogan v. Garner, ___ U.S. ___, 111 S.Ct. 654, 659, 112 L.Ed.2d 755 (1991) (quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S.Ct. 695, 699, 78 L.Ed. 1230 (1934)).
Section 523(a)(2)(A) of the Code, however, precludes a discharge "for money, property, services, or an extension, renewal, or refinancing of credit to the extent obtained by . . . false pretenses, a false representation, or actual fraud." To preclude a discharge under Section 523(a)(2)(A), a plaintiff must prove three elements:
First, the creditor must prove that the debtor obtained the money through representations which the debtor either knew to be false or made with such reckless disregard for the truth as to constitute willful misrepresentation. . . . The creditor also must prove that the debtor possessed scienter, i.e., an intent to deceive. . . . Finally, the creditor must show that it actually relied on the false representation, and that its reliance was reasonable. . . .
In re Kimzey, 761 F.2d 421, 423 (7th Cir. 1985) (citations omitted); accord In re Cloud, 107 B.R. 156, 159 (N.D.Ill.1989); In re Iaquinta, 98 B.R. 919, 923 (Bankr.N.D. Ill.1989). The United States Supreme Court has recently decided that the plaintiff must prove its case under Section 523(a)(2)(A) by a preponderance of the evidence. Grogan, 111 S.Ct. at 659.
In cases which involve credit card debts, Judge Schmetterer has further specified five elements which must be proven to deny dischargeability under Section 523(a)(2)(A):
In re Williams, 85 B.R. 494, 496 (Bankr.N. D.Ill.1988).
Using a credit card implies a representation by a debtor that the debtor intends to pay, and the creditor reasonably relies on that representation. Id. Fundamentally, the question becomes "whether or not the debtor intended to pay for the property or services or to repay the money advanced at the time the debtor used the credit card." 1 R. Ginsberg, Bankruptcy: Text, Statutes, Rules, § 11.06(d)(2), at 909-10 (2d ed. Supp.1990).
In determining a debtor's intent to defraud a credit card creditor, courts look for guidance in all of the facts and circumstances of each case. Id. at 908. Courts have generally looked at six factors:
Williams, 85 B.R. at 499; accord Cloud, 107 B.R. at 160; In re Sutliff, 112 B.R. 680, 682 (Bankr.M.D.Pa.1990). In Sutliff, Judge Gibbons recognized six additional factors:
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