In re Hoyle, Bankruptcy No. 93-12522-7. Adv. No. 94-5089.

• Decision Date: 11 April 1995
• Docket Number: Bankruptcy No. 93-12522-7. Adv. No. 94-5089.
• Citation: 183 BR 635
• Parties: In re Frederick Eugene HOYLE, Debtor: MERCANTILE BANK, Plaintiff, v. Frederick Eugene HOYLE, Defendant.
• Court: U.S. Bankruptcy Court — District of Kansas

183 B.R. 635 (1995)

In re Frederick Eugene HOYLE, Debtor MERCANTILE BANK, Plaintiff, v. Frederick Eugene HOYLE, Defendant.

Bankruptcy No. 93-12522-7. Adv. No. 94-5089.

United States Bankruptcy Court, D. Kansas.

April 11, 1995.

COPYRIGHT MATERIAL OMITTED

Donald B. Clark, Wichita, KS, for debtor/defendant Frederick Eugene Hoyle.

Drew Frackowiak, Overland Park, KS, for plaintiff Mercantile Bank.

Lynn D. Allison, Trustee, Wichita, KS.

MEMORANDUM OPINION AND ORDER

JULIE A. ROBINSON, Bankruptcy Judge.

This matter came on for trial on December 6, 1994, upon Mercantile Bank's Complaint to Determine Dischargeability of Debt. Plaintiff, Mercantile Bank appeared by and through counsel, Drew Frackowiak. Defendant/debtor Frederick Hoyle ("Hoyle") appeared by and through counsel, Donald B. Clark.

JURISDICTION

The Court has jurisdiction over this proceeding. 28 U.S.C. § 1334. This is a core proceeding. 28 U.S.C. § 157(b)(2)(I).

FINDINGS OF FACT

Based upon the stipulations, testimony and exhibits, the Court finds as follows:

(1) Prior to July, 1993, Hoyle owed approximately $31,000 on seven revolving charge credit cards and $6,200 on secured loans from Sears and Montgomery Wards.

(2) Hoyle had a monthly income of approximately $1,234 from social security and the rental of a room in his residence.

(3) He had monthly expenses of approximately $1,236, including the monthly payments to Montgomery Wards and Sears, but excluding the monthly payments on the other credit cards.

(4) Hoyle had managed to stay current on his monthly obligations on the other seven credit cards by using cash advance funds from all or several of these credit cards.

(5) In late June, 1993, Hoyle signed and returned to Mercantile Bank an "Acceptance Certificate" of a pre-approved Visa Gold Card with a minimum credit line of $7,500.

(6) After reviewing Hoyle's credit history, Mercantile Bank approved his application, giving him a $1,800 credit limit.

(7) On July 7, 1993, Hoyle applied for a $46,000 loan from Capitol Federal Savings, to refinance the existing $29,000 mortgage on his home and to pay off some of his credit card bills.

(8) On his loan application to Capitol Federal, Hoyle disclosed the $29,000 mortgage and about $17,500 in credit card debt and secured debt to Sears and Wards. He failed to disclose over $20,000 in credit card balances owing Chase, Citibank, First Card, KBC Card Services and Chemical Bank.

(9) Hoyle testified that he only listed debts that he planned to pay off with the loan and was planning to pay the undisclosed $20,000 debt with the budget surplus he would have after paying off Sears and Montgomery Wards.

(10) On July 20, 1993, Capitol Federal denied Hoyle's loan application. By then, Hoyle had already received $1600 in cash advances on his new Mercantile Bank credit card account. After that, Hoyle made one more cash advance of $150.

(11) Hoyle never made a payment on the Mercantile account.

(12) On October 1, 1993, Hoyle filed a Chapter 7 bankruptcy petition.

CONCLUSIONS OF LAW

Mercantile Bank asserts that Hoyle's credit card obligation should be excepted from discharge pursuant to 11 U.S.C. § 523(a)(2)(A) of the Bankruptcy Code. This section excepts from discharge any debt 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, other than a statement respecting the debtor's or an insider's financial condition." 11 U.S.C. § 523(a)(2)(A). Exceptions to discharge are to be narrowly construed, and the burden of proving that a debt falls within the statutory exception is on the party opposing discharge. In re Black, 787 F.2d 503, 505 (10th Cir.1986) (citations omitted). Mercantile Bank must prove by a preponderance of the evidence that:

(1) the debtor knowingly committed actual fraud, false representations or false pretenses;

(2) the debtor had the intent to deceive the creditor;

(3) the creditor relied on the debtor\'s conduct;

(4) the creditor\'s reliance was reasonable; and

(5) the creditor was damaged as a proximate result.

See In re Mullet, 817 F.2d 677, 680 (10th Cir.1987); In re Ridgway, 24 B.R. 780, 784 (Bankr.D.Kan.1982); see also Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 661, 112 L.Ed.2d 755 (1991) (holding that the standard of proof for § 523(a) exceptions to discharge is the ordinary preponderance-of-the-evidence standard).

Hoyle did not make a false representation on the "Acceptance Certificate." At the time he submitted this application, he did not act under false pretenses or engage in the type of deceit, artifice or trickery that constitutes actual fraud. However, at the time he took cash advances, Hoyle impliedly represented that he had the intent and ability to repay. See In re Pressgrove, 147 B.R. 244, 247 (Bankr.D.Kan.1992) (holding that the debtor's use of his credit card constituted an implied representation that the debtor has the intent and ability to repay). Thus, the implied representation makes a finding of overt statements of intent and solvency unnecessary. See In re Leonard, 158 B.R. 839, 843 (Bankr.D.Col.1993) (citation omitted). Therefore, a purchase of goods on credit by a debtor who does not intend to repay or does not have the means to repay constitutes a false representation. 3 Collier on Bankruptcy 523-55 (15th Ed.1994).

At the time Hoyle took the first $1600 in cash advances, he had a loan application pending. Had he received the loan, he would have consolidated his $29,000 mortgage loan, $7000 in secured loans and about $10,500 in credit card debt. That would have left him with another $22,000 in credit card debt to service, in addition to the $46,000 loan. It is evident that Hoyle did not have the ability to service the debt he had before he applied for the loan. It is also evident that even if Capitol Federal approved the $46,000 loan, Hoyle could not have serviced that loan, his monthly expenses and the remaining $22,000 in credit card debt. He testified that by consolidating his loans from Sears and Montgomery Wards, he would have extra funds each month to service his remaining credit card debt. But, the exhibits show that his monthly payments to Sears and Montgomery Wards totalled $245, hardly enough to service monthly payments on $22,000, plus the higher monthly payment on a $46,000 loan as opposed to a $29,000 loan.

Thus, when Hoyle took the $1600 in cash advances, he implied that he had the ability to repay. He did not have the ability to repay, whether or not he received the loan from Capitol Federal. And, when he took the final advance of $150, the loan application had been denied and he knew he had no means to repay the debt.

In determining whether Hoyle intended to deceive Mercantile Bank, the Court must consider the totality of the circumstances, including the...