In re Koch, Bankruptcy No. 87-00938F

• Decision Date: 15 March 1988
• Docket Number: Adv. No. 87-0668F.,Bankruptcy No. 87-00938F
• Citation: 83 BR 898
• Parties: In re Carol Janet KOCH, Debtor. NORWEST FINANCIAL CONSUMER DISCOUNT COMPANY, Plaintiff, v. Carol Janet KOCH and Mitchell Miller, Esquire, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

83 B.R. 898 (1988)

In re Carol Janet KOCH, Debtor NORWEST FINANCIAL CONSUMER DISCOUNT COMPANY, Plaintiff, v. Carol Janet KOCH and Mitchell Miller, Esquire, Defendants.

Bankruptcy No. 87-00938F, Adv. No. 87-0668F.

United States Bankruptcy Court, E.D. Pennsylvania.

March 15, 1988.

Gary P. Urtz, Havertown, Pa., for plaintiff, Norwest Financial Consumer Discount Co.

Jacquelyn Barnes, Philadelphia, Pa., for debtor/defendant, Carol Janet Koch.

Mitchell Miller, Philadelphia, Pa., for defendant/trustee.

MEMORANDUM OPINION

BRUCE I. FOX, Bankruptcy Judge:

Plaintiff, Norwest Financial Consumer Discount Company (Norwest), has filed an adversary proceeding against the debtor, Carol J. Koch, seeking a determination that a debt allegedly incurred by the debtor on January 27, 1987 is nondischargeable. In addition, Norwest contends that Ms. Koch should be denied a discharge. Norwest's positions are grounded upon 11 U.S.C. §§ 523(a)(2)(B), 523(a)(2)(C), and 727(a)(2). For the reasons set forth below, I hold that the debtor did incur a debt to Norwest in the amount of $808.66 which is nondischargeable by virtue of § 523(a)(2)(C). I reject, though, plaintiff's argument that the debt is nondischargeable under § 523(a)(2)(B); and I also reject plaintiff's position that the debtor should be denied her discharge.¹

I.

This dispute centers around the alleged sale to the debtor on January 27, 1987, of a video cassette recorder, (VCR), a small television, a radio, and two video cassette tapes by Wall to Wall Sound and Video, located on Cottman Avenue in Philadelphia. Prior to January 27, 1987, Norwest and Wall to Wall Sound had entered into an agreement by which Norwest would provide open-end financing to approved Wall to Wall Sound customers. On February 27, 1987, the debtor filed a voluntary petition in bankruptcy under chapter 7 and listed, inter alia, Norwest. Due to the proximity between the purchase date and the bankruptcy filing, Norwest seeks a determination under 11 U.S.C. § 523(a)(2)(C); moreover, Norwest contends that the debtor misrepresented her financial resources when applying for credit, thereby implicating § 523(a)(2)(B). Additionally, Norwest believes that a discharge should be denied pursuant to 11 U.S.C. § 727(a)(2) because the debtor failed to schedule as assets the items purchased from Wall to Wall Sound.

While these code provisions have generated considerable litigation over the past few years, with courts being asked to interpret and apply these code sections to varying fact patterns, the debtor makes no such request here. Instead, the debtor has proffered an extremely simple response to Norwest's various claims: the debtor denies purchasing any of the items in question and asserts that all documents concerning this transaction which bear her name are forgeries. Although the debtor's response to plaintiff's assertions is simple, resolution of this proceeding is not.

II.

After a lengthy hearing, the evidence presented can be summarized as follows:

The debtor concedes that approximately January 27, 1987, (she could not recall the precise date), she visited the Wall to Wall Sound store on Cottman Avenue with a co-worker, Calvin Dundrea. Her visit occurred in the evening around 8:00 P.M. and was made with the intention of shopping for and perhaps purchasing a VCR. She remained at the store approximately 1 hour, (shortly before it closed), and while there inspected a Fisher brand VCR, a Sony brand two inch television, and a radio. She inquired of a salesman about their respective purchase prices. This salesman, (who was not called as a witness by either party), attempted to convince her to purchase one or more of the items by explaining the availability of credit terms.

The debtor recalled discussing the possibility of financing with this salesman. In the course of that discussion, she learned that the ultimate lender was Norwest and she informed the salesman that she had two prior loan accounts with Norwest. She provided to the salesman information about her employment, her home address and telephone number, her credit history, and, possibly, her salary. (See N.T., at 21-22, October 7, 1987). She could not recall disclosing her date of birth, social security number, or her assets. She testified, without objection, that at the conclusion of this discussion the salesman expressed his opinion that a loan would be approved which would enable her to purchase the items she desired.

At this point the debtor also testified, and Mr. Dundrea agreed, that she decided not to purchase any items that evening. Rather, she wished to think about the matter overnight and to reach a decision the next day. Therefore, the debtor stated that she signed no documents that evening, and took no items with her. The following day, the debtor stated that she informed the salesman, by telephone, that she was not interested in purchasing any items.

Plaintiff, through the testimony of a manager of one of its branch offices, Ann Marie McCool, introduced into evidence a customer's purchase statement (really, a loan application), a purchase invoice and a revolving credit agreement all dated January 27, 1987, and all bearing the purported signature of Carol J. Koch. The invoice totals $808.66 and lists the items mentioned above. Plaintiff also introduced its internal loan worksheet, again dated January 27, 1987, which states that the debtor was approved for an open end revolving charge account with a $1,000.00 limit. The worksheet contains information verifying the debtor's employment, income² and credit history. It also states that, on February 26, 1987, a Norwest employee³ spoke with the debtor and verified that she had purchased the items in question and was satisfied with their performance.

Prior to January 27, 1987, Norwest agreed to accept loan assignments from Wall to Wall Sound of certain revolving charge accounts. Wall to Wall Sound personnel were to obtain all necessary loan and credit information from the prospective borrowers and supply this information to Norwest; upon receipt, Norwest would decide whether to extend credit. This decision would be communicated to Wall to Wall Sound and the customer within approximately ten minutes of Norwest's receipt of the credit information. In other words, Norwest agreed to check on a prospective borrower's credit worthiness within minutes, thereby enabling Wall to Wall Sound to offer financing to approved customers while those customers were still inside the store.

If loan approval was given by Norwest, and if the customer then decided to finance her purchase, Wall to Wall Sound would obtain the requisite signatures upon various loan documents and forward these documents to Norwest. Norwest would then assign an internal docketing number to the loan, which was distinct from and in addition to an account number. Then, within approximately thirty days, Norwest would forward a check to Wall to Wall Sound in the amount of the purchase price. In this instance, that check was dated February 26, 1987. Prior to sending the check, the Norwest manager testified that it was usual business procedure to verify the purchase with the loan customer. She stated that this procedure was followed in the instant proceeding.

Ms. McCool acknowledged that, in most instances, loan approval could only be granted during normal business hours because verification of employment and debt information was generally limited to that time period. In the matter at bench, there is no dispute that the debtor arrived at the Wall to Wall Sound store at approximately 8:00 P.M.

III.

Before reaching any factual and legal conclusions, it is useful to establish the statutory framework within which this dispute must be resolved. Primarily, Norwest relies upon 11 U.S.C. § 523(a)(2)(C)⁴ which was added to the Bankruptcy Code in 1984. Congress, in amending § 523(a)(2), sought to deter the perceived practice of "loading up" by certain debtors: "loading up" refers to purchasing items on the eve of bankruptcy with the intention of exempting such items and not paying for them. See e.g., Matter of Smith, 54 B.R. 299, 303 (Bankr.S.D.Iowa 1985). As the legislative history states:

Section 523 is amended and expanded to address a type of unconscionable or fraudulent debtor conduct not heretofore considered by the code — that of loading up. In many instances, a debtor will go on a credit buying spree in contemplation of bankruptcy. The new subsection . . . creates a rebuttable presumption that any debt incurred by the debtor within 40 days before the filing of the petition has been incurred under circumstances that would make the debt nondischargeable. Only that portion of a debt which was incurred within the 40-day time period is subject to this presumption. The burden is upon the debtor to demonstrate that the debt was not incurred in contemplation of discharge in bankruptcy and thus a fraudulent debt. As the language makes clear, debts incurred for expenses reasonably necessary for support of the debtor and the debtor\'s dependents are not covered by the presumption.

S.Rep. No. 98-65, 98th Cong. 1st Sess. 58 (1983).

Some courts, in an attempt to determine the applicability of § 523(a)(2)(C) to a given factual setting, have distilled this provision into its component parts. In order to establish that a debt involving a purchase is nondischargeable under this provision, a creditor must demonstrate that there exists: "(1) a consumer debt see 11 U.S.C. § 101(7); (2) owed to a single creditor; (3) aggregating more than $500.00; (4) for luxury goods or services; (5) incurred by an individual debtor; (6) on or within forty days before the order for relief." In re Blackburn, 68 B.R. 870, 873 (Bankr.N.D. Ind.1987). Although helpful, this analysis requires further amplification.

The burden of proof is upon the creditor to establish the applicability of § 523(a)(2)(C) since dischargeability provisions are interpreted narrowly, in favor...