07 Jun Credit Card Charges by Laid-off Debtor Held to be Reasonable; Debt Discharged
A recent Michigan bankruptcy court decision allowed the discharge of a chapter 7 debtor’s credit card debt, even though the credit card was used while the debtor was laid off from his job at a saw mill, just before the bankruptcy was filed. In an usual move, the court also invited the debtor to submit an application for attorney fees under section 523(d) for bad faith litigation by the objecting creditor.
In re May, 2010 WL 1838567 (Bky.W.D.Mich. May 3, 2010), involved a saw mill worker who was typically laid off from work during the winter. Normally, he would be rehired in the spring when business picked up again. In the winter of 2008, while laid off, the debtor also discovered he needed a double knee replacement along with shoulder surgery. He expected to return to work after successfully recovering from the surgeries in the spring of 2009. This did not happen, and in late 2008 the debtor applied for and began receiving social security disability benefits.
The debtor consistently made minimum monthly payments on his $5,583.79 FIA Card Services balance, which he incurred in the fall of 2008, until he filed chapter 7 in April 2009. Some of the charges were used to pay prior credit card balances, but little or nothing was charged for luxury goods or services. The creditor objected to the dischargability of the $5,583.79 debt based on its allegation of fraud or false pretenses under section 522(a)(2)(A).
The bankruptcy court observed that the debtor testified credibly that he had every expectation of returning to work in the spring of 2009, as was always the case in the past. The debtor made the minimum payments, and his failure to return to work was unexpected. The court refused to make any negative inference from the debtor’s use of his credit card to pay other credit cards, because the debtorviewed such payments as part of his monthlyexpenses for which he was obligated to pay.
The court concluded by noting that none of the creditor’s evidence adressed the debtor’s intent to repay the credit card charges — instead, the creditor hadfocused on the debtor’s ability to repay only. This meant that the creditor had no good legal reason for objecting to the dischargability of the debt in the first place. The court therefore invited the debtor to seek attorney fees from the creditor, and it held that the entire debt would be discharged.
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