Man Sued By FIA Card Services In Bankruptcy Wins Major Victory

29 Sep Man Sued By FIA Card Services In Bankruptcy Wins Major Victory

Did you use a credit card prior to filing for bankruptcy? If so, there you need to know that those charges may be excepted from discharge on the grounds that recent use indicates an inability to repay a debt; this is a type of fraud.

But take heart – courts are willing to hold creditors to a high standard, making them prove that inability to pay and the bad faith that is part of this section of the U.S. Bankruptcy Code. And if a creditor cannot prove the case, it is tossed out the window.

Consider the case of FIA Card Services, N.A. v. Flowers, 07-3009 (Bankr. M.D.Ala. September 26, 2007). Arthur T. Flowers filed a Chapter 7 bankruptcy Code on November 22, 2006 in Alabama. FIA Card Services sued him to except a debt of $4,000.00 which was incurred either 97 or 98 days prior to the date of the petition. The debtor filed an affidavit that he suffered a heart attack prior to the date of use of the credit card, that he had always paid his bills on time and that it was always his intention to repay his debts.

In addition, the debt to FIA was not listed on the bankruptcy petition. FIA never bothered to tell the court how it came to be owed the total amount of $23,367.49 (the $4,000.00 was a part of this total debt), but it did claim an uncanny ability to guess the debtor’s total income for the year 2006 as proof of the debtor’s fraud and inability to repay the debt.

FIA did not appear at the meeting of creditors in the case nor did it take his deposition. There was no evidence of any contact between FIA and Flowers. There was no evidence that Mr. Flowers had made any statements to FIA, though FIA’s contention was that Flowers nevertheless intended to defraud it, notwithstanding the absence of a statement.

Section 523(a)(2)(A) of the Bankruptcy Code provides that a discharge in bankruptcy does not discharge an individual debtor from debts “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 . . . financial condition.” 11 U.S.C. § 523(a)(2)(A). In order to prevail under that section, the creditor must prove the following elements:

(1) The debtor made false representations with the intent to the defraud the creditor;
(2) The creditor justifiably relied on the false misrepresentations; and
(3) The creditor sustained a loss caused by the debtor’s misrepresentations.

Fuller v. Johannessen (In re Johannessen), 76 F.3d 347, 350 (11th Cir. 1996); see also, Overly v. Guthrie (In re Guthrie), 265 B.R. 253, 258 (Bankr. M.D. Ala. 2001); Lee v. Lambert (In re Lambert), 2006 WL 3742243 (Bankr. M.D. Ala. Dec. 18, 2006).

the court found in Mr. Flowers’s favor, citing the case of First National Bank of Mobile v. Roddenberry, 701 F.2d 927 (11th Cir. 1983) which held that:

[W]e hold that the voluntary assumption of risk on the part of a bank continues until it is clearly shown that the bank unequivocally and unconditionally revoked the right of the cardholder to further possession and use of the card, and until the cardholder is aware of this revocation. A card issue, acting upon it own judgment, may elect to continue to extend credit; it shall be presumed to do so until clear revocation has taken place. Only after such clear revocation has been communicated to the cardholder with further use of the card result in liabilities obtain by “false pretenses or false representations” within the meaning of section 17a(a)’s [now 523(a)(2)(A)] exemption from discharge. It is more than an intentional concealment of insolvency; it is an affirmative misrepresentation that one is entitle to possess and use the card.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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