PETER J. McNIFF, Bankruptcy Judge.
On February 24, 1999, this case came before the court for trial on the complaint of Citicorp Credit Services, Inc., d/b/a Choice Visa (Citicorp), for a determination of dischargeability under 11 U.S.C. § 523(a)(2)(A) of a debt owed it by the defendant/debtor, Kendal Lee Nagel. The court has considered the testimony and other evidence, the arguments of the parties and the applicable law, and is prepared to rule.
JURISDICTION
The court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 157 and 1334. This is a core proceeding within the definition § 157(b)(2)(I).
DISCUSSION
Citicorp's complaint is brought under § 523(a)(2)(A) which excepts from a debtor's chapter 7 discharge a debt "for money, property or services to the extent obtained by false pretenses, a false representation, or actual fraud." The terms "false pretenses," "false representation," and "actual fraud" are interpreted according to their common law definitions. Field v. Mans, 516 U.S. 59, 69 n. 9 (1993).
The creditor has the burden to prove the elements of its claim under § 523(a) by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291 (1991). In the Tenth Circuit, a creditor must prove the debtor made a false representation, with the intent to deceive the creditor, that the creditor relied on the misrepresentation, the reliance was reasonable, and the creditor sustained a loss. In re Young, 91 F.3d 1367, 1373 (10th Cir. 1996). In Field v. Mans, the Supreme Court held that the requisite proof of reliance in a § 523(a)(2)(A) claim was justifiable reliance.
The Tenth Circuit Bankruptcy Appellate Panel has held that the use of
a credit card contains an implied representation of intent to repay the charges. In re Kukuk,
225 B.R. 778, 785 (Bankr. 10th Cir. 1998). Reliance on such an implied representation of intent to repay is justifiable in the context of credit card use. Id. at 785.
While no model of clarity, the BAP decision goes on to hold that proof of fraudulent misrepresentation requires evidence of the debtor's subjective intent at the time the charges were incurred. Id. at 786. Such evidence may be shown by a review of the factors generally referred to as the totality of the circumstances test.
At least twelve objective criteria are set forth in many published decisions. This court adopted the totality of the evidence as the standards for proof of fraud in the credit card case of In re Koenekamp, case no. 95-2023 (Bankr.D.Wyo. February 5, 1996).
The nonexclusive list includes: 1) the length of time between the charges and the bankruptcy filing; 2) whether an attorney was consulted regarding bankruptcy before the charges were made; 3) the number of charges made; 4) the amount; 5) the debtor's financial condition when the charges were made; 6) whether the charges were above the credit limit; 7) whether multiple charges were made on the same day; 8) whether the debtor was employed; 9) the debtor's prospects for employment; 10) the debtor's financial sophistication; 11) sudden changes in the debtor's buying habits; and 12) whether the purchases were made for luxuries or necessities. In re Orndorff, 162 B.R. 886, 889 (Bankr.N.D.Okla. 1994).
In this case, the parties do not dispute the relevant facts, but make different conclusions therefrom. Citicorp points to the following to argue that these facts establish Mr. Nagel's fraudulent intent not to repay the obligation: In 1997, the debtor purchased a home for $130,000. In September 1997, he took out a second mortgage for $40,000 and paid off all of his existing credit card debt.
In the following month, October 1997, the debtor made $8,000 of charges on the Citicorp credit card for both cash withdrawals and goods. The debtor made no payments on the credit card debt thereafter. Mr. Nagel also had approximately $30,000 in other credit card debt. In November, Mr. Nagel consulted a bankruptcy attorney and in May 1998 filed the underlying bankruptcy case. At that time, Mr. Nagel's expenses exceeded his income by $1,800 excluding credit card payments. Thus, Citicorp concludes that Mr. Nagel knew at the time of the charges that he could not pay the obligation and never intended to pay the debts incurred.
Mr. Nagel points to the following facts to show his use of the card was not made with fraudulent intent and that he did intend to repay the charges: Mr. Nagel had a large increase in his budget in September 1997 when he purchased a home to live in with his girl friend and her children. He took out the second mortgage to pay off his bills, and then used his credit cards for, among other things, home improvements. The expenses were within his budget of $3,000 per month net pay when he incurred the charges. At that time
he had sufficient income to satisfy the obligation. However, from January to April 1998 his pay decreased by $1,100 per month due to significant time spent in drug rehabilitation. Hence, the
bankruptcy case became necessary.
In reviewing the requisite factors applicable to a credit card nondischargeability action, the BAP stated that the "inquiry should be limited to whether the debtor had the ability to pay the debt within the terms of his credit card agreement." In re Kukuk. 225 B.R. at 787. In this case, Mr. Nagel's minimum payment on the Choice Visa appears to be $165, an amount within his budget until his salary declined.
The court concludes that when the charges were made, Mr. Nagel intended to repay them and believed he had the ability to do so. Although no payments were made on the card, the chronology shows that it was after the charges were made that Mr. Nagel realized he had a financial problem and consulted bankruptcy counsel. Further, he did not file his bankruptcy petition until seven months after he incurred the charges. Finally, the debtor's salary, until reduced, was sufficient to manage this credit card obligation and regular expenses.
Counterclaim
The debtor seeks attorney fees and costs by way of counterclaim under the provisions of § 523(d). The court cannot find, under the facts of this case, that Citicorp's complaint was not substantially justified. Mr. Nagel did have excessive credit card debt at the time he filed his petition, he charged all of the Citicorp charges in one month, and the charges were made up to the precise amount of his credit limit. There were sufficient grounds for the claim despite the court's ruling.
CONCLUSION
In conclusion, the court holds that the plaintiff has failed to satisfy the elements of its claim under § 523(a)(2)(A) and, therefore, the Citicorp debt is discharged. The complaint was justified, however, and the counterclaim is denied. The court will issue a judgment in accordance with this opinion.