## Facts

- In October 1995, AT&T Universal Card Services (UCS) issued Deborah Ann Ellingsworth a **preapproved** credit card with a **$4,000 limit**.
- Before issuing the card, UCS **did not obtain Ellingsworth’s credit report** and **did not ask** her about other debts or liabilities.
- Between **September 11 and October 15, 1996**, Ellingsworth used the UCS card to take **16 cash advances** and make **eight purchases**.
- Ellingsworth continued using the card until the account reached the **credit limit**, and then stopped.
- On **November 25, 1996**, Ellingsworth and her husband filed a **joint Chapter 7** petition in the U.S. Bankruptcy Court for the Western District of Missouri.
- The bankruptcy schedules listed a UCS balance of **$4,038.11**.
- The schedules also disclosed significant consumer debt, including **16 other credit cards**, **two mortgages**, and **more than $70,000 in unsecured debt**.
- UCS filed an adversary complaint seeking a determination that Ellingsworth’s UCS balance was **nondischargeable** under **11 U.S.C. § 523(a)(2)(A)**, asserting that her card use fraudulently misrepresented an intent to repay.
- UCS also invoked **11 U.S.C. § 523(a)(2)(C)**, asserting that **$2,058** in cash advances taken within **60 days** of the bankruptcy filing were **presumed nondischargeable**.
- During trial, the Ellingsworths testified they did not realize the seriousness of their finances when the UCS card was used, but the evidence showed they had decided to seek **credit counseling** before Ellingsworth stopped using the UCS card.
- Although the Ellingsworths claimed the UCS card was used only for necessities, the account included **recreational charges**.

## Issues

1. Whether Ellingsworth’s cash advances and purchases on a **preapproved** credit card constituted obtaining credit by **false pretenses, a false representation, or actual fraud** under **11 U.S.C. § 523(a)(2)(A)**, rendering the debt nondischargeable.
2. Whether UCS proved **justifiable reliance** (and actual reliance) on any representation implied by Ellingsworth’s credit-card use when UCS issued the card through a **preapproval program** without obtaining Ellingsworth’s credit report or other direct financial information.
3. Whether the **§ 523(a)(2)(C)** presumption applied to the **$2,058** in recent cash advances and, if so, whether Ellingsworth rebutted the presumption.

## Decision

- The court held UCS **did not meet its burden** to except Ellingsworth’s credit-card debt from discharge under **§ 523(a)(2)(A)**.
- The court found UCS failed to prove the necessary elements of fraud, including that Ellingsworth incurred the charges with a present **intent to deceive** UCS.
- The court further held UCS could not establish **justifiable reliance** where UCS had issued a **preapproved** card and obtained **no direct financial information** from Ellingsworth before extending credit.
- As to **§ 523(a)(2)(C)**, the court treated the statutory presumption as **rebuttable** and concluded the evidence rebutted any presumption of fraud; UCS still had to prove a substantive § 523(a)(2)(A) case, which it did not.
- The UCS debt, including the portion tied to the recent cash advances, was **dischargeable**.

## Legal Principles

- A creditor seeking nondischargeability under **11 U.S.C. § 523(a)(2)(A)** must prove, by a preponderance of the evidence, that the debtor obtained money, property, services, or credit by **false pretenses, false representation, or actual fraud**, and must show **fraudulent intent**, **(justifiable) reliance**, and causation of loss.
- In credit-card cases, many courts treat each use of the card as an **implied representation** (commonly, of intent to repay), but nondischargeability turns on the debtor’s **subjective intent at the time** the charges or advances were made; financial trouble and heavy borrowing alone do not establish intent not to repay.
- After **Field v. Mans**, the reliance requirement under § 523(a)(2)(A) is **justifiable reliance**; it is not “reasonable reliance,” but it still requires **actual reliance** by the creditor.
- Where a card issuer extends credit through a **preapproved** program and obtains **no credit report or other direct financial information** from the debtor, the issuer generally cannot show it **justifiably relied** on the debtor’s implied representations when the debtor later used the card.
- **Section 523(a)(2)(C)** creates a **rebuttable presumption** of nondischargeability for certain recent consumer debts (including qualifying cash advances) incurred within the statutory period; once the debtor produces evidence rebutting the presumption, the creditor retains the burden to prove nondischargeability under § 523(a)(2).

## Conclusion

Because UCS issued Ellingsworth a preapproved credit card without obtaining her credit report or other direct financial information, and because UCS failed to prove both fraudulent intent and justifiable reliance under § 523(a)(2)(A), the bankruptcy court held the UCS balance dischargeable; Ellingsworth also rebutted any § 523(a)(2)(C) presumption for the recent cash advances, leaving UCS unable to establish nondischargeability for any portion of the debt.


AT&T Universal Card Services v. Ellingsworth (In re Ellingsworth), 212 B.R. 326 (1997)