DOUGLAS D. DODD, Bankruptcy Judge.
Tower Credit sued debtor Frances Davis to except from discharge the debt Ms. Davis owes under 11 U.S.C. §523(a)(2)(B), which precludes discharge of a debt for money, property, services, or an extension, renewal, or refinancing of credit to the extent obtained by use of a statement in writing about the debtor's financial condition that is materially false. Ms. Davis responded that she did not lie on her credit application and, in the alternative, argued that Tower did not reasonably rely on the information in her credit application before making the loan.
This opinion explains the court's ruling for the debtor.
More than eleven years before filing bankruptcy and when she was eighteen years old, the debtor borrowed $4,143.15 from Tower Credit,
Tower's application also included a "debt ratio" analysis, which compared an applicant's itemized average monthly expenses to his average monthly income. Tower considered that analysis in deciding whether the applicant could "afford" the loan. Ms. Davis's loan application reflected the following debt ratio information:
Notably, there were no other expenses taken into account on the form's debt ratio calculation. Specific allowances for health insurance premiums, medical expenses and expenses for routine or emergency vehicle maintenance did not appear on the form.
Tower's credit application also called for references. The debtor's application listed Valtessia Berry as a coworker with a home address of 1646 N. 36 Street in Baton Rouge.
Frances Davis signed the application under language stating that the information provided to Tower was true,
The debtor testified several times under oath at the chapter 7 meeting of creditors that contrary to her statements in the loan application, she did not have a roommate and so alone paid the full amount of rent when she borrowed from Tower.
Exceptions to discharge are strictly construed against the creditor and liberally construed in favor of the debtor.
Section 523(a)(2)(B) excepts from discharge debts for money or services obtained by "use of a statement in writing— (i) that is materially false; (ii) respecting the debtor's or an insider's financial condition; (iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and (iv) that the debtor caused to be made or published with the intent to deceive." Statements falling within section 523(a)(2)(B) must do more than simply prompt speculation about the debtor's finances; rather, they must be "sufficient to determine financial responsibility."
A statement is materially false if the omission or misrepresentation "paints a substantially untruthful picture" of a debtor's financial condition and is of the type that would normally affect the decision to grant credit.
The debtor argues that the credit application was truthful and that her testimony at the meeting of creditors was inaccurate. She testified at trial that she was intimidated at the 341 meeting of creditors. She also claimed to have misremembered when she responded to Tower's questions by saying that she lived alone when she'd applied for the loan. Davis also claimed that she'd lived in approximately sixteen different places in the eleven years between obtaining the loan and testifying at the meeting of creditors, inviting the conclusion that Tower's questions confused her. She testified too that Valtessia Berry, the personal reference Davis listed on her credit application, in fact was her roommate when she applied for the loan, though Davis did not list her as living at the same address. The debtor claimed that she listed Ms. Berry as a coworker rather than as a roommate because she wanted Tower to know she had a job; and that she listed an address for Ms. Berry that was different from their apartment address because Ms. Berry sometimes stayed at the other address with her mother and child, and had all her "legal paperwork" sent there.
The debtor's testimony at the 341 meeting of creditors is clear, confident, and unequivocal: she did not have a roommate when she borrowed the money from Tower. She testified under oath and before the import of the statements became apparent.
Davis also called as a witness Ms. Berry, who testified that she was indeed the debtor's roommate when Ms. Davis obtained the loan from Tower.
Neither the debtor's nor Ms. Berry's testimony is credible on this point.
During her direct testimony, the debtor claimed that the application for Tower's loan in 2008 was "her first credit application." Tower's counsel on cross-examination forced the debtor to admit that her claim was not true by confronting her with evidence of her earlier loan from Tower.
Nor was Ms. Berry's testimony persuasive: she even misremembered her own mother's address.
In summary, the defendant offered no credible testimony to support her claims.
The next issue is whether Davis intended to deceive Tower. The Fifth Circuit has held that "intent to deceive may be inferred from use of a false financial statement."
The budget on the debtor's credit application plainly reflected that Davis would be unable to afford the loan she sought from Tower if she alone were obligated to pay the full $425 monthly apartment rent. Thus the debtor unquestionably had a motive to misrepresent her financial condition. That motive, coupled with the debtor's implausible trial testimony, supports a finding that the debtor recklessly disregarded the truth and intended to deceive Tower.
The last element critical to the analysis in this case is whether Tower reasonably relied on the debtor's application as an accurate portrait of her financial condition. Tower did not carry its burden of proving this element.
The Fifth Circuit has held that:
Minimal investigation should have caused Tower to doubt the veracity of Davis's budget on the credit application. For example, the application budgets only "$100/Dep./Mo."
Nor did Tower's budget for the debtor have a place for car insurance payments, despite the fact that the loan at issue was to be secured by a 2001 Kia Optima.
These expenses apart, Tower concluded that a budget leaving the debtor only $12.00 over scheduled liabilities, without taking into account prospective monthly loan payments of $211.48 on the obligation for which she was applying, was reasonable and supported its decision to make the loan. Tower's reliance on Davis's incomplete financial picture was not reasonable. See Third Coast Bank v. Cohen (In re Cohen), 2013 WL 4079369 at *12 (Bankr. E.D. Tex. Aug. 13, 2013) (A plaintiff "may not blindly rely upon a misrepresentation, the falsity of which would be obvious to the plaintiff had he or she used her senses to make a cursory examination or investigation."); Mullen v Jones (In re Jones), 445 B.R. 677, 721 (Bankr. N.D. Tex. 2011) ("Justifiable reliance does not require independent investigation of the facts as presented, but a plaintiff may not blindly rely upon a misrepresentation, the falsity of which would be obvious to the plaintiff had he used his sense to make a cursory examination."); Kunzler v. Bundy (In re Bundy), 95 B.R. 1004, 1010 (Bankr. W.D. Mo. 1989) (recipient of a facially inadequate statement cannot completely ignore the deficiencies and expect later to successfully object to the discharge of the credit extended).
Because Tower failed to carry its burden of proof to show its reliance on the debtor's loan application was reasonable, the debtor is entitled to judgment in her favor and against Tower, dismissing the complaint.