AT&T Universal Card Services v. Ellingsworth (In re Ellingsworth)

In October 1995, AT&T Universal Card Services (UCS) (creditor) issued Deborah Ann Ellingsworth (debtor) a preapproved credit card with a $4,000 limit. UCS neither obtained Ellingsworth’s credit report nor asked her about her other liabilities before issuing the card. Between September 11 and October 15, 1996, Ellingsworth took 16 cash advances and made eight purchases on the card. Ellingsworth and her husband then filed for Chapter 7 bankruptcy on November 25, 1996. The bankruptcy schedules listed Ellingsworth’s debt to UCS as $4,038.11. The bankruptcy schedules also disclosed that the Ellingsworths had 16 other credit cards, two mortgages, and over $70,000 in unsecured debt. UCS commenced an adversary proceeding to determine the dischargeability of Ellingsworth’s debt, asserting that Ellingsworth had fraudulently misrepresented her intent to repay UCS when she used her credit card. UCS also asserted that the $2,058 in cash advances she had taken within 60 days of the bankruptcy filing were presumed nondischargeable under 11 U.S.C. § 523(a)(2)(C). During the adversary proceeding, the Ellingsworths claimed they had not realized the extent of their financial difficulties when Ellingsworth used the UCS card. However, the evidence revealed that the Ellingsworths had decided to seek credit counseling before Ellingsworth stopped using the UCS card and that Ellingsworth only stopped using the card once she reached the credit limit. Although the Ellingsworths asserted they had used the card only for necessities, that claim was belied by some recreational charges.