MEMORANDUM OF DECISION
Bеfore the court is a Complaint to Determine Dischargeability of Debt filed by Hecht’s, a Division of the May Department Stores Company (“Hecht’s”). Plaintiff seeks a ruling that $732.16 in unpaid charges be declared nondischargeable. This court has jurisdiction pursuant to 28 U.S.C. § 1334 (District Courts have original and exclusive jurisdiction of all cases under Title 11), 28 U.S.C. § 157(a) and Maryland District Court Local Rule 402 (all cases under Title 11 as proceedings arising under Title 11 or arising in or related to cases under Title 11 are deemed referred to the Bankruptcy Judges of this District). This action is a core proceeding under 28 U.S.C. § 157(b)(2)(I).
BACKGROUND
The debtors, Carlos Valdes and Sheila C. Valdes, filed a joint petition under Chapter 7 of the Bankruptcy Code on November 14, 1994. As of the date of filing, Mr. Valdes owed $1,134.93 to the plaintiff, $713.16 of this debt resulted from five chаrges made between August 28, 1994, and September 21, 1994, on Mr. Valdes’ Hecht’s credit card. The purchases consisted of twin mattresses, cookware, a television set, a handbag, and clothing.
Plaintiff named Sheila C. Valdes as a defendant. It offered no evidence of any involvement on her part in the purchases. Only at final argument did plaintiffs counsel state, “We are only pursuing Carlos at this pоint” (Transcript, p. 27). Counsel was unable to point to a scintilla of evidence justifying her inclusion as a defendant. Bankruptcy Rule 9011(a) appears applicable. 1
Plaintiff pleaded that the debtors made these purchases on “their” Hecht’s credit *535 card while intending not to repay the debt. Plaintiff argued that these purchases were made by Mr. Valdes when he knew or should have known that such debt could not be repaid. Therefore, plaintiff argues the debt must be excepted from discharge pursuant to 11 U.S.C. § 523(a)(2)(A). In support of this contention, the plaintiff relies heavily on the fact that, at the time the debtors filed this bankruptcy case, their combined income was only $3,368.38 and their total monthly liabilities amounted to $3,427.00. Plaintiff avers that the debtors’ desperate financial сondition at the petition date is indicative of then-financial condition at the time the purchases were made as the purchases were made only seven weeks prior to the petition date. Plaintiff further notes that prior to the Hecht’s credit card purchases, the debtors already had incurred approximately $12,-787.00 in unsecured debt between them from twelve othеr credit card accounts.
Debtor denies any fraudulent intent to deceive the plaintiff. Rather, Mr. Valdes states that he fully intended to repay his debt to the plaintiff when the purchases were made. Mr. Valdes attributes his inability to pay the plaintiff to two unexpected and unforeseen expenses that arose subsequent to the date of the subject purchases. He stated that he was forced to make repairs to his automobile and pay for medical bills incurred by his mother. 2 These unexpected expenses depleted his available income, making him unable to make payment to the plaintiff, as well as his other creditors.
DISCUSSION
The plaintiffs claim for nondischargeability of this debt is brought pursuant to 11 U.S.C. § 523(a)(2)(A), that provides:
§ 523. Exceptions to discharge.
(a) A discharge under 727,1141,1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
(2)for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.
The objecting creditor bears the burden of proving the nondischаrgeability of the debt under § 523 by a preponderance of the evidence.
Grogan v. Garner,
Courts generally are in agreement that the traditional elements of fraud must be applied and proven to sustain a cause of action under § 523(a)(2)(A). These elements are:
(1) that the debtor made a representation;
(2) that at the time he knew the representations were false;
(3) that he made them with the intention and purpose of decеiving the creditor;
(4) that the creditor relied on such representations; and
(5) that the creditor sustained the alleged loss and damage as the proximate result of the representations.
In re Eashai,
In applying the above elements to situations involving credit cards, courts generally follow one of three legal theories.
See generally,
2 David G. Epstein et al.,
Bankruptcy
§ 7-26 (1992);
Chase Manhattan Bank N.A. v. Ford (In re Ford),
In rejecting the implied representation theory, this court adopts the analysis of
In re Ford,
Without doubt, the implied representation doctrine solves the problem of fitting credit card transactions within the section 523(a)(2)(A) criteria. However, the employment of such a fiction breeds its own series of concerns, the majority of which arise from the ability-implying prong of the doctrine. First, to the extent that it makes each card user an absolute guarantor of his ability to pay, the doctrine offends the balance of bankruptcy policy struck by section 523. Second, inferring a guarantee of ability runs afoul of consumer practice and the natural course of events in the marketplace. Third, using such a series of presumptions gives card-issuing creditors an unfair advantage over normal creditors, who have to establish each and every element of fraud before a court will consider their claims non-dischargeable. Lastly, and most importantly, by constructing a separate implied representation of ability, the doctrine suggests that a breach of that duty, in and of itself, will presеnt sufficient grounds for denying a debtor his discharge. Faced with it inherent problems, pro-creditor orientation and risks of misapplication, a majority of courts nonetheless have adopted the implied representation theory as the rule for credit card non-dischargeability issues. See Citibank (S.D.), N.A. v. Dougherty (In re Dougherty),84 B.R. 653 , 655-56 (9th Cir. BAP 1988) (noting the majority view).
Some courts, in rejecting the “implied representation” theory, refuse to imply “actual fraud” based solely on the insolvency of the debtor.
See In re Hiemer,
The second theory, known as the “assumption of the risk” theory, holds that the cardholder, merely by using the credit card, does not make any representations to the issuer. Rather, under this theory, the charges are excepted from discharge only if the cardholder continues to use the credit card after the issuer unequivocally and unconditionally revokes the cardholder’s right to possess and use the credit card, and communicates such revocation to the cardholder.
First Nat’l Bank of Mobile v. Roddenberry,
As with the “implied representation” theory, the “assumption of the risk” theory also has met criticism. Courts rejecting this theory note that the creditor is placed in a virtually impossible position with respect to charges incurred prior to thе revocation of charging privileges.
In re Dougherty,
The third theory, known as the “totality of the circumstances” theory, is set out and adopted in
In re Faulk,
(1) The length of time between the charges made and the filing of the bankruptcy;
(2) Whether or not an attorney has been consulted concerning the filing of the bankruptcy before the charges were made;
(3) The number of charges made;
(4) The amount of the charges;
(5)The financial condition of the debtor at the time the charges were made;
(6) Whether the charges were above the credit limit of the account;
(7) Whether the debtor made multiple charges on the same day;
(8) Whether or not the debtor was employed;
(9) The debtor’s prospects for employment;
(10) Financial sophistication of the debtor;
(11) Whether there was a sudden change in the debtor’s buying habits; and
(12) Whether the purchases were made for luxuries or necessities.
In re Richardson,
This court adopts the “totality of the circumstances” theory. It avoids the pitfalls and shortcomings of the other two theories.
6
When applying this theory, however, the court must remain mindful of two very important yet competing interests. The fraudulent use of a credit card involves a misrepresentation by the cardholder as to his ability to repay the debt. Such dishonest action is not to be assumed by the issuer of the card. The cardholder is obligated to use the card in
*538
good faith, and not with reckless indifference to one’s actual circumstances. On the other hand, it would be inappropriate to impute to the debtor an ever-present ability to repay over the course of the revolving credit relatiоnship as this is precisely the risk that any creditor assumes when issuing a line of credit.
In re Eashai,
Care must be taken to stop short of a rule that would make every desperate, financially strapped debtor a guarantor of his ability to repay, on pain of non-discharge-ability. Such a rule would unduly expand the “actual fraud” discharge exсeption by attenuating the intent requirement. A substantial number of bankruptcy debtors incur debts with hopes of repaying them that could be considered unrealistic in hindsight. This by itself does not constitute fraudulent conduct warranting nondis-charge.
In re Karelin,
Furthermore, creditors knowingly and intentionally take full advantage of a credit card debtor’s deferrals and defaults. A debt- or’s failure to рay the account in full enables the credit issuer to charge and receive interest, as here, up to 21.5% per annum on the unpaid balance. Here, one assumes that Hecht’s sold the subject merchandise at a profit.
Reviewing the facts and circumstances of the instant case, the court finds that the debtor did not intend to misrepresent his ability and intent to repay his debt to the plaintiff.
See In re Neal,
The court finds that the debtors were not in a hopeless or despеrate financial situation at the time the charges were made. At the petition date, the debtors’ monthly expenses exceeded their monthly income by a mere $58.00. Although their obligations slightly exceeded their income, the debtors had been meeting them debts as they became due. 8 Thus, Mr. Valdes was not in such a perilous financial situation that he knew or should have known that he could not repay the debt to the plaintiff and that he incurred the credit obligations knowing that he had no ability to repay them.
The debtors filed their bankruptcy petition on November 14, 1994, 55 days after the debtor’s last charge. The purchases were not made on the eve of bankruptcy. There was no evidence that the subject purchases were made after Mr. Valdes spoke with a bankruptcy attorney.
*539
Mr. Valdes madе five charges over a 25-day period. The number of charges made on the account do not appear to be excessive compared to the debtor’s spending record, nor do these charges indicate a sudden change in the debtor’s actions just prior to the filing of the bankruptcy petition. Thus, there was not sufficient evidence demonstrating that Mr. Valdes embаrked on a pre-bankruptcy spending spree.
Compare In re Sutliff,
Although there were multiple charges incurred on the same day, all but one of the purchases arguably were for necessities as opposed to “luxury goods.” There was no evidence presented at the trial, nor were there any allegations in the pleadings, that Mr. Valdes exceeded his credit limit or that the plaintiff sought to revoke Mr. Valdes’s charging privileges. Plaintiff voluntarily entered into this financial relationship with Mr. Valdes at a point in time when he already had incurred significant unsecured credit card debt.
See In re Hiemer,
Mr. Valdes testified that his inability to pay plаintiff was due to the unexpected medical expense for his mother and the unforeseen expense for the repairs to his automobile. This testimony was credible and undisputed. The referenced expenses arose subsequent to the purchases made on the Heeht’s charge card. Unforeseen or unexpected expenses that impair a debtor’s ability to repay accumulated debts have been taken into consideration by courts when making a determination of this kind.
See In re Wood,
Plaintiff has not sustained its burden of proof. It lacks evidence of the element of deceit necessary to hold the debt nondis-chargeable. The court therefore finds that Mr. Valdes merely acted with a misconceived optimism while in a fragile financial state. This was compounded by the occurrence of subsequent unexpected expenses. Such actions, while not prudent, do not amount to fraudulent conduct. The debt to plaintiff is dischargeable.
Because plaintiff failed to prove the requisite intent to deceive, the court need not address the issue of reliance and other elements of fraud. This debt being dischargea-ble, thе court need not address whether Mr. Valdes is liable for attorney’s fees and costs pursuant to the terms of the credit card application.
An order will be entered in accordance with the foregoing.
Notes
. This court questions whether the plaintiff's counsel adequately investigated the circumstances of this case prior to naming Mrs. Valdes as a defendant to this action as required by Bankruptcy Rule 9011. Certainly Hecht's, as the issuer of the credit cаrd and the vendor of the merchandise charged thereon, had all necessary information to ascertain whether Mrs. Valdes was a proper defendant. Attorneys must make a reasonable inquiry into the facts and circumstances surrounding the case prior to representing such facts to a court.
. The debtor, his brother and sister shared equally the expenses incurred as a rеsult of their mother’s Alzheimer's disease.
. Defendants do not argue that § 523(a)(2)(A) is inapplicable to these facts. Ordinarily, nondischargeability findings based upon misstatements of a debtor’s financial condition are limited to statements in writing.
See generally, Engler v. Van Steinburg,
. While the Eleventh Circuit decision in
Roddenberty
considered the nondischargeability of credit card debts under § 17(a)(2) of the Bankruptcy Act, courts continue to use that decision for guidance as the differenсes between § 523(a)(2)(A) and § 17(a)(2) are minimal.
See Birmingham Trust Nat’l Bank v. Case,
.Interestingly, it has been observed that the high interest fates and finance charges imposed by credit card lenders factor in the risk of nonpayment and non-compliance with the. terms of the loans.
First National Bank of Mobile v. Roddenberry,
. The use of the above factors has been widely accepted by other courts. In fact, these factors have even been employed by courts adhering to either the "implied representation” theory or the “assumption of the risk” theory.
See, e.g., In re Eashai,
. In
In re Neal,
. The court notes that the schedule J of current expenditures reflects an expenditure in the amount of $350.00 per month for tuition. Testimony revealed that the debtor no longer has this expense. The deficit of $58.00 thus becomes a surplus of $292.00.