DECISION and ORDER
At South Bend, Indiana, on
This matter is before the court on a COMPLAINT FOR EXCEPTION TO DISCHARGE under 11 U.S.C. § 523(a)(2)(A) (“Complaint”). The Complaint was filed on February 21, 1995, by Household Credit Services (“HCS”), a creditor of the bankruptcy estate of Lyndell D. Jacobs and Patricia A. Jacobs (“Jacobs”), Debtors herein. A hearing was held on March 6, 1996, after which the court took the matter under advisement.
Jurisdiction
This order shall represent findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52, made applicable herein by Federal Rule of Bankruptcy Procedure 7052. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(I), over which the court has jurisdiction pursuant to 28 U.S.C. § 157(b)(1).
Background
The Jacobs acquired an HCS credit card account in May of 1994 with an initial balance of zero, and a credit limit of $5,000. Between May 7, 1994, and July 17, 1994, the Jacobs took six cash advances totaling $3,870.94 and made purchases totaling $876.52, including cash advances for gambling, airline tickets, and hotel acсommodations for a total of $4,747.46. Plaintiffs Exh. 1.
On September 4, 1994 and October 27, 1994, the Jacobs took two additional cash advances totaling $1,217.99, increasing their account balance to $6,019.28. Plaintiffs Exh. 1. Between May 7, 1994 and November 13, 1994, the Jacobs made four payments totaling $381 towards the above-mentioned cash advances and purchases. Id. On November 22, 1994, twenty-six days after the last cash advance on the account, the Jacobs filed their petition for relief under Chapter 7 of the United States Bankruptcy Code.
On February 15, 1995, HCS filed its Complaint, requesting that the Jacobs’ debt to the creditor in the amount оf $6,126.35 be excepted from discharge. On March 27, 1995, the Jacobs filed an answer and counterclaim to HCS’ Complaint. In their answer, the Jacobs admitted making the cash advances and purchases referred to in the above paragraphs, but denied that they obtained the money from HCS by false prеtenses, false representation, or actual fraud. Further, the Jacobs asserted that their indebtedness to *431 HCS should be discharged, and counterclaimed for the reasonable attorney fees and costs incurred for the defense of HCS’ Complaint.
In its scheduling order of April 12, 1995, the court required that all discovery in this matter be completed by June 12, 1995; and, that parties file a joint proposed pre-trial order by July 11,1995. Parties having failed to comply with the scheduling order, the court entered an order on July 17, 1995, directing HCS to show cause why their complaint should not be dismissed for failure to prosecute. In rеsponse to the court’s show cause order, HCS filed an affidavit on July 21, 1995, stating that the Jacobs’ attorney was no longer authorized to act on their behalf 1 , and that neither the Jacobs’ attorney, nor HCS had been able to contact the Jacobs regarding HCS’ Complaint. The court, subsequently, scheduled a trial on HCS’ Complaint for January 8, 1996. Upon request by counsel for HCS, the trial was later continued until March 5,1996.
The Jacobs failed to appear at the hearing held on March 5, 1996. At the hearing HCS offered into evidence copies of the Jacobs’ credit card bills, a copy of their chaрter 7 petition for relief, and a copy of request for admissions which had been served on the Jacobs on January 8, 1996. Plaintiffs Exhs. 1-3. After the hearing the court took the matter under advisement.
Discussion
1. Effect of Failure to Respond to A Request for Admissions.
Requests for Admission are governed by Federal Rule of Bankruptсy Procedure 7036 which states in pertinent part:
Rule 36 F.R.Civ.P. applies in adversary proceedings.
Rule 36. Requests for Admission
(a) Request for Admission. A party may serve upon any other party a written request for the admission, for purposes of the pending action only, of the truth of any matters within the scope of Rule 26(b)(1)....
Each matter of which an admission is requested shall be separately set forth. The matter is admitted unless, within 30 days after service of the request, or within such shorter or longer time as the court may allow or as the parties may agree to in writing, subject to Rule 29, the party to whom the request is directed serves upon the party requesting the admission a written answer or objеction addressed to the matter, signed by the party or by the party’s attorney.
Federal Rule of Bankruptcy Procedure 7036 (Callaghan 1996).
A party may attempt to satisfy its burden to prove factual issues by requesting an admission from the opposing party.
In re Camp,
However, facts which are undisputed or deemed admitted are not dispositive of HCS’ contention that the Jacobs acted fraudulently.
In re Johnson,
No. 91-61069,
2. The Totality of the Circumstances vs. The Common Law Test or Subjective Theory for Fraud, as Justification for exception to Discharge.
The basis for a Complaint for Exception to Discharge is 11 U.S.C. § 523 which states:
(a) A discharge under sеction 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 resрecting the debtor’s or an insider’s financial condition;
11 U.S.C.S. §' 523(a)(2)(A) (Callaghan 1996).
To establish fraud under § 523(a)(2)(A), the creditor must prove that: (i) the debtor lied or acted in reckless disregard of the truth in obtaining money, property, services, or credit from the creditor; (ii) the creditor reasonably relied on the misrepresentation or untruth in extending money, property, services, or credit to the debtor,
i.e.,
the creditor had no reason to know or suspect the truth; and (iii) the falsehood concerned a fact which was material to the transaction.
Mayer v. Spanel Int’l Ltd.,
Recently, the Supreme Court attempted to further clarify § 523(a)(2)(A), by holding that the standard for excepting a debt from discharge under this section is not one of reasonable reliance, but one of justifiable reliance on the representation.
Field v. Mans,
— U.S. -,
There are numerous, and conflicting decisions interpreting § 523(a)(2)(A) in the context of credit card debts and other obligations arising out of varying forms of alleged fraud and deceit.
In re Leventhal,
The assumption of risk doctrine holds that unless a credit card company has revoked the card, it assumes the risk that the debtors who do not have the ability to pay will use the card. Only those charges made after the card has been revoked are declared nondis-chargeable.
In re Dougherty,
The implied representation theory, followed by a majority of courts, holds that each time a debtor uses a credit card the debtor impliedly represents that he or she has the intention and, some but not all courts hold, the ability to repay the charges.
Id. citing In re Carrier,
Since upon use of the credit card, the issuer’s extension of credit constitutes both actual reliance and damages, which are the elements of representation, and thе implied representation theory presupposes the existence of the debtor’s representation of intent and ability to pay, it reheves the creditor of one of the burdens of proof for fraud.
In re McKinnon,
As an alternative to the implied representation theory, courts have looked to the totality of the circumstances to prove that the debts were incurred with no intention of paying them, with the intent to be drawn from the circumstances.
In re O’Brien,
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 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 financial 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.
Id.
Other courts have cited these factors as well.
See In re Dougherty,
In their answer, the Jacobs have denied that they have incurred their debt by false pretenses, false representation or actual fraud. The issue then arises whether the case is to be determined by objective criteria on a reasonable man standard irrespective of the Jacobs’ actual state of mind, or entirely on a subjective assessment of their credibility. The court’s analysis in In re Shanahan suggests that:
“the standard is neither entirely subjective nor purely objective, as the case of a reasonable man test: the actual state of mind of the defendant is determinative, but this is to be judged in light of the objective facts. The most devout and otherwise credible profession of good faith and intent to repay may be overcome by compelling objective evidence.”
In re Shanahan,
Beyond applying the factors from the totality of circumstances to th& facts of this сase this court agrees with the approach taken in
In re Murphy,
and requires determination of whether all the evidence leads to the conclusion that it is more probable than not that the debtor had the requisite fraudulent intent.
Murphy,
SO ORDERED.
Notes
. The Jacobs’ attorney filed a Motion to Withdraw as Counsel on January 29, 1996, which was granted by the court on February 29, 1996.