Collections: Parties Liable for Credit Card Debts

     The Richmond Circuit Court, in the case of Chevy Chase Savings Bank v. Strong, ruled that a husband who was only an “authorized user” on a bank credit card issued to his wife was not liable to the bank for a $5,024 cash advance check he wrote on the credit card; only the wife was liable. 

     In Virginia Code §11-31, Virginia has codified the rule that use by an authorized agent of a cardholder shall be the equivalent of use by the cardholder. That rule, however, does not address the question of the liability of the agent. The court reasoned that while it does not appear that any Virginia Court has addressed the issue, the language used in the statute and case law from other jurisdictions led the Court to believe that the issue was governed by agency law. 

     The Court stated that it was well established in Virginia that when an agent contracts for a disclosed principal, credit is extended to the principal, and the benefits of the contract are accepted by the principal, there is no personal liability on the agent. In this case, the bank was well aware that the principal was the wife. It extended credit to her based on her application for a card. They were aware that no contract was ever made with husband individually and, therefore, they knew that he was simply an authorized agent. 

     The Court found that there was no indication in this case that husband exceeded his authority in executing the check against the account, or that he agreed to be personally liable for any debt incurred on his wife’s account. Accordingly, the court ruled that the liability for the debts belonged only to wife. The court ruled that the husband was not liable for any portion of the outstanding balance, including the amount of the check that he personally wrote.

     The lesson from Strong - do not confuse guarantors with authorized users.

Foreclosure: Default

    Question: When is a loan in default? Answer: Under one or more of several circumstances. The most common way that a borrower is in default is monetary – e.g., the borrower fails to make a required payment. However, default can be for a non-monetary reason as well, such as: 

    1. Failure to pay taxes. 

    2. Failure to pay insurance. 

    3. Failure to remove or bond over mechanic’s liens. 

    4. Failure to perform requirements unique to the loan. 

    If you have questions about default, please call Eddie at 545-6251.

Real Estate: Using Mechanic's Liens to Secure an Interest in Real Estate

    In recent blogs we have been discussing the benefits of using real estate to improve creditors’ positions. As I have emphasized, properly securing debts through real estate could make the difference between collecting the funds and incurring a loss. In this blog, we will begin a review of the benefits of using mechanic’s liens to aid in the collection of your debt. 

    Virginia Code §43-3 et. seq. provides for special procedures for the collection of unpaid bills related to work performed on, or products supplied for, real estate. §43-3 A states: 

    “All persons performing labor or furnishing materials of the value of $150 or more … for the construction, removal, repair or improvement of any building or structure permanently annexed to the freehold … shall have a lien, if perfected as hereinafter provided, upon such building or structure, and so much land therewith as shall be necessary for the convenient use and enjoyment thereof … subject to the provisions of § 43-20. But when the claim is for repairs or improvements to existing structures only, no lien shall attach to the property repaired or improved unless such repairs or improvements were ordered or authorized by the owner, or his agent.” 

 Virginia Code §43-3 B provides for special rules regarding condominiums.

    Virginia Code §§43-4, 43-7 and 43-9 provide for the perfection of the lien by general contractors,subcontractors, and laborers and suppliers. We will explore this more in a future blog.

    We have experienced attorneys and staff who can examine title, file mechanic’s liens, and litigate to enforce the same.

Bankruptcy: Bankruptcy Exemptions - Intentional Tort

    The United States Bankruptcy Court at Alexandria, Virginia, in the case of In Re: Scott, entered a judgment in favor of the creditor in the amount of $12,735 on a theory of conversion. In doing so, the Bankruptcy Court determined that the judgment was nondischargeable under Bankruptcy Code §523(a)(6). In Scott the Bankruptcy Court found that the creditor hired the debtor to look after the creditor's elderly mother, paying the debtor $28,000 in advance wages. The debtor quit the job six weeks later and refused to return the unused funds. The debtor subsequently filed for bankruptcy and the creditor filed a nondischargeability complaint. In the debtor's bankruptcy schedules she listed exemptions of a car, clothing, household goods, jewelry and a savings account. The creditor challenged both the specific items claimed as well as the debtor's right to claim any exemptions at all against a claim for an intentional tort. 

    In regard to the creditor's challenge for specific items, the Bankruptcy Court found that Virginia state law exemptions include the homestead exemption under Virginia Code §34-4 and the poor debtor's exemption under Virginia Code §34-26. The Court ruled that the debtor was entitled to claim a "poor debtor's" exemption on the car, and that the debtor's interest in the vehicle was less than $2,000. The Court also found that the debtor's claim for $5,400 in exemptions for the household goods did not exceed the amount allowed under Virginia Code §34-4. The Bankruptcy Court denied the debtor's "poor debtor's" claim for exemption for a herringbone gold necklace, as there was no evidence that the necklace was a family heirloom. The Bankruptcy Court also denied the debtor's claim for an exemption in a $300 savings account as tenants by the entirety property.

    In regard to the creditor's claim that the debtor was not entitled to any exemptions because Virginia law does not allow for the assertion of Virginia exemptions against a claim based on an intentional tort, the Bankruptcy Court examined the bankruptcy statutes and the results that other courts had reached on similar questions. The Bankruptcy Court noted that other courts had reached different opinions. However, the Bankruptcy Court decided that since Congress had specifically legislated as to the type of claims that could be enforced against exempt property, and since the creditor's claim in this case did not fall within any of the enumerated exceptions, in this case, the debtor was entitled to her exemptions notwithstanding the fact that the creditor held a nondischargeable claim based upon an intentional tort.