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Credit Card Applications and the Fine Print

Mr. Dylan Roberts is a 21-year-old college junior. During the student orientation week of his freshman year, many credit card companies were soliciting on campus, offering low-interest rate cards displaying the university logo. Dylan picked up an application at that time but didn't fill it out and send it in until he got a full-time job for the summer at a video store in his hometown about three hours away from campus. On the application, he listed his $500 per week income based on his full-time and overtime hours.

Dylan returned to school that fall and, over the next two years, accumulated $15,000 in debt on his card for electronic equipment, CDs, dating expenses, and spring break. Although he worked every summer, he never made as much as he did that first summer at the video store. Also, his grade point average dropped below what was required for his scholarship to be maintained, so he had to contribute more toward his college tuition. Realizing that he was unable to keep up with the minimum credit card payments, Dylan filed for bankruptcy under Chapter 7 of the Bankruptcy Code (liquidation).

At his Section 341 meeting where he was questioned by an attorney for the credit card company, Dylan said that he filled in the income category based on his summer income. Based on his answers, the credit card company filed a nondischargeability action against Dylan alleging that he had made a false representation on his credit card application.

  • Definitions

discharge--A release of a debtor from personal liability for certain dischargeable debts. A discharge releases a debtor from personal liability for certain debts known as dischargeable debts and prevents the creditors owed those debts from taking any action against the debtor or the debtor's property to collect the debts. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including through telephone calls, letters, and personal contact.

341 meeting--A meeting of creditors at which the debtor is questioned under oath by creditors, a trustee, an examiner, or the U.S. Trustee about his or her financial affairs.


  • A Question of Credit Card Fraud: Discussion Questions

  1. Identify Dylan's needs versus his wants in this scenario. How could he have managed his wants and prevented a financial crisis?
  2. Identify some decision points at which Dylan made his financial situation worse, or points at which he could have made it better?
  3. What safeguards should Dylan have put into place to protect his finances--and avoid the risk of facing bankruptcy--as soon as he was hired for his job?
  4. What are some financial pitfalls/surprises that Dylan should anticipate and prepare for at this stage in his life?
  5. Before considering bankruptcy, what are some other options available to Dylan?
  6. What are the short-term and long-term consequences for Dylan of filing for bankruptcy protection?
  7. In addition to the possibility of being accused of credit card fraud by writing down the wrong information, what are some of the other risks of not reading the fine print in a credit card application?
  8. What will happen if, as a result of the hearing, the judge rules that, because of Dylan's credit card application, his debts may not be discharged?
  9. What will happen if Dylan simply pays the minimum balance on his credit card each month?

  • Points to Look for in Student Responses to Discussion Questions

The scenarios and questions are meant to stimulate critical thinking and discussion about life decisions that bring people to bankruptcy court. This answer key begins to address the issues raised; however, it is by no means exhaustive. Students are encouraged to be as specific as possible in their analysis.


  • Scenario 4: A Question of Credit Card Fraud Discussion

  1. Dylan's needs include basic living expenses and school-related purchases. His wants include his electronic equipment, CDs, dating expenses, spring break, and so on. Dylan could have managed his wants and prevented a financial crisis by paying close attention to what he was charging on his credit card and not charging more than he could pay off every month.
  2. Some points at which Dylan made his financial situation worse include charging $15,000 on his credit card by using it to pay for such nonessential items as his electronic equipment, CDs, dating expenses, and spring break. He could have improved his financial situation by being more prudent with the use of his credit card and using it only to purchase items that he could realistically expect to pay back within one billing cycle.
  3. As soon as he got a job, the safeguards that Dylan should have put into place to avoid bankruptcy include (1) establishing a realistic budget, (2) using automatic deposits from his paycheck into a savings account, and (3) building up a cash reserve to cover living expenses for six month.
  4. Some financial pitfalls/surprises that Dylan should anticipate and prepare for at this stage in his life include (1) rising educational expenses, and (2) changes in his earning power because of changes in his scholarship arrangement and/or employment status.
  5. Before considering bankruptcy, some other options that are available to Dylan include (1) scaling down his standard of living, (2) improving his grades to try to get the scholarship back, (3) taking another job, and (4) contacting his creditors directly to see whether they would be willing to work out payment plans with him directly and without the involvement of the bankruptcy court.
  6. The short-term consequences for Dylan of filing for bankruptcy depend on whether or not the judge rules that his credit card debts may be discharged. If the judge rules that they may not be forgiven, Dylan will have to pay back his debts in full. If the judge rules that they may be discharged, some of Dylan's debts may be forgiven. The long-term consequences for Dylan include damage to his credit rating for 10 years. This may not only adversely affect him when he applies for credit, including student loans, but also when he seeks future employment and housing.
  7. In addition to the possibility of being accused of credit card fraud by writing down the wrong information, some of the other risks of not reading the entire credit card application include (1) not realizing that low, introductory rates are likely to increase significantly after a certain amount of time, (2) not understanding late fees and penalties, and (3) not recognizing that some credit card companies charge annual fees.
  8. If, as a result of the hearing, the judge rules that, because of Dylan's credit card application, his debts may not be discharged, Dylan will have to pay his $15,000 credit card debt in full. If he cannot, the card company may use a variety of methods to try to collect the debt, for example, suing Dylan and then (assuming they win) garnishing his wages to enforce the court's judgment.
  9. If Dylan simply pays the minimum balance on his credit card each month, he will be paying it off for a very long time and, because of the interest that accrues, at the very least, he probably will pay close to double the amount of money that he originally charged on the card.