Tower Credit Inc. v. Smith - Debt Discharge Ruling

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Sept. 12, 2025 Get Citation Alerts Download PDF Add Note

Tower Credit, Inc. v. Smith

United States Bankruptcy Court, M.D. Louisiana

• Citations: None known
• Docket Number: 24-01037

• Precedential Status: Unknown Status

• Opinion

• Authorities (7)

• Cited By (0)

• Summaries (0)

• Similar Cases (652)

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Trial Court Document

UNITED STATES BANKRUPTCY COURT
MIDDLE DISTRICT OF LOUISIANA

IN RE:

CARLA R. SMITH CASE NO. 24-10786
DEBTOR CHAPTER 7

TOWER CREDIT, INC.
PLAINTIFF

V. ADVERSARY NO. 24-1037

CARLA R. SMITH
DEFENDANT

MEMORANDUM OPINION

The trial in this matter took place on September 11, 2025. At the conclusion of the trial,
the court took the matter under advisement. The court now enters this Memorandum Opinion in
support of its decision in favor of the defendant, Carla R. Smith. As a result, the entirety of
Tower Credit Inc.’s claim is discharged.
I. Facts
Based on the testimony at trial, the exhibits admitted into evidence, and the record of this
proceeding, the court makes the following findings. On November 20, 2012, the defendant, Carla
R. Smith (“Ms. Smith”), applied for a $400 loan from the plaintiff, Tower Credit, Inc. (“Tower”)
with a stated purpose of buying Christmas presents. Ms. Smith’s written loan application1
(“Loan Application”) provides that at that time, she lived with her mother and sister, and Ms.
Smith’s payment of rent was $150. The budget that Ms. Smith also provided to Tower on
November 20, 2012 (“Budget”), identifies her monthly rent obligation as $150.2 Tower

1 Exhibit P-1.

2 Exhibit P-3.
approved the $400 loan and added it to an already pending loan by Ms. Smith for a total
promissory note of $5,255.59 at 29.64% interest.3 Ms. Smith’s 1999 Honda Accord served as
collateral for the loans (“Collateral”).4
Ms. Smith defaulted and on July 26, 2013, Ms. Smith voluntarily surrendered the
Collateral to Tower for an agreed upon $1,000 credit on her indebtedness.5 Tower filed suit

against Ms. Smith in Baton Rouge City Court,6 and on March 20, 2014, the Baton Rouge City
Court ruled in favor of Tower and against Ms. Smith in the amount of $4,779.19, plus interest
from date of judicial demand at the rate of 29% until satisfied, attorney’s fees of 25% of the
principal and interest, and court costs (“Judgment”).7 The Judgment was revived on November
17, 2023.8
On September 17, 2024, Ms. Smith filed a chapter 7 bankruptcy case.9 Tower filed Proof
of Claim No. 1, asserting an unsecured claim for $23,905.04 based on the Judgment. At the
initial meeting of creditors held on October 17, 2024, pursuant to 11 U.S.C. § 341, Tower’s
representative, Stephen Binning, questioned Ms. Smith, asking her if she was paying rent at the

time (almost twelve years ago) and if so, how much. Ms. Smith responded that she believed it
was $600 to $700 per month.

3 Exhibit P-4.

4 Exhibit P-4.

5 Exhibit P-5.

6 Case no. 13-07186, Baton Rouge City Court, Parish of East Baton Rouge.

7 Exhibit P-6.

8 Exhibit P-7.

9 Case no. 24-10786, U.S. Bankruptcy Court, Middle District of Louisiana.
Tower filed this complaint objecting to the dischargeability of the debt owed it by Ms.
Smith pursuant to 11 U.S.C. § 523 (a)(2)(B),10 contending that the Loan Application and the
accompanying Budget were materially false statements in writing concerning her financial
condition. In essence, as the Budget reflects, Ms. Smith would have only had sufficient cash
flow to service Tower’s loan if her rent obligation was $150 rather than $600-700 stated at the

creditor’s meeting. Based on that discrepancy, Tower alleges that it would not have made the
loan with the higher rent obligation. Indeed, the Budget of monthly income and expenses would
have been negative with a $600 rent obligation.
Ms. Smith filed an Answer, asserting several affirmative defenses and counterclaims.11
Ms. Smith then filed a Motion to Dismiss,12 which the court treated as a Motion for Summary
Judgment due to the four affidavits attached as exhibits. Tower also sought partial summary
judgment.13 The court denied Ms. Smith’s motion,14 and it granted in part and denied in part
Tower’s Motion for Partial Summary Judgment, specifically (1) dismissing Ms. Smith’s third,
fourth, and fifth affirmative defenses to the extent that they sought to alter the Judgment, (2)

dismissing Ms. Smith’s first, second, and fourth counterclaims to the extent that sought to collect
money damages from Tower or to alter the Judgment, (3) dismissing Ms. Smith’s third
counterclaim (emotional distress) for lack of jurisdiction over tort claims, (4) reserving Ms.
Smith’s claim that Tower had “unclean hands” with respect to its repossession of the Collateral

10 P-1.

11 P-5.

12 P-21.

13 P-27.

14 P-44.
and application of any credit due Ms. Smith, and (5) granting Tower leave to amend its
Complaint to provide details concerning the repossession or surrender of the Collateral. 15 Tower
filed an Amended Complaint on June 10, 2025, contending that Ms. Smith voluntarily
surrendered the Collateral prior to the state court Judgment and that in exchange, she agreed to
receive a credit of $1,000 toward her indebtedness.

II. Unclean Hands
At the outset, this lawsuit could have been rejected out of hand at the close of trial had
Ms. Smith proven Tower had “unclean hands” in obtaining its Judgment or at any time prior to
the filing of this bankruptcy. In Precision Instrument Manufacturing. Co. v. Automotive
Maintenance Machinery Co., the United States Supreme Court held that the “unclean hands”
doctrine “closes the door of a court of equity to one tainted with inequitableness or bad faith
relative to the matter in which he seeks relief, however improper may have been the behavior of
the defendant.”16 According to that doctrine, if Tower had “unclean hands” in its dealings with
Ms. Smith related to the loan in question, it could be precluded from seeking a judgment of
nondischargeability.17

Based on the Amended Complaint filed and the testimony at trial of Tower’s
representative, Stephen Binning, however, and that of Ms. Smith, which is corroborated by the
exhibit admitted showing that Ms. Smith voluntarily surrendered the Collateral in exchange for a
$1,000 credit, the court finds that Tower is not equitably precluded from seeking judgment based
on its conduct prior to the bankruptcy.

15 P-45.

16 Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 814, 65 S.Ct. 993, 997, 89 L.Ed. 1381 (1945).

17 See also Matter of Adair, 137 F.4th 384 (5th Cir. 2025).
III. Dischargeability
Tower contends that the debt Ms. Smith owes it should be held nondischargeable
pursuant to § 523(a)(2)(B). The U.S. Supreme Court found in Bartenwerfer v. Buckley: 18
Section 523(a)(2)(B) bars the discharge of debts arising from the “use of a
statement in writing—(i) that is materially false; (ii) respecting the debtor's or an
insider's financial condition; (iii) on which the creditor to whom the debtor is
liable ... reasonably relied; and (iv) that the debtor caused to be made or published
with intent to deceive.”19

In Matter of Young,20 the Fifth Circuit held that “[t]he burden is on the creditor to prove, by a
preponderance of the evidence, that the debt is nondischargeable.”21
It is undisputed that the Loan Application and the Budget are statements regarding Ms.
Smith’s financial condition for purposes of § 523(a)(2)(B). The main issue in this case is
whether Ms. Smith falsely stated what her rental obligation, or more specifically, what her
payment was, on the Loan Application and Budget. Although neither Ms. Smith nor Mr. Binning
could recall the particulars of how the Loan Application and Budget were filled out, the Loan
Application itself undeniably reflects that she lived with her mother and her sister. Tower is
stuck with that reality, along with the unrefuted testimony of two witnesses that confirm the
living arrangement. The Loan Application, a standard document prepared by Tower, also
provides a small box labeled “Payment” directly following a question concerning whether the
prospective borrower rents or owns a home. The payment box was filled in as $150. And while
the Loan Application and the Budget are not contracts themselves but rather precursors to the

18 Bartenwerfer v. Buckley, 598 U.S. 69, 143 S. Ct. 665, 214 L. Ed. 2d 434 (2023).

19 Bartenwerfer, 598 U.S. at 77.

20 Matter of Young, 995 F.2d 547 (5th Cir. 1993).

21 Young, 995 F.2d at 549 (citing Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991)).
promissory note (clearly a Louisiana contract22) signed by Ms. Smith on the same day,23 the
Keiland Constr., L.L.C. v. Weeks Marine, Inc.,24 case is instructive on interpretation of ambiguity:
In Keiland, the Fifth Circuit reasoned:
Interpreting a contract under Louisiana law “is the determination of the common intent of
the parties.” La. Civ. Code Ann. art. 2045. … “[W]hen a contract is ambiguous, the trier
of fact must resolve the factual issue of intent. ...” Guidry v. Am. Pub. Life Ins. Co., 512
F.3d 177, 181 (5th Cir. 2007). “A doubtful provision must be interpreted in light of the
nature of the contract, equity, usages, [and] the conduct of the parties before and after the
formation of the contract ....” Greenwood 950, L.L.C. v. Chesapeake La., L.P., 683 F.3d
666, 669 (5th Cir. 2012) (internal quotations omitted). “If the contract remains
ambiguous, and if there are two or more reasonable interpretations, the contract is
construed against its drafter.” Id. This court can easily make a plausible argument that a box in a standard form application
asking a borrower to represent what the payment is could be interpreted to mean one of two
things (1) total rent payment for the apartment, or (2) borrower’s share of the rent payment. To
the extent there is any ambiguity in the language of Tower’s standard application forms, clearly a
party with a significant bargaining position in relation to Ms. Smith and the drafter of the Loan
Application and the Budget, this court must construe any ambiguity in favor of Ms. Smith.
At Ms. Smith’s meeting of creditors on October 17, 2024, she testified under oath that she
thought the rent was $600 to $700 per month. Ms. Smith contends that she was mistaken or
confused at the meeting of creditors held twelve years after applying for the loan. The court’s
ruling rests largely on its assessment of the credibility of the testimony of Ms. Smith and her
mother, Terri Eleby, at trial. Ms. Eleby, who was sequestered during her daughter’s testimony,
testified that Ms. Smith lived with her and other family members at the time the Loan

22 The Promissory Note is replete with references to Louisiana law. Exhibit, P-4.

23 Ex. P-4.

24 Keiland Constr., L.L.C. v. Weeks Marine, Inc., 109 F.4th 406, 415–16 (5th Cir. 2024).
Application and Budget were submitted. She testified consistently with Ms. Smith that the rent
on the apartment, which was in her name, was $600 per month, but the obligation to pay that rent
was shared amongst the family members. The court finds the testimony of both Ms. Smith and
Ms. Eleby credible on this front. The court also finds credible Ms. Smith’s testimony that twelve
years later at the creditor’s meeting, she had trouble remembering what the rent was, especially

since she was moving quite a bit back then. 25 Perhaps more importantly now, Tower produced
no evidence to the contrary, relying solely on Ms. Smith’s testimony at the creditor’s meeting.
Therefore, Tower has not met its burden of proof to show that the Loan Application and Budget
were materially false written statements concerning her financial condition.
At trial, Tower attempted to make much of the fact that Ms. Smith’s address was listed
incorrectly on the Loan Application. But she testified that the address on her Loan Application
was consistent with the address on her drivers’ license and that that address was another sister’s
residence where she received her mail. Ms. Smith explained that she put that address on her
driver’s license because she and her family were moving around a lot at that time and her sister

living there was not. As the United States Supreme Court found in Bartenwerfer, a financial
statement must be “materially false” to held nondischargeable. The court finds that the material
issue here, and for the purposes of whether Tower would have made Ms. Smith the loan based on
the Budget, is the amount of rent Ms. Smith paid. The court believes the testimony of both Ms.
Smith and Ms. Eleby that Ms. Smith paid only $150 per month, representing her portion of the
$600 rent in November 2012. It simply belies all logic to believe that a daughter with very

25 At trial, Tower’s counsel argued that it was telling that Ms. Smith did not mention that rent was shared in her
Answer to the Complaint but waited until she filed her Motion to Dismiss after she had received the Loan
Application in discovery. The court notes that at all times, including in Ms. Smith’s Answer, Ms. Smith maintained
that she “den[ied] that any statements made regarding rent in the credit application were false or material to
[Tower’s] decision to extend credit.” P-5, p. 1.
modest income was paying the entire rent for the family living there. Tower’s standard form
application asked for the borrower’s payment, without distinguishing between that obligation and
the total rent for the apartment. This court believes the Loan Application and Budget were
accurate and truthful.
The court finds that Tower has not met its burden of proving that Ms. Smith made a

materially false financial statement. Because Tower has not met its burden of proving that most
critical element of § 523(a)(2)(B), the court’s inquiry ends here, and the court need not reach the
remaining elements of § 523(a)(2)(B).
IV. Conclusion
The court finds in favor of Ms. Smith and against Tower. Ms. Smith’s debt to Tower is a
dischargeable debt in her bankruptcy case. The court will enter a judgment consistent with this
Memorandum Opinion.
Baton Rouge, Louisiana, September 12, 2025.

/s/ Michael A. Crawford
MICHAEL A. CRAWFORD
UNITED STATES BANKRUPTCY JUDGE