Keywords: totality of circumstances . dismissal .
Means Test > Abuse Presumption > 702(b)(3) "Totality of Circumstances" Chapter 7: "Totality of Circumstances" 707(b)(3): Debtor permitted -- or not permitted -- to file Chapter 7, regardless of means test result.56 Cases , IssueID 9 |
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Ch 7 Means Test |
Ch 13 Means Test |
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Topic Description:Even if you pass the requirements of the means test, a court can still find that you don't qualify for Chapter 7 bankruptcy. Lines of Cases:
Topic Background / Overview: |
Court will not question amount of secured debt payments for hmotor ome and boat because debts were incurred two years prior to bankruptcy and appear not to have been incurred with an intent to defraud creditors, nor did the purchase make the debtor insolvent.. Also has a discussion of "ride through"
"After making adjustments to Debtors expenses to only allow actual housing and Utility expenses, Debtors' actual monthly expenses total $4,051. Adjusting Debtors' withholding taxes as suggested by the UST and allowing Debtors to continue making their 401k deduction results in monthly income of approximately $7,368. Even with a 401k deduction, therefore, Debtors have approximately $3,317 in monthly disposable income which could be used to pay creditors.[6] This amount is substantial as Debtors could pay 100% of their unsecured debt in less than 28 months. Thus, the totality of the circumstances of Debtors' financial condition indicate that Debtors have an ability to repay their debts"
Totality of circumstances; 707(b)(3);
denied a debtor the right to file Chapter 7 because the debtor was about to have a substantial increase in income.
Abuse found under "totality of circumstances" where debtor's child support obligation would end in the middle of Chapter 13 plan, meaning he could pay 60,000 over the next five years.
Means test non conclusive. Dismissal under 707(b)(3) appropriate where debtor has ability to pay, regardless of what means test shows. In this case most of income was retirement income and social security.
Debtors were above median income. Form B22 listed debtors' monthly disposable income as negative $571, so there was no presumption of abuse. However, the court found that debtors' filing a Chapter 7 closely after expensive purchases was in bad faith and abusive under Section 707(b) totality of the circumstances. Specifically, debtors bought a home they couldn't afford, two expensive cars, and a vacation timeshare, all on the eve of bankruptcy.
The court found, upon readjusting debtor's income and expenses to account for post-petition events, that debtors could fully repay their unsecured creditors through Chapter 13.
Trustee moved to dismiss the case because debtors had reaffirmed debt on two ATV's ($175 per month, and used for snow removal). Trustee argued that these were recreational items that the creditors shouldn't be made to subsidize. However, the debtors amended their income and expenses (schedules I and J), and rescinded their affirmation agreement, so the court found that there was no longer any reason to dismiss the case under trustee's initial motion.
The court found that even though debtors appeared to have extra income, under the totality of the circumstances (Section 707(b)(3)), the debtors nonetheless were not in a position to fund a Chapter 13 plan.
debtor's ability to pay creditors relevant to 707(b)(3) totality of the circumstances analysis.
Debtor's gambling and luxury lifestyle indicate that choices could be made to repay debts.
case nonetheless be dismissed as an abuse based upon an ability to pay
Their mortgage payment is much higher than the IRS guidelines for housing expense. They have two vehicles and a motorcycle; they could reduce expenses and bring in some income by selling a vehicle or the motorcycle (even taking into account Debtor's argument that using the motorcycle in good weather saves on fuel costs.) Therefore, expenses could be reduced without depriving the Debtors of adequate food, clothing, shelter or other necessities.
debtor can't keep boat while seeking discharge of unsecured debts.
100K income debtor allowed to file chapter 7 where string of bad luck and poor decisions and marital problems, rather than attempt to evade creditors, was motive for financial moves that led to bankruptcy.
Discharge denied due to lack of business records.
Debtor with significant 401(k) and a vacant house was not entitled to a Chapter 7 discharge pursuant to Section 707(b)(3). The court gave him 30 days to convert his case to a Chapter 11 filing, or have his case dismissed.
Although debtor is allowed to deduct surrendered home on means test form 22C, ability to pay a Chapter 13 plan relevant in determining whether to deny discharge under 702(b)(3). Reduced mortgage payments sufficient for finding of abuse under 703(b)(3). Good history of Sixth Circuit law on 703(b)(3) "totality of circumstances" cases.
Dismissal warranted under "totality of circumstances" where debtors purchased a new GMC Yukon shortly before filing, took a trip to Florida a month before filing, lived in an expensive home, wanted to keep their boat, and supported their 22-year-old son.
Debtor's student loan repayment may not be deducted from income, and deductions for daughters college and living expenses not allowed where unsecured creditors are receiving less than full payment. Case dismissed under "totality of circumstances"
In this Chapter 13 case, debtors failed to fully and accurately complete (and later amend) their schedule within one year. The court found that this was cause to dismiss the case.
The court dismissed the debtor's case under Section 707(b)(3) [totality of circumstances]. The court said,"The debtors have been living beyond their means, and the totality of the monthly expenses reported by the debtors does not reflect any belt-tightening. The debtors likewise do not appear to have prioritized their expenses to fit within their monthly income. The debtors have not, for example, reduced certain expenses so that they can afford others. Instead, they seem to want to have it all. The debtors enjoy a stable income and good health, and their creditors should not be forced to bear the burden of maintaining the same lifestyle that precipitated this bankruptcy."
Unrebutted presumption of abuse under means test does not require dismissal if a Chapter 7 case is presumed abusive under the means test, but would, in complete compliance with Chapter 13, produce no payments to unsecured creditors in a hypothetical Chapter 13 plan (due to different treatment of 401(k) loan repayment expenses.
Abuse found under "totality of circumstances" where expenses of debtors with 100K+ annual incomes (more than 2X the state median) were found to be unreasonable and excessive. Also evidence of prior payments to creditors shows that debtor do have an ability to pay, and therefore abuse is found under 703(b).
Income of non filing spouse found relevant in a "totality of circumstances" dismissal. Ohio law creates a duty of one spouse to support the other, and debtor's car payments exceeded her income.
the following ten factors may be indicia of bad faith under a Section 707(b)(3)(A) analysis:
(1) the debtor has only one asset in which it does not hold legal title;
(2) the debtor has few unsecured creditors whose claims are small in relation to the claims of the secured creditors;
(3) the debtor has few employees;
(4) the debtor is not financially distressed;
(5) the property is the subject of a foreclosure action as a result of arrearages on the debt;
(6) the debtor's financial problems involve essentially a dispute between the debtor and the secured creditors which can be resolved in a state court action;
(7) the timing of the debtor's filing evidences an intent to delay or frustrate the legitimate efforts of the debtor's secured creditors to enforce their rights;
(8) the debtor made purchases on the eve of filing; (9) incomplete or false disclosures by the debtor; and
(10) failure by the debtor to cooperate with the trustee.
Look to Pre-BAPCPA law to determine standards for 703(b)(3) totality of circumstances. In this case, debtor was found NOT to abuse the BK laws and was allowed to proceed with Chapter 7.
$1,300,000 residence, luxury car with $1,225 monthly payment, and unreasonable budget is factor in good faith calculus. (cited by In re Lipford
Lavish lifestyle not sufficient to find "bad faith" under 707(a). (Court did not address totality of circumstances" under (b)(3). Issue was not raised.)
the Court considers the following circumstances as relevant in this case: Zaporski did not file bankruptcy because of any unforseen or catastrophic events, but instead because of excessive spending on entertainment and personal lifestyle choices; he has a substantial, above median income at a stable job; a substantial equity on his balance sheet; a substantial 774 pension plan for when he retires; a substantial 401(k) account; and an ability to continue making contributions to his 401(k) and repay all of his loans to it while at the same time having an ability to repay a meaningful dividend to his creditors, all without making any sacrifices in his present lifestyle. In these circumstances
court dismissed case under totality of the circumstances where debtors made over $3,000 monthly mortgage payments on home, and reaffirmed debts for newer luxury vehicles and pop-up camper
"[W]hile the ability to [fund a Chapter 13 plan] is a factor in the totality of circumstances test, and may even be the primary factor to be considered, if it is the only indicia of abuse, the case should not be dismissed under that test."
dismissed under 707(b)(3) "totality of circumstances" because in the year preceding his bankruptcy, he received substantial sums of money from various sources and spent it all on unnecessary indulgences, rather than pay down his debt.
Debtors with income of $500,000 not permitted to file BK. Medical practice revenue and expenses cannot conceal lavish lifestyle.
Means test non conclusive. Dismissal under 707(b)(3) appropriate where debtor has ability to pay, regardless of what means test shows. In this case most of income was retirement income and social security.
Debtor's ability to pay, despite below median income, warrants dismissal. Surrender of property will free up income and daughter's education expenses must come after paying creditors.
Debtors were above median income. Form B22 listed debtors' monthly disposable income as negative $571, so there was no presumption of abuse. However, the court found that debtors' filing a Chapter 7 closely after expensive purchases was in bad faith and abusive under Section 707(b) totality of the circumstances. Specifically, debtors bought a home they couldn't afford, two expensive cars, and a vacation timeshare, all on the eve of bankruptcy.
The court found, upon readjusting debtor's income and expenses to account for post-petition events, that debtors could fully repay their unsecured creditors through Chapter 13.
Trustee moved to dismiss the case because debtors had reaffirmed debt on two ATV's ($175 per month, and used for snow removal). Trustee argued that these were recreational items that the creditors shouldn't be made to subsidize. However, the debtors amended their income and expenses (schedules I and J), and rescinded their affirmation agreement, so the court found that there was no longer any reason to dismiss the case under trustee's initial motion.
The court found that even though debtors appeared to have extra income, under the totality of the circumstances (Section 707(b)(3)), the debtors nonetheless were not in a position to fund a Chapter 13 plan.
debtor's ability to pay creditors relevant to 707(b)(3) totality of the circumstances analysis.
Debtor's gambling and luxury lifestyle indicate that choices could be made to repay debts.
case nonetheless be dismissed as an abuse based upon an ability to pay
Their mortgage payment is much higher than the IRS guidelines for housing expense. They have two vehicles and a motorcycle; they could reduce expenses and bring in some income by selling a vehicle or the motorcycle (even taking into account Debtor's argument that using the motorcycle in good weather saves on fuel costs.) Therefore, expenses could be reduced without depriving the Debtors of adequate food, clothing, shelter or other necessities.
debtor can't keep boat while seeking discharge of unsecured debts.
100K income debtor allowed to file chapter 7 where string of bad luck and poor decisions and marital problems, rather than attempt to evade creditors, was motive for financial moves that led to bankruptcy.
Discharge denied due to lack of business records.
Debtor with significant 401(k) and a vacant house was not entitled to a Chapter 7 discharge pursuant to Section 707(b)(3). The court gave him 30 days to convert his case to a Chapter 11 filing, or have his case dismissed.
Court will not question amount of secured debt payments for hmotor ome and boat because debts were incurred two years prior to bankruptcy and appear not to have been incurred with an intent to defraud creditors, nor did the purchase make the debtor insolvent.. Also has a discussion of "ride through"
"After making adjustments to Debtors expenses to only allow actual housing and Utility expenses, Debtors' actual monthly expenses total $4,051. Adjusting Debtors' withholding taxes as suggested by the UST and allowing Debtors to continue making their 401k deduction results in monthly income of approximately $7,368. Even with a 401k deduction, therefore, Debtors have approximately $3,317 in monthly disposable income which could be used to pay creditors.[6] This amount is substantial as Debtors could pay 100% of their unsecured debt in less than 28 months. Thus, the totality of the circumstances of Debtors' financial condition indicate that Debtors have an ability to repay their debts"
Although debtor is allowed to deduct surrendered home on means test form 22C, ability to pay a Chapter 13 plan relevant in determining whether to deny discharge under 702(b)(3). Reduced mortgage payments sufficient for finding of abuse under 703(b)(3). Good history of Sixth Circuit law on 703(b)(3) "totality of circumstances" cases.
Dismissal warranted under "totality of circumstances" where debtors purchased a new GMC Yukon shortly before filing, took a trip to Florida a month before filing, lived in an expensive home, wanted to keep their boat, and supported their 22-year-old son.
Debtor's student loan repayment may not be deducted from income, and deductions for daughters college and living expenses not allowed where unsecured creditors are receiving less than full payment. Case dismissed under "totality of circumstances"
In this Chapter 13 case, debtors failed to fully and accurately complete (and later amend) their schedule within one year. The court found that this was cause to dismiss the case.
The court dismissed the debtor's case under Section 707(b)(3) [totality of circumstances]. The court said,"The debtors have been living beyond their means, and the totality of the monthly expenses reported by the debtors does not reflect any belt-tightening. The debtors likewise do not appear to have prioritized their expenses to fit within their monthly income. The debtors have not, for example, reduced certain expenses so that they can afford others. Instead, they seem to want to have it all. The debtors enjoy a stable income and good health, and their creditors should not be forced to bear the burden of maintaining the same lifestyle that precipitated this bankruptcy."
Unrebutted presumption of abuse under means test does not require dismissal if a Chapter 7 case is presumed abusive under the means test, but would, in complete compliance with Chapter 13, produce no payments to unsecured creditors in a hypothetical Chapter 13 plan (due to different treatment of 401(k) loan repayment expenses.
Abuse found under "totality of circumstances" where expenses of debtors with 100K+ annual incomes (more than 2X the state median) were found to be unreasonable and excessive. Also evidence of prior payments to creditors shows that debtor do have an ability to pay, and therefore abuse is found under 703(b).
Income of non filing spouse found relevant in a "totality of circumstances" dismissal. Ohio law creates a duty of one spouse to support the other, and debtor's car payments exceeded her income.
the following ten factors may be indicia of bad faith under a Section 707(b)(3)(A) analysis:
(1) the debtor has only one asset in which it does not hold legal title;
(2) the debtor has few unsecured creditors whose claims are small in relation to the claims of the secured creditors;
(3) the debtor has few employees;
(4) the debtor is not financially distressed;
(5) the property is the subject of a foreclosure action as a result of arrearages on the debt;
(6) the debtor's financial problems involve essentially a dispute between the debtor and the secured creditors which can be resolved in a state court action;
(7) the timing of the debtor's filing evidences an intent to delay or frustrate the legitimate efforts of the debtor's secured creditors to enforce their rights;
(8) the debtor made purchases on the eve of filing; (9) incomplete or false disclosures by the debtor; and
(10) failure by the debtor to cooperate with the trustee.
Abuse found based on "ability to pay" where debtor could reduce 'excessive' housing expenses by moving to smaller home rather than current 5,000 sq ft home for family of 3.
Look to Pre-BAPCPA law to determine standards for 703(b)(3) totality of circumstances. In this case, debtor was found NOT to abuse the BK laws and was allowed to proceed with Chapter 7.
$1,300,000 residence, luxury car with $1,225 monthly payment, and unreasonable budget is factor in good faith calculus. (cited by In re Lipford
Lavish lifestyle not sufficient to find "bad faith" under 707(a). (Court did not address totality of circumstances" under (b)(3). Issue was not raised.)
the Court considers the following circumstances as relevant in this case: Zaporski did not file bankruptcy because of any unforseen or catastrophic events, but instead because of excessive spending on entertainment and personal lifestyle choices; he has a substantial, above median income at a stable job; a substantial equity on his balance sheet; a substantial 774 pension plan for when he retires; a substantial 401(k) account; and an ability to continue making contributions to his 401(k) and repay all of his loans to it while at the same time having an ability to repay a meaningful dividend to his creditors, all without making any sacrifices in his present lifestyle. In these circumstances
court dismissed case under totality of the circumstances where debtors made over $3,000 monthly mortgage payments on home, and reaffirmed debts for newer luxury vehicles and pop-up camper
"[W]hile the ability to [fund a Chapter 13 plan] is a factor in the totality of circumstances test, and may even be the primary factor to be considered, if it is the only indicia of abuse, the case should not be dismissed under that test."
dismissed under 707(b)(3) "totality of circumstances" because in the year preceding his bankruptcy, he received substantial sums of money from various sources and spent it all on unnecessary indulgences, rather than pay down his debt.
Totality of circumstances; 707(b)(3);
denied a debtor the right to file Chapter 7 because the debtor was about to have a substantial increase in income.
Abuse found under "totality of circumstances" where debtor's child support obligation would end in the middle of Chapter 13 plan, meaning he could pay 60,000 over the next five years.
Debtors with income of $500,000 not permitted to file BK. Medical practice revenue and expenses cannot conceal lavish lifestyle.
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