What is an abusive bankruptcy filing? When does a bankruptcy court consider a debtor’s Chapter 7 filing to be an abuse of the bankruptcy process?

A bankruptcy court will look at whether the person filing the bankruptcy acted in bad faith and at the entire circumstances surrounding the debtor’s financial situation.

A Florida court addressed this issue in a recent case. Not only were the debtors living what the court considered to be “an extravagant lifestyle” both before and after their filing, but they also failed to disclose all relevant information in their bankruptcy filing.

Among other factors, the court found the following to be especially significant – the debtors:
1) Initiated a lease on a luxury car – an Infiniti – the month before filing for bankruptcy;
2) Timed the filing to be right before a significant raise in income;
3) Had excessive withholding of their Federal taxes and increased 401(k) contributions;
4) Transferred property and/or money right before and after filing for bankruptcy;
5) Tried to hide cash from the bankruptcy court; and
6) Spent a lot of money on day trading, brokerage fees, restaurants, and non-essential purchases.

The court also examined whether the debtors were able to pay their unsecured debts. With disposable income of over $3000 per month left over after monthly expenses, the court found that yes, these debtors would be able to pay back about 54% of their unsecured debts over about 60 months.

Primarily because the debtors could repay a significant portion of their unsecured debt, the court found that it would be an abuse of Chapter 7 to give them relief under that chapter. But the court took other factors into account, such as:
1) One of the debtors was experienced in financial matters and they both had experience with Chapter 7;
2) The debtors timed their filing to take place just before a raise in income;
3) They transferred money and/or property before and after their bankruptcy filing;
4) They made no effort to reduce expenses and live “a luxurious lifestyle”;
5) They decided to keep and pay on 3 luxury vehicles that had no equity;
6) They make large mortgage payments on a house that has no equity;
7) The debtors increased their monthly vehicle obligations right before filing;
The debtors provide a rent-free home to two relatives, whose utilities they also pay; and
9) Their bankruptcy filing was not the result of an unexpected or catastrophic event.

The debtors’ Chapter 7 case was dismissed and they were given time to convert their case to an appropriate chapter of the Bankruptcy Code.

The factors listed above, taken together, are enough to probably make any bankruptcy court sit up and take notice – in a bad way. The existence of just one of these factors might not be enough to lead to dismissal of a Chapter 7 case, but it really depends on the individual facts of each case.

This post is based on In re Ricci, Case No. 6:09-bk-00914-ABB, (Bankr., Middle Dist. Fla., Orlando Div. 2009).

If you are looking for a New Jersey bankruptcy lawyer, please call (201) 676-0722.

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How do I work with clients on consumer bankruptcy cases? I like to take a personalized approach. It depends on the client. Some people like to meet more often with their bankruptcy attorneys than others. I do my best to accommodate this.

But others just don’t have the time for a lot of meetings. For these people, I like to take advantage of other modes of communication and use the telephone, email, fax, and U.S. mail to communicate back-and-forth and exchange documents during the process of preparing a client’s case.

And of course, I will be present at a client’s meeting of creditors (unless the absolute unavoidable happens).

As always, I am available to my clients by phone and email anytime a question or concern comes up. I do not leave my clients in a fog when they do not understand something. Clients can always contact me with questions.

It’s also important for potential clients to know that I am not here to pass judgment on a client’s situation and how they got into the financial jam that they are now in. My judging of clients would not do me or the client any good.

Of course, I cannot guarantee results in any legal matter. I may not be the right attorney for you, either – if not, I’ll try my best to find a good referral for you. But I can’t guarantee any results you’d get from any other attorney, either, whether I referred them or not.

If you are looking for help filing a Chapter 7 bankruptcy, call me, Jennifer Weil, at 201-676-0722 or email me at: weilattorney@gmail.com

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Eligibility for Chapter 7 bankruptcy is something you will need to discuss with an attorney.  However, there is a basic set of guidelines of which you should be aware.

What is Chapter 7 bankruptcy?  Chapter 7 is the most common type of bankruptcy; the name refers to a chapter of the U.S. Bankruptcy law.  Under a Chapter 7 bankruptcy, some of a debtor’s property may be liquidated, or sold, to pay creditors.  But the debtor’s property is not always sold, such as in a “no asset” case, where the debtor does not have enough property to sell to satisfy any creditors.  If all goes well, the end result of a Chapter 7 bankruptcy should be a discharge of the debtor’s personal liability from debts previously owed.

Who may file for a Chapter 7?  Individuals or businesses.

Are there income limits? If your current monthly income is more than the median income for your state, you must do a means test to see if you qualify to file for a Chapter 7. If you need to complete the means test, you should get a lawyer, because it can be complicated.

What if I’ve filed for bankruptcy in the past? Again, there are some complex rules here and you need to speak with a bankruptcy attorney. You might need to wait a certain period of time, depending on what happened as a result of your last filing and what chapter you filed under, before you can file again.

What about the credit counseling requirement? You are required to take a credit counseling course before filing. At the end of the course, you receive a certificate that you provide at the time of filing. The certificate expires after 180 days. The course you take must be given by a provider that has been pre-approved by the bankruptcy court.

These are only some bare-bones basics about Chapter 7 eligibility. There are situations where filing for bankruptcy under a different chapter (such as Chapter 13) might be the better course of action for a debtor. You should consult an attorney first to find out which is best for you.

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