Keywords: totality of circumstances . dismissal .
Long discussion of what amount a non-filing spouse is required to contribute to a Chapter 13 plan's determination of Projected Disposable Income.
"there is a substantial disparity between the average monthly income received by the Debtor in the six calendar months prior to the filing of her case, as reflected in her Official Form 22C, and the monthly income which is now available to her from which she can fund a Chapter 13 plan in the applicable commitment period of the next five years. Though there is agreement on that salient fact, there is substantial disagreement as to its impact."
"In regard to the presentation of her financial information, the Debtor clearly erred in the manner in which she amended her Schedule I with reference to the income of her non-filing spouse. Schedule I clearly requires that detailed income figures for a spouse must be provided "by every married debtor, whether or not a joint petition is filed, unless the spouses are separated and a joint petition is not filed."[20] Thus, in every instance, a debtor is compelled to disclose all of the monthly income received by a non-filing spouse as of the date of filing. That requirement cannot be circumvented by the unilateral insertion of a household contribution amount from a non-filing spouse as a single line item in Schedule I."
"the original Schedule I and Form 22C both reveal the income of the non-filing spouse in this case. Though somewhat distorted by the maze created by the Debtor's apparent misinterpretation of Charles, her misguided effort to present a revised "post-petition" 22C, and her disjointed testimony about post-petition fluctuations in her husband's income, the evidence, once untangled, demonstrates that the Debtor's projected monthly income of $1,906 constitutes 28.4% of the net family income, with her husband's net monthly income of $4,814 constituting 71.6% of the net family income. Subtracting her proposed plan payment, the Debtor will at a maximum contribute $1,156 per month during the pendency of her plan toward her family's total monthly household expenses of $3,792. As a result, regardless of the Debtor's difficulty in quantifying her husband's income and expenditures, the evidence 511 clearly establishes that the burden to meet the family household expenses of $3,792 per month in this case falls substantially upon the non-filing spouse who is required to contribute a minimum of $2,636, or 69.5% of the funds necessary to meet those household expenses. This contribution occurs regardless of whether it is funneled through the Debtor's bank account and, based upon the original schedules, the percentage allocation of expense handled by each spouse is substantially equivalent to the percentage of net income actually produced by that spouse. The evidence further establishes that, notwithstanding any subsequent fluctuations in the husband's income, there has been no change in the amount of monthly household expenses, no change in the Debtor's proposed plan payment, and, therefore, no change in the percentage share of the household expenses which the Debtor is assuming. Thus, even if the husband's net monthly income has decreased in the post-petition period, that has only resulted in a corresponding increase in the proportion of his income which is being devoted to the satisfaction of monthly household expenses.[21] Under whatever standard one might wish to apply, that does not constitute an inequitable apportionment of the household expenses nor can it legitimately be said that the Debtor in this case is improperly diverting potential plan payments in order to subsidize the lifestyle of her non-filing spouse. Therefore, the Debtor has satisfactorily demonstrated that the bankruptcy estate has not assumed a disproportionate share of the reasonable family expenses in this case and the Trustee's objection based upon a lack of good faith must be denied
"
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: |
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.
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.
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.
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.
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."
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.
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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