27 Feb When is there an abuse in filing Bankruptcy?
By Atty. Crispin Caday Lozano
When you file for Chapter 7 bankruptcy, the goal is to discharge of your debts. The worst-case scenario is not only getting your case dismissed, but having it dismissed for abuse.
The bankruptcy court can dismiss your case if it finds that the granting of relief would be an abuse of Chapter 7. The issue will usually come into play in your bankruptcy case if you are required to complete the means test because your current median income exceeds the state median for a household of your size. In such case, abuse is presumed if your current monthly income over 5 years is more than your state’s median income.
Once the presumption is found by the bankruptcy judge, you can rebut it by showing special circumstances that will justify additional household expenses. For example, let’s say your means test shows that you have $600 left over each month to repay your debts. Under normal circumstances, this would be a problem in Chapter 7 bankruptcy. But if you just found out that you or your spouse is pregnant and there will be a baby in the house in a few months that may qualify as special circumstances. Or take the same scenario but let’s say you’ve just lost your well-paying job and had to take a huge pay cut. Again, special circumstances may exist to rebut the presumption of abuse.
- 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 the totality of circumstances surrounding the debtor’s financial situation. The court will scrutinize all assets disclosed in your bankruptcy schedules and statements. Oftentimes, the court will examine not only your financials but also your lifestyle before filing, during your bankruptcy case, and after you have filed bankruptcy.
- What factors are considered as abusive behavior of debtor?
- Among other factors, the following are considered abusive behaviors before and after bankruptcy filing:
- Purchased and/or initiated a lease on a luxury car 60 days before filing for bankruptcy filing;
- Timed the filing right before a significant raise in income;
- Had excessive withholding of their Federal taxes and increased 401(k) contributions;
- Transferred property and/or money right before and after filing for bankruptcy;
- Tried to hide cash from the bankruptcy court; and
- Spent a lot of money on non-essential consumer purchases and restaurants.
Voluntary unemployment can be considered abusive, because debtor could pay back some or all debts if employed.
Note: This is not a legal advice. Our office has been helping clients in bankruptcy since June1999.
- Bankruptcy will actually improve your credit within one year because your unsecured debts are discharged. Although the bankruptcy will be in your records for 10 years, not filing bankruptcy will make your credit even worse until most your debts are paid.
- If you are being sued by your creditors, most money judgment can be eliminated in bankruptcy.
- Collection actions continue and you can be sued if you are in debt settlement.
- Chapter 7 will eliminate all unsecured debts. If you are near retirement age, you must eliminate most of your debts.
- Bankruptcy will stop foreclosure actions. If your trustee sale date is 10 days before, you can still file for bankruptcy.
- If your salary is being garnished, you have a court case about debts or you are being harassed by creditors, bankruptcy can stop garnishment, court cases, harassing creditors and eliminate the debt.
- Bankruptcy is cheaper, faster and safer than debt settlement which has no guaranteed success.
- Preserve your health, eliminate stress and live a happy life by eliminating your debts which is the root of all problems.
Crispin Caday Lozano, Esq. is an active member of the State Bar of California, the American Immigration Lawyers Association and San Francisco Trial Lawyers Association. He specializes in immigration law, bankruptcy and personal injury. For free consultation email or call (firstname.lastname@example.org / 1-877-456-9266)