What actions are considered abuse in filing Bankruptcy?

What actions are considered abuse in filing Bankruptcy?

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.

Q. When does a bankruptcy court consider a debtor’s Chapter 7 filing to be an abuse of the bankruptcy process?
A. 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.
Note: This is not a legal advice. You should seek the advice of your attorney about your specific case.


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