September 06, 2013 /24-7PressRelease/ -- In a bad spot or gaming the system? When dismissing a chapter 7 bankruptcy is an abuse---
Article provided by Guerrieri, Cox & Associates
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Bankruptcy is a legal device set up to help when debts to creditors become insurmountable. Millions of Americans use bankruptcy filings to regain control over their financial lives. One option for eliminating debt is a Chapter 7 bankruptcy, also referred to as voluntary liquidation or full bankruptcy. The right to file bankruptcy is not set in stone, and a bankruptcy court can refuse to discharge debts under certain limited circumstances. In addition, under Section 707 of the Bankruptcy Code, a Chapter 7 bankruptcy can be dismissed as abusive.
Section 707 of the Bankruptcy Code
Under Section 707(b) of the Bankruptcy Code, a Chapter 7 filing may be dismissed for abuse. In Ohio's Sixth Circuit, bankruptcy courts look to the "totality of the circumstances," meaning all of the facts surrounding a debtor's decision to file bankruptcy that can demonstrate the debtor's lack of honesty, want of need or both. Factors that may be relevant include the debtor's good faith and candor in filing the required schedules, whether the debtor made any purchases on the eve of bankruptcy, whether the debtor was forced into bankruptcy by an unforeseen or catastrophic event, the debtors' ability to repay his or her debts out of future earnings with relative ease, whether the debtor enjoys a stable source of future income, whether the debtor is eligible for debt reorganization under Chapter 13, the availability of state remedies, the availability of relief through private negotiations, and whether the debtor can significantly reduce his expenses without depriving himself or herself of adequate and reasonable necessities.
In re Weixel
In a recent bankruptcy case arising in Ohio, In re Weixel, after the court granted a trustee's request to dismiss a couple's Chapter 7 case as abusive based on the totality of the circumstances, they appealed. The Bankruptcy Appellate Panel agreed with the lower court. The couple had over a million dollars in secured debt. Part of this was from their purchase of a home, with no money down, worth almost $600,000. Instead of selling the home, relocating to a less expensive home and using the money from the sale to pay down debts, they opted to quit making mortgage payments and kept living there, filing for bankruptcy on the day before foreclosure. Overall, the record showed that the debtors made no attempt to adjust their lifestyle over several years to address a house they could not afford, thus demonstrating abuse.
The BAP also found that the continuation of the husband's poker habit and excessive entertainment budget showed poor judgment. The husband attended tournaments in Las Vegas and Jersey City in addition to playing in a local league with yearly fees of $1,300. Even though the husband won some money, he used that to finance his travel and hotel rooms at additional poker tournaments and not to pay down household debts.
Finally, the couple did not file income taxes for several years; indeed, the debtor's financial history showed that these taxing agencies were conveniently used as "the lender of last resort." As a result of this combination, the BAP found no error in the bankruptcy court's dismissal of the couple's case for abuse.
If you have questions about your eligibility to file for bankruptcy and what type of bankruptcy would be best for you, please contact an experienced debt-reduction attorney. Our experience enables us to counsel clients about what it takes to avoid a finding of abuse by the bankruptcy court.
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