The ability of debtor to have his or her debts discharged in a Chapter 7 case has become more difficult in any court bound by the Eleventh Circuit Court of Appeals. In In re Witcher, 11-15883 (decided on December 13, 2012), the Court of Appeals for the Eleventh Circuit affirmed the Northern District of Alabama’s District Court’s affirmance of the bankruptcy court’s dismissal of the debtor’s case.
The debtors initially filed Chapter 7 seeking to discharge their debts. The bankruptcy administrator moved to dismiss or convert the case on the grounds that the debtors were abusing the Chapter 7 process. Based upon the “totality of the circumstances” test, as set forth in 11 U.S.C. 707(b)(3)(B), the bankruptcty court found that the debtors conduct contsituted abuse.
The primary factor the bankruptcy court relied on is that the debtors continued to maintain their payments to secured creditors to pay for “unnecessary luxury items”, including a camper, a boat, a trailer, and a tractor, instead of dedicating this allocation of income to unsecured creditors. The Court held “the Debtors’ ability to pay, as well as their reluctance to change their lifestyle in order to provide a distribution to creditors, together indicate that granting relief in this chapter 7 case would be an abuse.” The bankruptcy court gave the debtors 14 days to convert the case to a Chapter 13, wherein the debtors would have to make some allocation towards their unsecured creditors, which they refused to do, and the case was dismissed by the bankruptcy court. The case was subsequently appealed to the District Court and then to the Court of Appeals.
The analysis in the opinion is extensive as it relates to the language in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. But the message here is that a debtor must understand that if they do not participate in a “give and take” as it relates to their creditors and the items of personal and real property that they wish to keep and pay for, it may be considered abusive and constitute grounds for the dismissal of their case, therefore, rendering their entire bankruptcy filing a waste of time, money, and energy.
ERIC N. ASSOULINE, ESQ.
|2011, 2012 and just announced for 2013.|
|Eric N. Assouline, BUSINESS LITIGATION|