Bankr. E.D.N.C.: In re Hamilton-Conversano- Nonfiling Spouse Income; § 707(b)(3) Smell Test

Summary:

Ms. Hamilton-Conversano filed Chapter 7 without her husband. Other than the couple’s secured debts, Mr. Conversano had no debts of his own and Mrs. Hamilton-Conversano had one American Express card, with a balance of $46,669.52, which they had jointly used to pay for all household expenses.

In completing her Means Test, Ms. Hamilton-Conversant took a “marital adjustment” to her husband’s contribution to her Current Monthly Income including $417.86, for the full monthly cost of their child’s private school. The Bankruptcy Administrator argued in that the private school contribution, even though made by the non-filing spouse, was capped by statute at $160.42. The BA also argued that Mr. Conversano’s additional income in the form of life insurance contributions and cell phone reimbursement that should be included as income.

As to her husband’s income, Mrs. Hamilton-Conversano countered by pointing to the differences in the language in § 101(10A)(B), defines “current monthly income” to include “any amount paid by any entity other than the debtor . . . on a regular basis for the household expenses of the debtor or the debtor’s dependents . . .” and Official Form 122A-1, which starts with the full amount of the non-filing spouse’s income, and is then adjusted in Official Form 122A-2, the Chapter 7 Means Test Calculation, to subtract any part of the non-filing spouse’s income not used to pay for the household expenses of the debtor or the debtor’s dependents, requiring delineation of the purpose for which the income is used. As the statute controls over the form, Mrs. Hamilton-Conversano argued that her husband’s total income was not relevant, only the amount actually contributed to the household. The bankruptcy court acknowledged that this argument was compelling, but that Mrs. Hamilton-Conversant had presented evidence of what the appropriate contribution would have been.

Regarding the private school expense, the bankruptcy court rejected this argument as Mrs. Hamilton-Conversant admitted it had been rejected by all other courts to which it had been presented.

Going further, the bankruptcy court also held in the alternative that pursuant to the “totality of
the circumstances” test for determining abuse under § 707(b)(3) in In re Green, 934 F.2d 568, 572 (4th Cir. 1991), the bankruptcy court ultimately found that this case did not pass the “smell test” as the only debt had been used to pay expenses for the entire household, including her husband, and the household budget, including her husband’s income, was sufficient to pay at least a portion of that debt.

The bankruptcy court admitted that American Express has agreed to offer this card solely to Mrs. Hamilton-Conversant and would likely not be able to collect anything from her under nonbankruptcy law, presumably owing to the ownership of the home as Tenants by the Entireties and the lack of wage garnishment in North Carolina. This notwithstanding, “[i]t is this court’s responsibility to analyze whether a case is an abuse without considering what the debtor might achieve under non-bankruptcy law.”

Accordingly, the case would be dismissed (unless converted) under 11 U.S.C. § 707(b)(2) or alternatively § 707(b)(3)

Commentary:

Unaddressed in this case, however, is that the Equal Credit Opportunity Act (ECOA) , 15 U.S.C. § 1691 et seq., prohibits creditors from denying or limiting credit based on ace, color, religion, national origin, sex, marital status, or age. One of the primary reasons for its enactment was to prevent creditors from requiring women to have their husbands be jointly liable for debts. It is troubling that this opinion denies a discharge because Mrs. Hamilton-Conversano incurred debts exactly as Congress intended them to be allowed.

For a copy of the opinion, please see:

Hamilton-Conversano- Nonfiling Spouse Income; § 707(b)(3) Smell Test

For another summary and commentary, please see:

Wife’s Solo Bankruptcy Filing Doesn’t Pass ‘Smell Test’

About

1. Bachelor of Arts degree in English Literature from Washington University, 1993. 2. Juris Doctor degree from George Washington University, 1996. Admissions to Practice of Law: North Carolina Bar, 1996. Federal District Courts for the Eastern and Middle Districts of North Carolina. Specialty Certification: North Carolina State Bar: Certified as a Specialist in Consumer Bankruptcy. Areas of Practice: Practice limited to consumer and business debtor bankruptcy law, 1998 to present. Memberships: National Association of Consumer Bankruptcy Attorneys (NACBA). North Carolina Academy of Trial Lawyers (NCATL). North Carolina Bar Association, Bankruptcy Section. Lectures prepared and presented: North Carolina Academy of Trial Lawyers seminar on bankruptcy; Topic: Counseling the Consumer Debtor Prior to Court - C.Y.A. Forms to Help 'Gird They Loins'; 2001. Middle District Bankruptcy Seminar; Topic: Preparing Chapter 13 Plans; 2002. NACBA National Convention; Topic: Efficient Office Practices; 2003. NACBA National Convention; Topic: Chapter 7 vs. Chapter 13 Debates; 2004. Middle District Bankruptcy Seminar; Topic: Chapter 7 & 13 Hot Issues; 2004. Positions held: NACBA National Convention; Convention Chair; 2008. NACBA National Convention; Panel Moderator: Topic: Basic Bankruptcy Issues; 2008. NACBA National Convention; Panel Moderator; Topic: Chapter 13-Disposable Income and Other Issues; 2007. NACBA National Convention; Panel Moderator; Topic: Representing Members of the Military and Their Families; 2007. NACBA, Member of National Board of Directors, 2006 to present. NCATL, Chair of the Bankruptcy Section, 2003 to 2007. NACBA, Chair of the North Carolina Section, 2003 to 2007. NC Bar Association, Bankruptcy Section, Bankruptcy Council Member, 2004 to present.

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