Summary:
Chapter 7 Debtors had primarily non-consumer debt and the Bankruptcy Administrator sought dismissal under 11 U.S.C. § 707(a), which states that a court may dismiss a chapter 7 case "after notice and a hearing only for cause," without expressly defining "cause." However, "cause for dismissal under § 707(a) has been held to include a lack of good faith in filing the petition." In re Marino, 388 B.R. 679, 682 (Bankr. E.D.N.C. 2008). In assessing bad faith under this section, the court relied on a non-exclusive fourteen factor totality of the circumstances test, including:
1. The debtor reduces creditors to a single creditor in the months prior to the filing of the petition;
2. The debtor failed to make lifestyle adjustments or continued living an expansive or lavish lifestyle;
3. Debtor filed the case in response to a judgment pending litigation;
4. The debtor made no efforts to repay his debts;
5. The unfairness of the use of Chapter 7;
6. The debtor has sufficient resources to pay his debts;
7. The debtor is paying debts to insiders;
8. The schedules inflate expenses to disguise financial well-being;
9. The debtor transferred assets;
10. The debtor's overly utilizing the protections of the Code to the unconscionable detriment of creditors;
11. The debtor employed a deliberate and persistent plan of evading a single major creditor;
12. The debtor failed to make candid and full disclosure;
13. The debts are modest in relation to assets and income; and
14. There are multiple bankruptcies or other procedural "gymnastics."
In this case, the Court found that the Debtors had taken no steps to make adjustments in their "expansive" lifestyle. These included monthly golf dues, personal trainers for children and more than $1,000 a month in recreational spending. More troubling, the Court held that while 11 U.S.C. § 707(b) specifically would allow the Debtors' $800 a month in charitable contributions, § 707(a) does not allow such an expense. Even without adjustment for expansive expenses, had the Debtors been subject to the Means Test of 11 U.S.C. § 707(b)(2), they would have had at least $400 a month of disposable income available for payment to creditors.
Further, the Court found that this bankruptcy was filed in response to a single judgment related to a failed business venture and that judgment would be the only major debt discharged by this bankruptcy. This was especially problematic as the Debtors had repaid numerous credit cards, in effect leaving the judgment creditor "out in the cold."
Accordingly, the Debtors were given 14 days to convert to Chapter 13 or the case would be dismissed for bad faith.
For a copy of the opinion, please see:
Gilman- Dismissal for Bad Faith Under 11 U.S.C. § 707(a).pdf
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