Adversarial proceeding in Ch. 7 (likelihood of case dismissal)

[holdco]

Question for experts in adversarial matters.

A couple, despite being warned not to use their cards within 90 days before filing, ran up about $5,000 worth of purchases, half necessities, half luxury items. They didn't inform their attorneys of this fact, and apparently didn't intend to commit any kind of fraud. They just screwed up, so to speak.

The credit card bank began an AP for the $5k. Can that couple admit to the debt (they have no defense) and avoid a hearing on the matter? And if they do, is there a chance that their bankruptcy will be dimissed with prejudice if such an admission occurs? What about without prejudice? They are definitely financially strapped and are well in the negative under the means test.

Any thoughts would be greatly appreciated. Thanks much!

[despritfreya]

The eventual outcome of the AP is not going to result in the dismissal of the case. It is not a 727 complaint to completely deny them a discharge. It is a 523 complaint to deny them a discharge of one particular debt.

The debtors cannot defend a $5,000 Section 523 complaint unless they do it on their own. Legal fees in defending will be far in excess of that amount. They need to settle the matter.

If they are willing to enter into a stipulated judgment for the amount with payment terms and a "covenant not to execute" so long as they make the agreed payments, they should do so. If they have the ability to offer a "cash now" settlement of about 70-80% they may be able to negotiate the amount down and the Complaint can be dismissed.

Des.

[holdco]

Thank you, Des, that is super helpful. I guess my concern stems from the nature of the actions. Given that the debtors made those purchases close in time to the BK, do you feel that the Trustee will initiate a 727 complaint on basis of fraud? The amount is small, the debtors are quite badly off, and while their purchases were ill-considered, they weren't trying to actively deceive and abscond with an extra $5,000 (more like $3,000 when you remove the pure necessities from the charged amounts).

They of course will not hire an attorney to defend for such a small amount. If you could let me know your thoughts, that would be greatly appreciated. Thank you again!

[despritfreya]

Given that the debtors made those purchases close in time to the BK, do you feel that the Trustee will initiate a 727 complaint on basis of fraud?

Not likely. The issues are between the debtor and the creditor. There is no "fraud upon the court", unless they purchased some large ticket item and did not list the item on Schedule B. If they did purchase a larger item and it is not listed on B they should amend B and see if some exemption (Schedule C) covers it.

Des.