Ch.7 dismissed due to "abuse" AND "totality of circumstances"

[2manybills]

Do a search on ************************. Some cases have come down in Southern District of California stating that they cannot disallow "secured payments" because they are too high. Here are a couple of links:

http://www.************************/...-7-bankruptcy/

There was also another case that came down in the Ninth Circuit where they allowed boats, ATV payments, etc. because they were "secured debt". I'm not sure what District you are in, but hope this helps.

[backtoschool]

As someone who was way over the median income last year, and then lost my job and am way under the median income this year, I can personally attest that circumstances in life change, and salaries on an income tax return don't mean much. That is why the look back period is only six months, to allow for changes in personal circumstance.

I was advised by my original lawyer a year ago not to even attempt a chapter 7 even though I qualified for it at that time. My lawyer told me that the eastern new york trustees were very interested in income over the median, especially way over the median. I actually knew a few people that had to file chapter 11, because of their high debt loads. In the new york area everything is so much more expensive than much of the country that debt piles up really really fast.

To the OP, I think that the trustee just wants you to file a chapter 13, and if you convert to at chapter 13 you will not have a problem with the trustee.

[OhioFiler]

Thank you, PCN and GOINGCRZY!

As for some pesky comments, I ignore them. Envy is an evil, and the one who is always envious of others may eventually fall ill (it does affect your liver, heart and nervous system).

I really, really appreciate the tip on business write-off for the car. I do have that on my tax return, and for some reason I have not thought about it in relation to BK.

Music lessons do have a good justification, too. I will speak to my atty about this one.

This comment surprises me. Who do you think envies you having your BK challenged by the UST?

[Liore1477]

No, not that....there was someone who said "you consider $80K worth of vehicles reasonable and necessary??" For my family, the answer is YES. It is clear that only someone who has an envious streak could say something like that.

[OhioFiler]

No, not that....there was someone who said "you consider $80K worth of vehicles reasonable and necessary??" For my family, the answer is YES. It is clear that only someone who has an envious streak could say something like that.

It may well be difficult for many people to comprehend the need for 2 $40,000 vehicles. I don't thing that implies envy.

If you are filing a Chapter 7 BK you're in the same boat as all of us. We are all, for all intents and purposes, insolvent or we wouldn't be filing. You may be put off by someone questioning your need for those cars but the reason would most certainly be something other than envy. To assume envy says more about you than the questioner.

[justbroke]

There was also another case that came down in the Ninth Circuit where they allowed boats, ATV payments, etc. because they were "secured debt". I'm not sure what District you are in, but hope this helps.

yes the payments are allowed as part of a mechanical test -- aka the Means Test -- and because Congress didn't forbid this. however, the Totality of Circumstances has and will always be the way that the U.S. Trustee (UST) will fight this type of perceived abuse.


If you read any of the cases where high payments on secured debt were questioned by the UST, it was done so in the context of form B22A (B22C) Means Test. The UST always argues that they can't be included, but Congress clearly allows them. If you continue to read this appellate cases, you'll see that the Circuit always states that the UST should not have motioned to dismiss on 11 USC 707(b)(2) which is the Means Test. The UST should, in these cases with secured debt questions, file a motion to dismiss under totality of circumstances and/or abuse under 11 USC 707(b)(3)(A) and 707(b)(3)(B).

So, while it's pretty clear and pretty much precedence that payments on secured debt can be included on the means test, it is also pretty much precedence that the UST can proceed under 11 USC 707(b)(3) for totality of circumstances in those cases.

My first question is how difficult would it be to convince the judge in the bankruptcy court that these are reasonable and necessary expenses? Is there such a thing as bias against people making more than $100K no matter what their debt level and expense structure are?

Generally speaking, the UST has certain levels at which they scrutinize the cases more closely. This is purely for convenience and efficiency as they can't do a complete audit of every case. The triggers seem to be at median income for your State or $100K of unsecured debt. (Of course, there are other triggers not excluding the totally random third-party audit.)

UST wrote that even if we rebut the "abuse" provision, they will invoke the "totality of circumstances". My second question is - does this mean that the case is not worth litigating? Thanks!

It doesn't mean it's not worth litigating, just means they have you on "both" parts of 11 USC 707(b)(3).

My personal feeling is that you can get by with paying for housing costs for an elderly parent living with you, quite easily. If you have some other costs outside your residence, then this could be questioned. This covers the Abuse part... so the UST even telegraphs that you may be able to have their motion overruled here.

As for the cars, I have no problems with those unless you're paying more than $489/month which you probably are. To the extent that those payments exceed the IRS standards, is where the ire of the UST comes down. It's not the "value" or make of the cars, so to speak. It's your cost of ownership which is at issue. I'm guessing that those cars are costing $750/month each, which is certainly out of the realm. This is the "totality of circumstances" objection... this will be harder to rebut.

As suggested earlier, you need to sit down and re-work the numbers -- especially on the cars -- in order to see if you still fit within a Chapter 7. I always work the numbers in a worse case and best case scenario, and even do "what ifs" on the UST allowing certain things. This lets me know up front if I have the necessary room to change some numbers downwards.

[goingcrzy]

Can the argument be made that at least one of the cars the spouse uses it for business? Lets say 50% under a separate business like an LLC. We were set up like that and the UST has stopped pestering us about it. (now she may blindside us when we court to court on it, too)

[goingcrzy]

also (I am wondering if justbroke can chime in on this) in my research for our case it seems there have been some recent rulings that the congress didn't put a limit on secured debt in the means test for a reason, therefore it can't be canceled out under totality of circumstances or abuse. The San Diego McMansion case comes to mind.

Has anyone found any recent rulings that support the opposite?

[nc73]

IT IS ABUSE! WTF WERE YOU THINKING? I hope they will never let you file. Putting on flame suit.

[bkmaggster]

IT IS ABUSE! WTF WERE YOU THINKING? I hope they will never let you file. Putting on flame suit.

YOU'RE JUST JEALOUS!





(sorry, I couldn't resist)

[justbroke]

Can the argument be made that at least one of the cars the spouse uses it for business? Lets say 50% under a separate business like an LLC. We were set up like that and the UST has stopped pestering us about it. (now she may blindside us when we court to court on it, too)

But now you've just said you have a business, which could open up things. Also, the car company -- and this happened to me -- could say that the spouses car is not necessary for your reorganization. (Of course, this is in a non-community property state.)

also (I am wondering if justbroke can chime in on this) in my research for our case it seems there have been some recent rulings that the congress didn't put a limit on secured debt in the means test for a reason

Absolutely true and if you look above, is what I stated. This is now precedence.

therefore it can't be canceled out under totality of circumstances or abuse. The San Diego McMansion case comes to mind.

This is where everyone gets it confused! The McMansion case is special in two ways.

First, I already concede and agree that Congress allows all secured debt payments in the Means Test. That's just an objective bar for filing. Having payments on a Leer Jet is okay, under Congressional intent of the Statute.

Second, there's the "totality of circumstances" and "abuse". Congress never intended for this part of the Code to just somehow vanish, simply because they added that all secured debt can be included in the Means Test. However, abuse goes beyond that. This appears to be why Congress left, virtually untouched, 11 USC 707(b)(3) which goes to abuse and "totality of circumstances". Could you imagine a person owning a Leerjet or Boeing business jet filing Chapter 7? When they could liquidate the jet and pay off their unsecured creditors?

Now, the McMansion case is special because you were dealing with a residence (the primary residence) of the debtor. I haven't read one case in which the residence of the debtor is not necessary for the reorganization of that debtor. In other words, your homestead is protected insofar as it being necessary. Also, the Court looks, under totality of circumstances, whether it is common for your income and locale for that type of residence. Perfect example is that a home in Pasco County Florida is a totally different price from a home in Broward County Florida. So much so that the IRS understands this and the UST allowances understand this.

So looking at the McMansion in the "totality" of Southern California, the income level of the debtor, and that it was the homestead of the debtor, the McMansion case is easy to see why the decision was reached.

Has anyone found any recent rulings that support the opposite?

The opposite of what?

[pcn]

I think some of us get stuck in trying to relate other's experiences in the context of our own experiences. Ohiofiler said it well:

It may well be difficult for many people to comprehend the need for 2 $40,000 vehicles.

[Kingxray]

Liore1477:

The UST filed a motion to dismiss or convert our case due to "abuse" and "totality". We also made over 100K and my dad's (a creditor) lawyer was also given our case grief. Our lawyer decided we should dismissed it, change the numbers so they looked better and then refile. My dad's lawyer is still giving us grief but so far no involvment with the UST. I'm keeping my fingers crossed. Maybe you can do the same thing too.? Just dismiss and fix the things they are specifically mentioning and then refile, but your lawyer knows best. Good luck!

[2manybills]

JB: I agree with you about the McMansion case. Also, there was another case that the Ninth Circuit came down with that allowed the boats, etc. I'll see if I can find.

There again, it depends on what Circuit you are in and for that matter what District you are in.

In some areas, it is average to have a $3K or $4K house payment, where in others $600 is the norm. As with salaries, if you are making $100K a year but your in a house that costs $3 or $4K a month, you will wind up just as much in the hole as the family that is making $50K in that $600 a month house. I hope my example makes sense, but its all relative.

[hereforinfo]

No, not that....there was someone who said "you consider $80K worth of vehicles reasonable and necessary??" For my family, the answer is YES. It is clear that only someone who has an envious streak could say something like that.

You really think too highly of yourself. We actually have 2 luxury cars in the driveway, one of which is paid off. We're not bankrupt, genius. Actually, no debt other than a primary mortgage and one small car payment. See? Some people can actually question you without being jealous. Apparently I'm not out of line, considering the trustee wants to dismiss your case. I guess he must be jealous of you too? If it makes you feel better about yourself to think that I would rather be broke with a dismissed bankruptcy, then by all means go right on telling yourself that. Hope you can get financed at the Kia dealership.