Bennett v. Bennett (In re Bennett), No. 09-44442-BDL (Bankr. W.D. Wash., January 19, 2011)
In a recent bankruptcy decision out of the state of Washington, a man attempted to prevent the discharge of his former wife's bankruptcy case.
Under section 707(b)(3)(B) of the Bankruptcy Code, a bankruptcy court can grant a motion filed by any interested party to dismiss a debtor's case if it determines that the granting of relied would be an abuse of the bankruptcy code provisions. In making such a determination, the court takes into account the totality of the circumstances.
The debtor's former husband argued that the debtor really had a disposable income of $624, not the $46 she reported to the court. He rationalized that the debtor was now living with a boyfriend, and therefore not paying as much expense as she was previously, and that she had included in her calculation a car payment which she no longer made (because the car was paid off), a 401k contribution, and a private school tuition payment. Thus, the former husband argued that many of the debtor's so called expenses were either non-existent or unnecessary, and therefore amounted to an abuse of the system.
In response, the debtor claimed that the school tuition was mostly paid for from the father of the child, that she only contributes to her 401k in the amount matched by her employer, and that she also pays her mother $400 a month to watch her newborn child, who she did not include in her calculation of expenses.
In determining whether, under the totality of the circumstances, the debtor abused the bankruptcy code, the court looked to factors such as: (1) whether there was likelihood of sufficient future income to fund a Chapter 13 plan and pay unsecured claims, (2) whether the debtor's petition was filed based on some emergency situation at the time, (3) whether the debtor acquired goods on credit exceeding her ability to repay them, (4) whether her proposed family budget was excessive, (5) whether her statement of income and expenses is misrepresentative of her financial condition, and (6) whether she engaged in any eve-of-bankruptcy purchases.
The court held that the debtor filed in the midst of an expensive, stressful divorce, with several children and a mother to support. Further, she did not appear to make purchases with a bankruptcy discharge in mind, and her budget seemed reasonable to the court. The court also held that her 401k contribution is reasonable and allowed by the court, and that any slight inaccuracies do not amount to an effort to deceive the court. Further, she would not be likely to substantially pay any unsecured claims under a Chapter 13 plan.
While any interested party may attack a Chapter 7 plan based on the totality of the circumstances, the court must be convinces of real abuse of the system and a likelihood that the debtor belongs in a Chapter 13 plan instead.
