In re: Ng, No. 410-02001 (Bankr. D. Hawaii, February 9, 2011).
What happens when you are a presumed abuser of Chapter 7 Bankruptcy? A recent Hawaii bankruptcy court decision answered the question.
Christopher and Sheila Ng filed a Chapter 7 bankruptcy petition on June 30, 2010. They lived on a rental home, and owned a piece of real estate that was valued at $367,000 and secured by a mortgage for more than $464,000, which they intended to surrender to pay creditors. They live off of retirement and pension plans of Mr. Ng.
Under Chapter 7, a court may dismiss a case if it finds that granting relief to the debtor would constitute abuse. The trustee in the case argued that the case gave rise to presumed abuse because Mr. and Mrs. Ng included mortgage included in their Schedules to the court their mortgage payments. The trustee argued that debtors may not include expenses that they intend to surrender during the proceeding.
As to this argument, the court held that the Ngs were permitted to deduct their mortgage payments, despite their intentions to surrender. This brought down their monthly disposable income to a value below the amount specified to be presumptively abuse. Therefore, they did not fail the presumed abuse test.
The court may also dismiss a case based on the totality of the circumstances, a test which grants broad discretion to the court. The trustee in this case also argued that the debtors violated this test. Factors relevant to this determination include (but are not limited to) whether the debtors had enough income to fund a Chapter 13 plan, whether they filed due to exigent circumstances, and whether their budget was excessive or extravagant. In the 9th Circuit, the principal factor is the debtor's ability to repay debts.
Here, the Ngs paid a large sum every month to their retirement plan. The trustee alleged that they were unnecessarily high, and included funds they could pay to their creditors in a Chapter 13 plan.
The court determined that the debtors should be given further opportunity to present evidence to rebut allegations of abuse. Although troubled by these allegations of potential abuse of the bankruptcy system, the debtors were to be given further chances to demonstrate that these payments were reasonable.
