Forum Rules (Everyone Must Read!!!) (updated: 04/28/2015)

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Presumption of Abuse or Creditor Challenge

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  • Presumption of Abuse or Creditor Challenge

    I will be filing within the next 2 weeks so what's done is done as far as how I got to this point. I did have a question regarding specifics with 1 creditor. Over the last couple years in the Marines, and into the first couple years as a civilian again, the debt I had, I tried consolidating a couple times. The second being around August of last year. It was my final attempt to salvage an already constrained budget. As of January I realized there was no getting out from under this, at which point I had my consultation with my attorney and he said a chapter 7 would be simple with my case. The consolidation loan and no interest credit card I got to reorganize my debt is both through Discover. $20,000 for the loan and $9,000 for the credit card. So my question is when I attempt to discharge this debt, because it's $29,000 from the same creditor and within the last year, will they challenge it? Will the trustee see this and think the worst? I'm just nervous the circumstance of the timing of filing may seem suspicious even though I know in my heart I was just trying to figure things out at that point and didn't know it wouldn't help.

    I had a second child 4 months ago which also exacerbated things financially. If they do challenge it or the trustee thinks I'm abusing something, will I have a chance to defend myself? Is this something my attorney will be able to recognize as a potential issue that may get brought up? I'm probably thinking too much into this as usual but I don't know what I will do if dismiss my case.

  • #2
    The trustee doesn't care much about your debts. He or she is interested in your non exempt assets and your income (hence the Presumption of abuse, which you likely won't have).

    The creditor is the one to worry about. They will not have the Presumption of fraud (excessive use in the last 90 days on the card, 70 on the cash). The only concern is if you used the money to pay off debts that would be non dischargeable in their own right.

    They would have to prove that you did not ever intend to ever repay the debt. Which is hard to do. And your attorney should be able to give you further advice. Have you been making payments? That's important too. If you have that weakens their case.

    Only one post on this forum in the last six months deals with an actual creditor vs debtor Adversarial Proceeding (in bankruptcy lawsuit). They are rare and usually because the creditor thinks the debtor did something utterly stupid. Like go on a trip on the eve of BK. Which is bad. Repaying loans not bad.


    • #3
      Just to expand a bit on what Nodebtrenton wrote:

      A "Presumption of Abuse" is based on the means test. If you "pass" the means test, there is no presumption of abuse. The trustee could object to your petition because of some actual evidence that your petition is an abuse of the bankruptcy process, but that would not likely be based on a particular debt. It would be more likely because your Schedule I and J reveal that you have enough income to pay a substantial portion of your debt, despite the mechanical results of the means test. Your attorney would know if that is a risk for you.

      For a particular debt, there is a presumption that a debt is not dischargeable (or is fraudulent) if, as referred to by Nodebrenton, it is incurred within 90 days of filing BK and is for the purchase of luxury goods and purchases or is a cash advance taken within 70 days of filing. If that presumption exists, the creditor would have to file a complaint to have the debt declared not dischargeable. If a complaint is filed, the debtor can fight the petition and try to prove that the debt was not incurred without the intent to pay. A history of payments would help.

      If the debt does not fall within the 70 or 90 day period, then, as Nodebtrenton states, it is the creditor who has the burden to prove that the debt was fraudulently incurred.

      People in financial trouble try to resolve their problems with debt consolidation all of the time. In fact lenders advertise to people with high debt that consolidation is the answer to their problems. It is not uncommon that the reality that BK is the only solution comes soon after a consolidation loan fails to solve the problem.
      LadyInTheRed is in the black!
      Filed Chap 13 April 2010. Discharged May 2015.
      $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!


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