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

[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)

[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.

[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.

[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]

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?

[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.

[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.

[hereforinfo]

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.

Exactly what is there to be envious about?

[Chowder]

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.
.

Lot's of post about cars being used as a "tools of the trade" exemption.
Sometimes it flies, sometimes not.

[Liore1477]

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.

[goingcrzy]

We are going to court in Oct also. Mostly for our mortgage payment. The US trustee did bring up our cars at the 341. Hubby has a nice car, the UST trustee asked if he used it for business. Hub told her he uses to see clients and a portion of the car is written off on taxes as a business exp. UST never brought it up again, even in her arguments in motion to dismiss. (and she is looking hard for reasons to dismiss us, including asking why we had to talk to our son, who is overseas, so much)

I wonder if a portion of the car is written off as a business expenses, then the rest of the payment may fall under the irs allowances?

[pcn]

I’m a little surprised by the tone of some of the responses. People in different income brackets have different levels of possessions, just as they have different levels of debt. To think (or act) that one can’t be well off and experience the same financial issues as lower income folks is a little naive (best/nicest word I could use).

I think music lessons could fit under entertainment or another broad category.

Good luck in your fight.

[Liore1477]

To answer some of your questions...

- It was a motion to dismiss, there is a court date set for Oct., and my lawyer also said there would be a deposition procedure.

- My dad lives with us, my mom and mother-in-law each live separately
- When asked about whether the cars would raise a red flag, my lawyer said no because of my job (meet with clients) and high income (i.e, it is normal in my circumstances to lease a car like this). Plus, the cars carry a much better warranty than cheaper vehicles and their reliability rankings are top.
- There is always an option to convert to Ch. 13, but we will fight.

Thank you all for the support, I will be keeping everyone posted on what's going on. This will be a good primer for high-income filers.

[JRScott]

Do you parents live in your household?

Music lessons are probably a luxury. The cars could be considered that but depends on your job and circumstances of course.

If your lawyer things he can beat it perhaps a meeting with him and discussing what he plans to do and see what you want to do. Might also discuss what you can do if you cannot get these expenses included like filing a Chapter 13

[backtoschool]

In any case it should be able to be converted to a chap 13. New York really wants high income filers in chap 13's and not chap 7.