Cause For Dismissal Of a Chapter 7 Bankruptcy

With the large number of people in America filing for bankruptcy, there has been a concern for what could cause a dismissal in a Chapter 7 bankruptcy case. Since the bankruptcy code changed in 2005 there has been the addition of a means test as part of the 2005 Bankruptcy Reform Act. The only exception to an individual being under the scrutiny of the means test is if their debt was primarily debt obtained from a business. Under the new bankruptcy code there is no provision for dismissing a Chapter 7 bankruptcy case for abuse because according to the law abuse is presumed when the debtor fails the means test. If the debt was incurred by the individuals business, the debtor is not required to pass the means test. The only way this kind of debtor could have their bankruptcy filing dismissed is either the petition was filed in bad faith or abuse.

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The provisions of the bankruptcy code will not apply if the debts aren't consumer debts. The debts that fall into this category in bankruptcy are tax liabilities, torts and all business debts. If the debtor filing bankruptcy falls into this category the court needs to have "cause" to permit a dismissal. The bankruptcy code has a few examples they use, and a reasonable delay by the debtor that is prejudicial to their creditors, nonpayment of required court fees, and the last is, failure for the debtor to produce and file all required documents.

Since the 2005 BAPCPA, appellate courts have been going back and forth on this issue. One court ruled that Congress intended to include excess disposable income and bad faith as causes for dismissal only in consumer cases but did not constitute cause of a non-consumer case where the debt was incurred from a business. Another district court ruled that bad faith can be a cause for a non-consumer bankruptcy, but only should be used in those cases that were outrageous because the debtor was trying to conceal or misrepresent their assets and sources of income. The court felt that a debtor that had excessive expenses, while living a plush lifestyle with the intention of trying to avoid paying a large single debt should be considered misconduct and gross negligence that is borderline fraud. But in the same ruling, concluded that although expenses and income should be considered, the debtor's ability to pay back their debts out of their disposable income is not a sufficient reason to dismiss their bankruptcy filing.

If an individual has a large amount of business debts but also has excessive disposable income they should be careful filing Chapter 7 bankruptcy. When being in this situation, the debtor should consult a bankruptcy attorney or two to get some varied opinions to make sure that the Chapter 7 case will fly. A bankruptcy attorney that works in the debtor's district will know what's acceptable and what won't work with that particular court. The debtor should also make sure that their petitions and schedules are meticulously filled out. Before filing bankruptcy the debtor should review them for accuracy with a fine tooth comb. If there's any discrepancies that are questionable go over them with your bankruptcy attorney to see if they could be a problem.

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