Your finances are dilapidated!
Debts have taken a mighty toll on your life, and finally, you have filed for Chapter 7 bankruptcy with the hope of getting your debts discharged. Yet a little tension is lingering at the back of your mind. What if your petition gets dismissed? It is disappointing to find your last resort crumbling with a dismissal of your bankruptcy appeal. More disappointing is if the case gets dismissed because granting relief to the petitioner would abuse Chapter 7 bankruptcy.
The next thing that crops up is “what is considered abuse in a bankruptcy case.” Abuse can be broadly pointed out in either of the ways:
1. Through an un-rebutted presumption of abuse, arising under the new Chapter 7 Means Test,
2. On general grounds, such as bad faith, determined under the totality of the circumstances.
Abuse under Means Test
Section 707(b) of the Federal Bankruptcy Code, dealing with the Means Test, was amended to provide for the dismissal of Chapter 7 cases upon a finding of abuse by an individual debtor. In such cases, abuse is presumed if your current monthly income over the last 5 years has been more than $10,950, or 25% of your non-priority unsecured debt (as long as that amount is at least $6,575).
However, you can rebut the presumption by documenting exceptional circumstances that justify that you need to spend your income on additional unavoidable expenses. Thus you are unable to meet your monthly obligations.
Abuse out of bad faith
Apart from the Means Test, abuse can also arise out of bad faith and lead to the dismissal of Chapter 7 bankruptcy cases.
Following are some of the common instances of bad faith that causes dismissal:
Subsection 6 of Section 707(b) allows only the judge or the Trustee to move for dismissal on the grounds of abuse. While the U.S. trustee, bankruptcy administrator, or judge can assert these bases to find abuse, in any case, creditors and trustees are empowered to maintain it only in circumstances where the debtor's income is above the defined state median.
What if you can’t rebut the abuse presumption?
If you are not in a position to rebut the presumption of abuse put forward by the court, then you have two choices in hand. You can either convert your Chapter 7 case to a Chapter 13 bankruptcy case or let your case get dismissed by the court. Chapter 13 will restate your debts and help you pay off your debts within 3-5 years based on your income and allowable expenses.
Getting your case converted will be the best way out in case you cannot rebut the presumption. However, it is always advisable to immediately consult a bankruptcy attorney in your state if you are confronted with any possibility of abuse or chances of getting your Chapter 7 case dismissed.