There are these nasty rumors being spread around that bankruptcy is no longer available to people. I hear – time and time again – that people think bankruptcy is not available because of the “means test” or because it’s “harder to wipe away debts.” A recent decision out of Bankruptcy Court for the District of Nebraska involving a debtor with a high household income confirms otherwise.
In this case, the married debtor was not joined in the bankruptcy by her husband. The combined annualized “current monthly income” was a bit over $150,000. She believed her home to be worth about $500,000 which was secured by mortgages totaling $410,000. Monthly mortgage payments totaled just under $4,500 per month.
The US Trustee filed a motion to dismiss the case on the basis that the petition was filed in bad faith or “the totality of circumstances …of the debtor’s financial situation demonstrates abuse.” See Bankruptcy Code Section 707(b)(3). The UST argued that the mortgage payment was excessive and unreasonable.
The court noted that there is “no ‘bright line’ rules as to whether a debtor’s income, housing or other expenses are so high that it would be an abuse of the provisions of the Bankruptcy Code to grant Chapter 7 relief.” Even though at first glance, the high income and high mortgage payments (and remember, this is Nebraska), there were other factors that weighed in the debtor’s favor.
Debtor lost her job when the company she worked for was sold. Her current employment was obtained only 6 months prior to filing her petition, and she took a drastic cut in pay (more than 1/3 less). The “bottom line is that this bankruptcy was precipitated by a job loss.” With that said, the court denied the US Trustee’s motion.
Is there are Caveat?
In addressing the factors that weighed in the debtor’s favor, which included the fact that the non-debtor husband was contributing to the household and the monthly mortgage payments, and that she mad a modest monthly car payment, the court noted that “this is not a situation where the house is clearly worth substantially less than the debt against it.”
It is unclear as to whether the fact that the house is not “upside down” was a significant factor in finding in the debtor’s favor. The mere fact that it is mentioned should give pause to any debtor with high income, high mortgage payments and no equity in the home. I know there are debtors out there with high mortgage payments with houses wtih no equity. I speak with many debtors who have property that is “upside down” and express a desire to keep it even though it may be most cost efficient to rent. In reading this opinion I have to wonder if the ruling would have been the same if there was no equity securing the mortgage.
If you hear someone say “oh, you cannot file bankruptcy anymore,” be sure to mention this case. And be sure to tell them how wrong they are.
In re Newman, Bankr.D.Neb. 07-82502 TJM (May 29, 2008).
Related posts:
- Game Over: Chapter 13 Debtor Sent Packing to State Court
- What’s Income, and What’s Not?
- Co-Debtor Stay in Chapter 13: The Debtor’s Business
- Mortgage Modification in a Chapter 13 Bankruptcy
- “Stated Income” Loan Discharged Despite False Representations on Application
Tags: Bankruptcy, Bankruptcy Abuse Prevention & Consumer Protection Act of 2005, Chapter 7