McLeod Law Offices

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.

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