![]() The Means Test is a formula designed to indicate when a consumer debtor has sufficient excess monthly income, or the means, to make repayments under a Chapter 13 plan. ![]() To determine whether this presumption arises, the Bankruptcy Code employs the “Means Test.” 11 U.S.C. If the presumption of abuse arises, the bankruptcy court must dismiss or convert the case to Chapter 13. Unlike Section 707(a), however, Section 707(b)(2) outlines when a petition is presumed to be an abusive filing. Accordingly, under Section 707(b), a consumer debtor’s Chapter 7 petition may be dismissed for bad faith or abuse under certain circumstances, such as if the debtor has sufficient assets for a repayment plan. It is meant to ensure that debtors who can afford to make payments pursuant to a repayment plan do not abuse the bankruptcy system by filing for Chapter 7 liquidation rather than filing under Chapter 13 or Chapter 11. Section 707(b) safeguards Chapter 7 bankruptcy from abusive or bad faith filings. When Must a Consumer Debtor’s Chapter 7 Bankruptcy Be Dismissed? For example, some debts such as tax debt are not considered consumer debt. ![]() However, this is not always easily determined. Therefore, if a debt was incurred for a business purpose, or incurred in the pursuit of income, it will not qualify as a consumer debt. A consumer debt is defined by the code as one incurred primarily for a personal, family, or household purpose. For an individual filing for Chapter 7, it is important to determine which debts are consumer debts in order to determine if Section 707(b) applies. This means that it does not apply to corporations or other entities. Section 707(b) applies to individuals with primarily consumer debts. How Do I Know If a Debtor Has Primarily Consumer Debts? This blog will delve into the potential causes for dismissal of a Chapter 7 bankruptcy case under Section 707(b). If a debtor does not have primarily consumer debts, Section 707(a) will apply. If the debtor has primarily consumer debts, Section 707(b) will apply. However, the applicable Bankruptcy Code provisions regulating dismissal of a Chapter 7 petition will differ for different types of debtors. What is a Bad Faith Filing in Bankruptcy?Ī bad faith filing is one that is inconsistent with the purposes of bankruptcy or is an abuse of the bankruptcy system. This article will provide an overview of the options available to a creditor if a debtor with primarily consumer debts files for Chapter 7 bankruptcy. When a debtor files for bankruptcy, a creditor may be able to seek dismissal of the bankruptcy if the petition was filed in bad faith. Real Estate Development, Sales & Leasing.Community Advocacy & Social Responsibility.To read the full article, please visit Reuter’s website.Search Website Submit SearchSearch Close Search Bankruptcy Court's refusal to dismiss a Chapter 11 bankruptcy case, emphasizing that a violation of the Controlled Substances Act (CSA) does not automatically warrant dismissal, and considering the interests of innocent creditors and potential post-petition efforts to address violations. In this Reuter’s article authored by Loeb & Loeb Restructuring and Bankruptcy partners Schuyler Carroll and Bethany Simmons and associate Noah Weingarten, the writers analyze the U.S. See, e.g., In re: Way to Grow, Inc., 610 B.R. The Hacienda court's refusal to dismiss this marijuana industry case - on two separate occasions - and instead to confirm the Chapter 11 plan, represents a departure from the vast majority of bankruptcy court decisions, which reached the opposite result: dismissing bankruptcy cases based on perceived violations of federal drug laws alone. ![]() Bason) denied a motion to dismiss the Chapter 11 bankruptcy case despite finding that the marijuana-industry debtor was engaged in an ongoing, post-petition violation of the federal Controlled Substances Act (CSA). Bankruptcy Court for the Central District of California (Judge Neil W.
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