Court Refuses To Dismiss Chapter 7 Bankruptcy Because Debtor Found High-Paying Job After Filing Date

You’re unemployed. You’re poor. You are stressed-out by debts and debt collectors. So, you file Chapter 7 bankruptcy. Then, shortly after you file bankruptcy you find a job. Not just "a job" but a really good job that pays high salaries. All of sudden you have money. In fact, you make so much money that you could afford to pay back most of your debts if you were in a payment plan. What happens to your Chapter 7 bankruptcy? Can you continue to wipe out all your debts even though you were fortunate enough to find a new, high paying job.

The question was discussed in a recent Florida bankruptcy court decision. A United States Trustee argued that granting a Chapter 7 discharge would be an abuse of Chapter 7 where the debtor was unemployed on the petition date, but thereafter obtained employment that enabled him, post-petition, to deposit more than $1,000 cash flow in a 401k account. The U.S. Trustee argued that the debtor’s new job enabled him to pay at least $668 per month to creditors if his Chapter 7 were converted to Chapter 13. Is it an abuse to let this debtor keep all his new income and pay no debts because he filed Chapter 7 bankruptcy?

The bankruptcy court did not dismiss the case. The court said that the post-petition job and ability to pay creditors is relevant to an abuse analysis, but that the U.S. Trustee most show more than just the debtor’s mathematical ability to pay debt from his new job. The court noted, among other things, that this debtor did not improve his living standards after his employment and that he has a serious medical condition that will limit his working life. The bankruptcy was a result of an unexpected, sudden job joss. The court held that it must consider all circumstances and not just the "mere mathematical ability to fund a Chapter 13 plan." In re Lavin, Case No. 08-2708, Tampa Division.

Comments

[Matt]

Jonathan, I am considering a Chapter 7. I have a home in Maryland that is for sale with some positive equity (about $50k). That home was my primary residence for 33 years, and I bought it from my family in 2007. I have a small home in Florida with significant negative equity. I made a partial transition to Fl about 9 months ago (Driver's License, Some Credit Cards, etc.). One bankruptcy attorney has advised me to sell the Maryland home, buy another FL home with the cash proceeds, declare it my home, then file Chapter 7, thereby protecting the equity. Another attorney has advised me that this would not work. Obviously, the issue is pivotal. What is your opinion?