Substantial Abuse, Bankruptcy Planning & Chapter 7 bankruptcy

What does one have to do, or in this case from Wisconsin, NOT DO, to create substantial abuse ?

RECENT CASES: Feb. 6. 2007

Chapter 7 Debtor who fails to aggressively seek out work before the case is subject to dismissal based on the totality of the circumstances. ‘Substantial abuse’ is now just ‘abuse.’

The court noted: ” … this Court concludes that a debtor who lacks the ability to pay because she has not engaged in a broad employment search, does not wish to work outside her chosen field, does not wish to work within her chosen field outside of southeastern Wisconsin, and takes this position at the expense of her creditors, abuses the provisions of Chapter 7 …”

The court held, “The court concludes that it must look at the debtor’s ability to pay her creditors at the time of the hearing on the motion to dismiss.” ” . . . it must delve further and find out why the debtor does not have the ability to pay. Finally, the Court concludes that if the debtor’s inability to pay creditors is self-imposed, it may consider this fact … in terms of the totality of the circumstances …”

In re Richie, 353 B.R. 569 (Bankruptcy.E.D.Wis. 2006)

Therefore, as practitioners, this case is disturbing, as it takes out the element of bankruptcy case planning. What should a bankruptcy attorney advise their client? If a debtor’s attorney advises the debtor to stop working, so that the debtor’s income would allow them to pass the means test, it sounds like that would open the attorney up to malpractice, as it could get the chapter 7 case dismissed. Very interesting. Therefore, everything you advise a debtor must be very well thought out and planned, knowing that there are these type of pitfalls for the unwary practitioner!

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Terrance Leeders

Chicago Bankruptcy Attorney, husband, father, Cubs fan.

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