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Bankruptcy Presumption of Abuse

Individuals that have or will file a Chapter 7 Bankruptcy Petition may encounter the Presumption of Abuse. Not knowing what income levels or luxury purchases may trigger the presumed abuse often lead to questions like the ones answered below.

What is presumption of abuse?

Presumption of abuse applies to Chapter 7 Bankruptcy cases filed after October 2005. It bases debtor’s income against the means test. Basically for individuals that make more income than the Chapter 7 allows then you are “too rich” and presumed to be an abuse of the system. If the debtor’s income is too high then they will possibly be moved to a Chapter 13 Bankruptcy. Presumptions of Abuse can be rebutted but the burden of proof falls to the debtor and requires a motion in Bankruptcy Court.

What is the process taken by the United States Trustee to determine if there is a presumption of abuse?

The Bankruptcy Abuse Protection and Consumer Protection Act of 2005 placed new duties on the United States Trustee’s Office. They must review all Chapter 7 Bankruptcy filings and determine if presumption of abuse exists. If abuse is found then they are required to file a statement within 10 days of the debtor’s meeting with the Chapter 7 trustee and with the Bankruptcy Court. The trustee will review and compare the Chapter 7 means test against the last 60 days paystubs for the debtor. Additional paper work can be requested at the trustee’s discretion to make this determination. If abuse is found, the trustee can file a Motion to Dismiss the Chapter 7 petition.

What is a presumption of abuse under 707b2?

If your Chapter 7 petition is presumed to be an abuse under 707(b)(2) then you would have been sent a notice from the clerk’s office of the United States Trustee Department stating so. They came to this conclusion of presumed abuse when the debtor’s income is too high. More than likely the debtor is not able to pass the Means Test.

I just recently incurred a medical bill of $5,000 last month because I had emergency medical surgery. Should I file for Bankruptcy now to discharge the debt or will the trustee see this as a presumption of abuse?

You would not need to wait to file for Bankruptcy. The debt you incurred could be discharged under a Bankruptcy case. There should not be any presumption of abuse because there is no fraud. Since this debt was not an elective surgery of for luxury goods or services then it should not draw any objection from the creditor when you file.

Is it possible to file Chapter 7 Bankruptcy while making a six figure salary and no assets?

An individual could file Chapter 7 Bankruptcy while making a six figure salary but more than likely it would be dismissed under Bankruptcy code base on the presumption of abuse. However, if the individual could overcome that presumption of abuse because they have a serious injury that completely disables them from being able to work again then it might be possible. You could instead file for a Chapter 13 Bankruptcy.

Acquiring specific information and insight on Chapter 7 Bankruptcy can help when faced with presumption of abuse. Experts can help answer questions about Chapter 7 Bankruptcy and the presumption of abuse or share the process that the trustee follows in finding such abuse. Get the answers fast and affordably by asking an Expert.

Ask a Bankruptcy Lawyer

FiveStarLaw
FiveStarLaw, Attorney
Category: General
Satisfied Customers: 3317
Experience:  Bankruptcy Lawyer. Experienced.
9968427
Type Your Bankruptcy Law Question Here...
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2 Bankruptcy Lawyers are Online Now

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Bankruptcy Lawyers are online & ready to help you now

FiveStarLaw
Attorney
Satisfied Customers: 3203
Bankruptcy Lawyer. Experienced.
Terry L.
Attorney
Satisfied Customers: 2204
Better Business Bur 15yrs bankruptcy experience. Chicago Bar
Phillips Esq.
Attorney-at-Law
Satisfied Customers: 950
B.A.; M.B.A.; J.D.

Recent Presumption of Abuse Questions

  • I have retired military (20+ years of service) who is 30% disabled

    I have retired military (20+ years of service) who is 30% disabled (as determined by the VA and reflected in how his retirement income is reported). He has been out of the military for several years and works a full time job. A recent divorce has resulted in a need for bankruptcy. We filed a Chapter 7 as he passed the means test. The US Trustee is objecting (finding of presumption of abuse) using the 12 month forward looking test rather than the 6 month backward looking test. We all know SSD is excluded from income. Is there anyway you can think of I can help this individual to reduce his forward looking income by at least the military disability payments. Please site statutes and case law where possible. This is in the 6th Circuit and Middle District of TN in particular. Thanks in advance.
  • A debtor filing Chapter 7 has below-median income (so no presumption

    A debtor filing Chapter 7 has below-median income (so no presumption of abuse), but has discretionary income of $1,600.00 and unsecured non-priority debt of $120,000 (so could pay about 48% of debt over a 3-year Chapter 13 plan). In that situation, how likely is it that a trustee would dismiss the debtor's Chapter 7 plan as an abuse?
  • I wrote you in January about my bankruptcy case. Filing chapter

    I wrote you in January about my bankruptcy case. Filing chapter 7, my attorney forgot to include some side job income, we amended and the US Trustee filed a presumption of abuse. The US Trustee has now filed a motion to dismiss. My lawyer is going to try to fight it in court. They are disputing how much I spend on childcare, my additional telecommunication expenses, and a withholding from my husband's employer for a flexwrap childcare account. He then is disputing what he calls excessive and non-allowable expenses including uniforms required for my husband's law enforcement job, $35 for birthday gifts, and $200 for home mainenace, $100 for water/sewer, and things like that.

    We do make double the median income, but also have higher expenses then someone who makes half of what we make. Our mortgage payment is higher and we were granted higher credit limits and therefore have more debt.

    I am preparing all the evidence to show my receipts for what I actually spent and national averages to prove my expenses are reasonable. I have read some of the judge's opinions who will be presiding over my case. He seems to side with the US Trustee and awful lot. Do you have any tips or suggestions for winning in court?

    Thanks,

    Elizabeth
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