Debtor’s Chapter 7 Fails 707(b)’s “Smell Test”

Posted by NCBRC - November 15, 2017

Sara Lianne Hamilton-Conversano filed for chapter 7 bankruptcy with the sole purpose of dealing with a $46,669.52 credit card debt on a credit card she and her non-filing spouse used to pay all household expenses. Finding that Ms. Hamilton-Conversano underreported contributions from her non-filing spouse on her Statement of Current Monthly Income, Form 122A-1, and took too large a deduction for private school tuition on Form 122A-2, the court granted the Bankruptcy Administrator’s motion to dismiss for abuse under section 707(b)(1). In re Hamilton-Conversano, No. 17-128 (Bankr. E.D. N.C. Sept. 28, 2017).

The Bankruptcy Administrator maintained that Ms. Hamilton-Conversano underreported her husband’s contribution to income by failing to include his cell phone reimbursements and the increase in income he enjoyed when he stopped making contributions to his life insurance policy within the 6 month period prior to his wife’s bankruptcy filing. The BA also argued that the $416.67 Marital Adjustment deduction Ms. Hamilton-Conversano took on Form 122A-2 for private school tuition should have been capped at $160.42. Recalculating the Means Test with these adjustments would have left her with monthly disposable income of $438.97, creating a presumption of abuse under section 707(b)(2).

In response, Ms. Hamilton-Conversano pointed to the difference between the way section 101(10A) counts the non-debtor spouse’s contribution to current monthly income as being limited to the spouse’s contribution for household expenses, and the way the Official Forms calculate that figure with Form 122A-1 including the entirety of the spouse’s income with Form 122A-2 stripping away that portion of his income not used to pay household expenses. The court agreed that the difference was “compelling” but noted that Ms. Hamilton-Conversano did not include any figures to demonstrate how use of the statutory calculation would have changed the result for her.

The court found Ms. Conversano’s $416.67 deduction on the 122A-2 form for private school improper because Congress has capped the tuition expense at $160.42. The court recalculated Ms. Hamilton-Conversano’s income using the figures proposed by the Bankruptcy Administrator and found that an unrefuted presumption of abuse arose.

The court went on to address whether the “totality of circumstances” also pointed to abuse under section 707(b)(3) finding that this case did not pass the “smell test.” Ms. Hamilton-Conversano’s contention that the credit card was entirely in her name, that she could not repay it, had no assets to liquidate and that, therefore, the credit card company was no worse off receiving nothing in bankruptcy than it would have been had she never filed for bankruptcy, was unavailing. The court concluded that by putting the credit card solely in Ms. Hamilton-Conversano’s name, and by having her file bankruptcy without her husband, the Conversanos were trying to entirely avoid a debt her husband had sufficient income to make partial payments on.

The court concluded that because “there was only one household credit card used to pay for all of the household expenses; both spouses used the credit card; the non-filing spouse has substantial income; and one creditor is targeted by this filing,” this bankruptcy is abusive and would be subject to dismissal under section 707(b)(3) even if it were not dismissed under the Means Test abuse provision of section 707(b)(2). The court gave Ms. Hamilton-Conversano fourteen days to convert to chapter 13.

Hamilton-Conservano Bankr. ED NC Sept 2017

 

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