A TALE OF TWO HOUSES

Recently I had to defend a motion to dismiss a chapter 7 bankruptcy filing, which motion was brought by the office of United States trustee. A private lender had lent $100,000 to the debtor. The debtor was a contractor who had fallen on hard times due to a collapse of the new home construction market. The debtor lived in a million-dollar mansion, which he had used as a model home for his business. The private lender had a single-family residence and he had extracted hundred thousand dollars of equity from his more modest residence. The private lender photographed the million-dollar mansion and lobbied the US trustee's office, complaining that it was not fair that the contractor could live extravagantly while he the private lender lived in a more modest house. The US trustee's office sided with the private lender and filed a motion to convert or dismiss the chapter 7 bankruptcy.


While luxury goods may be maintained by the debtor in a bankruptcy filing, the court will examine whether the retention of luxury items works to the detriment of unsecured creditors. A luxury good maintained by the debtor for many years prior to the bankruptcy filing and which did not contribute to the events causing the bankruptcy probably can be kept or reaffirmed in the bankruptcy whether under Chapter 7 or 13. To require the debtor to surrender an item securing a debt which he had been paying faithfully in the years preceding the filing is prejudicial to the secured creditor. On the other hand, the debtors' retention of luxury items acquired in the years immediately preceding the filing are likely to result in the filing of a motion for abuse under section 707(B)of the bankruptcy code. A debtor may not prefer himself over his creditors.This blog is not intended to render legal services to the reader, including advice about bankruptcy or taxes. Consult with a lawyer concerning the specific application of the law to your unique circumstance.

This blog is not intended to render legal services to the reader, including advice about bankruptcy or taxes. Consult with a lawyer concerning the specific application of the law to your unique circumstance.