Debtor was an optometrist who had unpaid credit card debts of $318,000. Apparently, his divorce in 2004 caused his financial problems. However, the US trustee alleged that debtor filed his chapter 7 case in bad faith based on his lavish lifestyle. The UST filed a motion to dismiss the chapter 7 case (in re Harter) pursuant to 707 (b) (3) alleging that the debtor lived a lavish lifestyle taking European vacations and driving luxury cars.
Did he actually have a lavish lifestyle? He did travel to Europe twice during the year preceding his bankruptcy filing. But the first trip was a 50th birthday present that he received from his wife and his brother, who were unaware of his financial problems. The second trip was to accompany his wife, who worked for a California winery, on a business trip to Italy. The court found that the debtor paid for his expenses on this trip and concluded that neither trip qualified for a pre-petition binge. A pre-petition binge means that debtor intentionally took the trip using his credit cards knowing that he had no way of repaying the debt, and knowing that he was going to file a bankruptcy in the future to discharge the debt. This is another way of saying that there was no intent to repay when the debt was incurred. About the cars, debtor drove a 2006 Audi A-4. The court found that “Audi is not a premier marque, being generally considered about halfway between Volkswagen and BMW on the European pecking order, and the A-4 is nowhere near the top of the line. The US Trustee does some damage to her credibility by calling every nice-middle-class ride a luxury vehicle.” The trustee also referred to the debtor’s 1965 Mustang as being a classic car. In fact, it was debtor’s first car, which he bought in 1978, and was not operative as the time of the bankruptcy filing. The chapter 7 trustee sold the car for $4,000.
The court concluded that debtor did not act dishonestly or recklessly in incurring pre-petition debt and did not attempt to maintain a lavish or extravagant lifestyle while discharging his debts. The US trustee further alleged in his motion to dismiss that debtor misrepresented his income and, if properly reported, could afford to repay his debts. The trustee analyst testified that debtor and his non-filing wife had $3,000 of disposable income each month to pay creditors. The analyst reached this conclusion by adding together all of the deposits into the couple’s bank accounts for two years, deducting items that the analyst determined were one-time events, and then dividing by 24.
Under questioning by debtor’s attorney, the analyst said that his understanding as to which items were not to be counted was based on unspecified instructions given to him by the US trustee counsel. “There are numerous problems with the analyst’s conclusion, beginning with the fact that it was the direct result of instructions given to him by the moving party’s own counsel. Without meaning to impugn the integrity of counsel, calculations based on these instructions are simply too biased to be given any credibility,” the court said.
The court found that debtor was not eligible for chapter 13 relief and probably could not afford to file for chapter 11 relief. Consequently, granting the US trustee’s motion would almost assuredly deny him a discharge and place a great deal of stress on him and his wife while providing no tangible benefit for mot of his creditors. The court was also concerned about eh effect of dismissal on the debtor’s new wife. “She is entirely innocent, having married into this situation four years ago with no understanding of the depth of her new husband’s financial problems,” the court said.
Bankruptcy under the new law is not a simple matter. Seek an experienced bankruptcy lawyer you are comfortable with.
If you need debt relief, contact my office. I will analyze your case personally.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803.
(Published October 25, 2008 p.C4 LAWKND)
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