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Friday, January 29, 2010

Bad faith purchase lead to dismissal of Chapter 7 case

Dismissals or denials of discharge in Chapter 7 cases for bad faith reasons are fairly rare so when there is a case where they come up they are fairly interesting as they turn on the particular facts of the case. Here's one below that makes good reading. It is a recent case from the Eastern District in the State of Washington.

In re Hageney

Debtors' bought a $20,000 motorcycle less than 3 months before filing a Chapter 7 case. The court determined that it was obviously not a practical means of year-round transportation in the climate in which they lived and that conduct warranted dismissal of their Chapter 7 case as abusive under the "bad faith" dismissal provision. The motorcycle, which represented the debtors' third vehicle for their family of two, occurred at a time when, while the debtor-husband had just obtained a significantly higher paying job, the debtors' mortgage was in default, and they had already consulted an attorney about the possibility of filing for bankruptcy. The court found that while the purchase may have been prompted by the euphoria surrounding the debtor-husband's acquisition of the new job, and while the debtors may have no intention of harming their creditors, such intent was not a prerequisite to finding the necessary bad faith and dismissed the case.

A little common sense here would have seem to have been in order. Why on earth they thought they could get away with this is beyond me. If you want the benefit of discharging your debt you have to keep in mind that there are other parties involved...namely the creditors who have also have rights in bankruptcy proceedings limited though they may be. Here the conduct was so aggregious that the court threw them out of the case and denied them their discharge.

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