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Wednesday, June 30, 2010

Means test decision

One of the strong reasons compelling someone to hire an attorney to draft and file their bankruptcy paperwork turns on the fact that means testing is sometimes complicated, often tricky and how you plug in the numbers, what numbers you can plug in and why is constantly being shaped by case law. You can't rely on just reading the statute. Case in point. Recently Judge Kishel here in MN made a decision in a case wherein the debtor was utilizing debt service on a property that he no longer owned but was responsible for paying (divorce situation). See the case synopsis below............

Even though a debtor in Chapter 7 bankruptcy remained liable with the ex-spouse on residential mortgages relative to real estate that had been awarded to his ex-spouse per the court's order in the final judgment and decree those loans as creditors whose claims were collateralized by real property in which the debtor no longer had any interest as of the commencement of his bankruptcy case cannot be considered "secured creditors for the purposes of means testing even though he was still personally liable for the debt. Therefore he could not take the "secured debt" deduction for his monthly payments on these mortgages when calculating the "means test" analysis to determine whether he could rebut the presumption of abuse in his chapter 7 bankruptcy case. In re Robrock, 2010 WL 2142999 (Bkrtcy.D.Minn., Judge Kishel).

That is unfortunately a bad result for debtors in this jurisdiction. I've in the past used similar deductions to qualify a few of my clients for chapter 7 cases whereas otherwise they would not have been entitled to relief under that chapter. Now it appears that if it all hangs on debts of this nature (which, of course, is not the usual case) Chapter 7 will not be available and those debtors will most likely be looking at filing a Chapter 13 bankruptcy to reorganize their debt and paying back all or part of it in a 3 - 5 year plan structured through the bankruptcy court.

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