Failing to honestly disclose your finances to the bankruptcy court is against the law, which is why Vincent Howard and our Ontario consumer bankruptcy lawyers take pains to explain to clients that they must be fully honest with the court. Even if there are debts you prefer to exclude from the bankruptcy and pay in full, it's much better to say so to the court so that you can't be accused of bad faith later. If the court decides you've tried to abuse the process, you could have your bankruptcy case dismissed or have a discharge denied, which means you don't get rid of debts but the bankruptcy stays on your credit record. In extreme cases, you can even be prosecuted criminally. In In re Ng, the bankruptcy court found a Hawaiian couple, the Ngs, had abused the process and should have their bankruptcy dismissed. The Bankruptcy Appellate Panel of the Ninth Circuit affirmed.
Christopher and Sheila Ng filed for Chapter 7 bankruptcy in June of 2010. The couple's income exceeded their monthly expenses, but they had $38,000 in unsecured debt as well as a mortgage of $464,000 on property that they intended to surrender. The trustee brought a motion to dismiss, arguing that they abused the process because they understated their income and also could pay back their debts without financial hardship. The court found the Ngs could deduct their mortgage regardless of their plans, but expressed concern about the retirement and loan payments. Christopher Ng subsequently changed jobs, prompting a raise and a move to Maui; the trustee's analysis of the new financial situation renewed the abuse allegation, saying they understated their monthly income and should not be paying pension contributions, a prepetition tax debt or pension loan repayments. The bankruptcy court ultimately dismissed, agreeing that the Ngs could pay their debts and could also file under Chapter 13.
On appeal, the BAP of the Ninth U.S. Circuit Court of Appeals agreed that in the totality of the circumstances, the bankruptcy court was not wrong to dismiss the case. In particular, both courts cited the increase in Christopher Ng's salary and the disallowance of their pension contributions, pension loan repayments and tax payments. Bankruptcy courts may take into account factors like expected retirement age and amount of other savings. Because Ng was already receiving a military pension and did not expect to retire for at least 20 years, the BAP found no abuse of the bankruptcy court's discretion. On the pension loan issue, the BAP found that because the Ngs were repaying themselves, the payments were correctly construed as "disposable income" that could be used to repay creditors. Finally, the panel upheld the determination that the prepetition tax debt payment should be disallowed because it was substantially higher than payments on the same debt would be in a Chapter 13 plan. Thus, it upheld the bankruptcy court.
Vincent Howard and our Orange individual bankruptcy attorneys suspect there's more to this case than the panel laid out in its dispassionate and law-heavy opinion. The opinion notes that the Ngs filed for Chapter 7 bankruptcy mainly to get out from under their mortgage debt. This has been a common reason to file for bankruptcy in the past five years--but thanks to the 2005 changes to the bankruptcy laws, it's harder to file for Chapter 7 bankruptcy than it once was. Filers with steady and reasonably sized incomes, such as the Ngs, are usually disqualified from Chapter 13 under the 2005 "means test," which forces people with certain income levels away from Chapter 7. The theory is that such people can repay their debts and thus, allowing a discharge is "abuse." Vincent Howard and our Fontana personal bankruptcy attorneys don't believe this rule permits consideration of all of the circumstances in every case, making it harder for honest people to get the fresh start that bankruptcy promises.
If you're facing debts so high you don't know how you can ever repay them--including mortgage debt--Howard Law, P.C., can help. For a case evaluation, send us a message online or call toll-free at 1-800-872-5925.