《楊清泉律師專欄》OWNING BOAT MAY COST CHAPTER 7 DISCHARGE(Part I)

Section 707 (a) of the bankruptcy code states that “The court may dismiss a case under this chapter only after notice and a hearing and only for cause,…” This means that the bankruptcy court has the power to dismiss a chapter 7 case and by so doing deny debtor a chapter 7 discharge. But what is “cause” for dismissal of a chapter 7 bankruptcy? Does owning a boat qualify as “cause” for dismissal of debtor’s chapter 7 case?

In Re Falch, the debtor operated a general contracting business from 1987 to 2008. During that time, Patrick & Cynthia Young hired debtor’s company for a big construction project on their residence. A dispute subsequently ensued between the company and the Youngs. Debtor sued the Youngs for $120,000 that he believed they owed on the contract. The Youngs counterclaimed for damages. Eventually a judgment for $295,008 was entered against the debtor. The general slowing down of the contracting business due to the mortgage and housing meltdown that started in 2007 and this judgment caused debtor’s business to fail in 2008.

In 2009, debtor found a good paying job and a free home. He was hired as the property manager of a 52 acre residential estate at an annual salary of $150,000. He was allowed to live in a farmhouse on the property rent free. When debtor filed for chapter 7 relief, his schedule I showed take home pay of $7,809 and schedule J showed total monthly expenses of $7,742. These monthly expenses included $2,700 for payments and maintenance of a 40 foot boat worth $178,000. He also owned a 2007 Lexus that he purchased a few months before filing for bankruptcy. He paid $43,000 for the Lexus after trading in a 2003 Jaguar and a 2006 Lincoln Truck. His monthly payment on the car loan was $419.79.

The Youngs who held a judgment for $295,008 against debtor, filed a motion to dismiss the debtor’s case pursuant to Section 707(a). They characterized the bankruptcy filing as an attempt for debtor to maintain business as usual while discharging their claim. The debtor argued that the boat was a reasonable recreational expense that simply replaced the housing expense. “The difficulty with the debtor’s position is that he is not expending the funds for a home. He is spending the money to retain ownership and use of large boat for recreational use. There is no rational economic purpose served by retention of the boat. Whatever symbolic role the boat plays in the debtor’s inner emotional life, that factor does not outweigh the fact that the debtor proposes to pay more than $30,000 per year to retain and maintain the boat while certain creditors, to whom he owes substantial sums, go unpaid,” the court said.

《楊清泉律師專欄》OWNING BOAT MAY COST CHAPTER 7 DISCHARGE(Part II)