REBUTTING THE PRESUMPTION OF ABUSE IN BANKRUPTCY WITH AGE

The new bankruptcy law which took effect in 2005 brought two new concepts. One is the “means test”. The other is the “PRESUMPTION OF ABUSE”. The two go hand in hand. The “means test” is a method of computing the disposable income of debtor to determine whether debtor is eligible for a bankruptcy, and specifically what kind of bankruptcy, a Chapter 7 or 13. If the “means test” analysis shows that debtor has some disposable income, a debtor may be tagged as abusing bankruptcy law, if the “PRESUMPTION OF ABUSE” is applicable to debtor’s bankruptcy case. 11 U.S.C. ∫ 707(b)(2)(A) states that the “court shall presume abuse exists if the debtor’s current monthly income reduced by the amounts determined …and multiplied by 60 is not less than the less of: (I) 25% of the debtor’s non-priority unsecured claims in the case, or $6,575, whichever is greater; or (II) $10,950. What happens if there is a “PRESUMPTION OF ABUSE” in the case? The U.S. Trustee will file a motion to dismiss your case because you are deemed to be abusing bankruptcy law.

To respond to the motion to dismiss, you can either convert your Chapter 7 case into Chapter 13 where you will pay a portion of your unsecured debt over a period of 60 months, or you can oppose the motion by rebutting the ‘presumption of abuse’ with ‘special circumstances’ that ‘justify additional expenses or adjustments of current income for which there is no reasonable alternative”. For instance, if you are able to show that you have cancer and do not have enough insurance to cover medical expenses, you will be able to rebut the ‘presumption of abuse’ and your Chapter 7 case will go though. How about age? Are senior citizens able to rebut this presumption just because they are older and want to retire without debt?

In Re Anderson, the Chapter 7 debtor who was 67 years old had gross monthly income of $7,219. He sought to discharge about $212,000 of unsecured debt, most of which was incurred for cash advances that the debtor loaned to a friend who could not repay the loans. Debtor admitted that his case was presumptively abusive, but argued that his age of 67 years constituted special circumstances to overcome the presumption of abuse. He said he planned to retire within five years and, prior to retirement, he intended to pay his entire net disposable income into a pension account. In other words, he wanted to fund his retirement account instead of paying his creditors. Nothing unusual about that. Looking out for number one is what America has always been about. The court said that “If age were to cause a serious medical condition, then that medical condition might constitute a special circumstance that would rebut a presumption of abuse. By itself, however, the debtor’s age does not excuse any obligation to creditors. 707(b)(2)(B)(i) states that in order to rebut a presumption of abuse, the special circumstances must ‘justify additional expenses or adjustments of current income for which there is no reasonable alternative.” Here, the reasonable alternative is to continue employment and to defer any additional pension contribution until after completion of a Chapter 13 plan. The mere desire for retirement provides no excuse. Nor should the debtor be allowed to augment his pension at the expense of creditors. Having cited no medical or other reason why he cannot continue to work, the debtor fails to provide sufficient evidence of the type of special circumstance that would rebut the statutory presumption”, the court said. “ “The court cannot predict future needs or calamities. But this much is certain: that the debtor was gainfully employed on the day of bankruptcy filing, that he continues his employment at the present time, and that his employment generates a current monthly income that compels a finding of abuse within the meaning of 11 U.S.C. Section 707(b)(2)(A).”

 Hence, old age and desire for funding your retirement are not special circumstances that rebut the ‘PRESUMPTION OF ABUSE.’

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than four thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.