IS TONI BRAXTON’S CHAPTER 7 CASE PRESUMPTIVELY ABUSIVE?

Toni Braxton, the famous singer and Las Vegas icon, with well-known hits as ‘Breathe Again” filed for Chapter 7 bankruptcy two months ago, for the second time. She filed for Chapter 7 in 1998. This time, Ms. Braxton blames up to $50 million of debt, various tax liens for unpaid taxes and her failing health last year which caused her to cancel her shows in Las Vegas last April for her bankruptcy. She lists $10 million of assets and $10 to $50 million of debt in her bankruptcy petition. But last month, the US Trustee put Ms. Braxton on notice that her Chapter 7 case is presumed to be an abuse under Section 707(b). § 707(b)(a) provides that “After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor’s consent, convert such a case under chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions of this chapter…” This section goes on further to say in (2)(A)(i) that “In considering under paragraph (a) whether the granting of relief would be an abuse of the provision of this chapter, the court shall presume abuse exists if the debtor’s current monthly income reduced by the amounts determined under (ii), (iii), and (iv), and multiplied by 60 is not less than the lesser of (a) 25% of the debtor’s non-priority unsecured claims in the case, or $6,575, whichever is greater; or (II) $10,950.” Note that these two amounts are not current. The current amounts are slightly bigger than these amounts.

 How will Ms. Braxton respond to the UST notice of presumptive abuse? Her lawyer will have to address the concerns of the UST before a motion to dismiss is filed. There are 2 areas to be resolved. First is the nature of the $10 to $50 million debt. Note that § 707(b) talks about “primarily consumer debts”. Since Ms. Braxton is presumably in business, being a singer and performer, the argument to be made is that her debts are not primarily consumer debts, but business debts. It must be shown by documentary evidence that most of her debts are business debts. The second is the availability of disposable income over 60 months that may be greater than 25% of her non-priority unsecured debts, or $6,575, whichever is greater, or $10,950. She will need to rehash and document her means test to see if she falls below the threshold amounts. Of the two areas of concern, the first appears to be easier to prove. With her high income, her disposable income is very likely over the threshold amounts. Of interest is Ms. Braxton’s plan to appear on playboy magazine this year to increase her income. Will this potential income be calculated into the means test? The answer is NO because the means test provides a snapshot of her income as of the date of filing her bankruptcy.

Under the worst situation, if Ms. Braxton cannot successfully oppose a motion to dismiss based on the presumption of abuse in her case, she has the option of converting her chapter 7 case into chapter 11 where a portion of her debt can be repaid over 5 years. She may end up paying 10% of her unsecured debt over 5 years. This would still be a large amount even for Ms. Braxton because 10% of $10 to $50 million is $1 to $5 million. Even a $1 million repayment over 5 years would require $166,000 a month for 60 months. One issue in playboy certainly would not be enough to provide enough income to fund these payments. On the other hand, if she is fortunate enough to stay on a Chapter 7, she may have to resort to selling assets to pay tax liens.

 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.