Lefkovitz & Lefkovitz
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Cookeville Office
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Question over liquidating property under Ch. 7 bankruptcy

When filing for Chapter 7 bankruptcy, a trustee oversees the liquidation of non-exempt assets to pay back creditors of an individual or married couple. Tennessee residents might like to know about a case where a person owned two homes.

In that case, a trustee wondered whether a Virginia man abused the bankruptcy system by maintaining expenses for two homes while filing for Chapter 7 bankruptcy. The trustee thought the man should sell one home in order to pay creditors. The man had a home with two mortgages and more than $60,000 in student loan debt after getting a higher degree for his career. The man's mother-in-law suffered from dementia, so his wife bought a larger home for the family so the mother could move in with her daughter.

The couple now had two homes, but the man filed for bankruptcy while the wife did not. The court said filing for Chapter 7 instead of Chapter 13 was not an abuse in itself and that the man did not live lavishly or recklessly. The court thought it was reasonable to seek relief from mortgage liability as it hurt his family's finances significantly.

Filing for Chapter 7 instead of Chapter 13 is abusive in cases where income exceeds the proper median family income or where one does not meet the statutory threshold test requirements. The trustee and court agreed this case was not abusive on these grounds.

As this stcase shows, the rules governing the bankruptcy system put certain restrictions and requirements on debtors seeking relief. Those overseeing and enforcing the system take these rules seriously and watch for any abuse or bad faith. This could make consulting an attorney important when considering bankruptcy so that an error does not occur that jeopardizes the chances of obtaining debt relief.

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