Court Uses "Totality of Circumstances" for Test of Substantial Abuse by Debtor

Court Uses "Totality of Circumstances" for Test of Substantial Abuse by Debtor

Description Appeals court adopted "totality of circumstances" test for bankruptcy proceedings to determine if a debtor has engaged in substantial abuse of the process by filing for Chapter 7 bankruptcy, when in fact there is sufficient income to repay debts.

Topic Bankruptcy

Key Words Chapter 7, Substantial Abuse

C A S E S U M M A R Y

Facts Lamanna sought relief from $15,000 in consumer debt by filing for Chapter 7 bankruptcy. Based on the finding that Lamanna had sufficient income to pay his debts under a Chapter 13 payment schedule, the bankruptcy court dismissed the filing as a substantial abuse of Chapter 7. The Bankruptcy Appellate Panel agreed with that finding. Lamanna appealed.

Decision Affirmed. The court joins other circuits in adopting the "totality of the circumstances" test as the measure of substantial abuse under the Bankruptcy Code. This is a flexible standard adopted by Congress to allow bankruptcy courts to consider the factors involved in each case and to prevent abuse of Chapter 7 filings. When there is evidence that the consumer can pay their debts, there is likely to be found substantial abuse.

Citation In re Lamanna, 153 F.3d 1 (First Cir., 1998)

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Court Uses "Totality of Circumstances" for Test of Substantial Abuse by Debtor
Description	Appeals court adopted "totality of circumstances" test for bankruptcy proceedings to determine if a debtor has engaged in substantial abuse of the process by filing for Chapter 7 bankruptcy, when in fact there is sufficient income to repay debts.
Topic	Bankruptcy
Key Words	Chapter 7, Substantial Abuse
C A S E S U M M A R Y
Facts	Lamanna sought relief from $15,000 in consumer debt by filing for Chapter 7 bankruptcy. Based on the finding that Lamanna had sufficient income to pay his debts under a Chapter 13 payment schedule, the bankruptcy court dismissed the filing as a substantial abuse of Chapter 7. The Bankruptcy Appellate Panel agreed with that finding. Lamanna appealed.
Decision	Affirmed. The court joins other circuits in adopting the "totality of the circumstances" test as the measure of substantial abuse under the Bankruptcy Code. This is a flexible standard adopted by Congress to allow bankruptcy courts to consider the factors involved in each case and to prevent abuse of Chapter 7 filings. When there is evidence that the consumer can pay their debts, there is likely to be found substantial abuse.
Citation	In re Lamanna, 153 F.3d 1 (First Cir., 1998)