Tag team bankruptcy filings.
Today we had the US Trustee’s representative come down and ask a debtor about her husband’s separate filing of bankruptcy. The wife filed chapter 7 bankruptcy after her husband filed bankruptcy. The code allows such filings, however it raises concerns by the Trustee and the US Trustee.
From a Trustee perspective there could be assets listed in one petition and wrongfully not listed in the other petition. In addition, there may be an inappropriate use of the exemptions, where the two spouses try to use the same exemptions, but double the amount allowed.
There may be appropriate reasons to file separately such as the married couple has physically separated and are about to file for divorce. In essence they have different lives, though still technically married.
However most times a married couple living in the same house files bankruptcy, the reason is not appropriate. If the cases are determined to be filed in “Bad Faith” then both cases can be dismissed on the US Trustee’s motion. The US Trustee can even revoke a discharge by filing a motion in front of the bankruptcy judge.
The common reason a married person files a bankruptcy is to stop the sale of a house. The lender then receives relief from the automatic stay and continues with the foreclosure. The other spouse then files a case to again stop the sale. The lender has to obtain relief again. Clearly this is improper and both spouses risk losing their discharge for such a scheme.
The US Trustee’s representative asked many questions this morning about the debtor’s situation and income and means test. From her questions it was clear that she had the information about the previous spouse’s filing in front of her. The representative asked for more information on the filing and the matter was continued.
If I were the attorney filing the second case, I would expect a motion from the US Trustee in a few weeks to bar the discharge of the debtor. In addition, the US Trustee might ask for a disgorgement of attorney fee if the attorney were found to propose such a scheme to defraud the mortgage lender.