Trustee Blog

Recycled Credit Counseling Form Part 2

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On December 6, 2013, we talked about a Debtor using an old Certificate of Counseling. Below the story continues  and find out what Judge Houle did after the US Trustee moved to dismiss the case.

In viewing Debtor’s actions in the “totality of the circumstances” in this case, the Court finds that Debtor acted in bad faith in filing the petition. Debtor’s actions constitute bad faith under Ninth Circuit precedent due to a “face sheet” filing with incomplete and inaccurate information. Further, Debtor has not proven a legitimate “fresh start” purpose to be achieved by bankruptcy. First, the Debtor failed in both the Prior Case and the Current Case to file the required case commencement documents notwithstanding Court Orders to do so. Second, the Debtor filed the Prior Case without her spouse’s consent and forged his signature. Third, the Debtor falsely certified that she obtained credit counseling within the 180-day statutory period.

The Court dismisses Debtor’s case under § 707(b) because the UST has shown that Debtor acted in bad faith.

Every once in a while, Trustee Todd Frealy has similar case to this one in which the US Trustee must step in.

Section 707(b) allows the court to dismiss a case filed by an individual debtor who owes primarily consumer debt if it finds that granting discharge relief would be an “abuse” of the provisions of Chapter 7. 11 U.S.C. § 707(b)(1). Courts may determine that either (1) a presumption of abuse arises under § 707(b)(2), or (2) if the presumption does not arise or is rebutted, the debtor’s bad faith or the totality of the circumstances of the debtor’s financial situation demonstrate abuse. 11 U.S.C. § 707 (b)(3).

The Ninth Circuit and its lower courts have set forth bad faith tests that consider a variety of factors including: (1) the debtor’s history of filings and dismissals (Leavitt v. Soto, 171 F.3d 1219, 1224 (9th Cir. 1999)); (2) whether a debtor misrepresented facts in their petition, unfairly manipulated the Bankruptcy Code, or otherwise filed the petition in an inequitable manner (Id.; In re Marshall, 298 B.R. 670, 681 (Bankr. C.D. Cal. 2003)); (3) whether the debtor is actually in need of bankruptcy protection (Marshall, 298 B.R. at 681); (4) whether the debtor intended to invoke the automatic stay for improper purposes, such as for the sole objective of defeating state court litigation (Id.; Leavitt, 171 F.3d at 1224); and (5) whether egregious behavior is present (Leavitt, 171 F.3d at 1224). Furthermore, no single criterion should be considered dispositive, but rather the entirety of the situation must be evaluated. See In re Powers, 135 B.R. 980, 991-992 (Bankr. C.D. Cal. 1991); Marshall, 298 B.R. at 681.

So the Debtor’s case was dismissed because she tried to save money by using an old Credit Counseling Certificate.


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