Case Conclusion Date: 01.01.2006
Practice Area: Chapter 7 bankruptcy
Outcome: Victory for client!
Description: The debtor filed a chapter 7 bankruptcy petition. She indicated in her petition that she intended to surrender her homestead which had two liens against it. The trustee brought a motion to dismiss the debtor’s chapter 7 case for abuse based upon the argument that the debtor should not be permitted to take means test deductions for the first and second mortgage payments on secured property which she is intending to surrender. Also, the trustee objected to the debtor deducting an “operating expense” for a vehicle which did not have a lien against it. The trustee argued that without these expenses, the debtor would have disposable income with which to pay back her unsecured creditors, and as such should have to file a chapter 13. The bankruptcy court denied the trustee’s motion to dismiss and the trustee appealed to the United States District Court for the District of Minnesota. The District Court held that the trustee was correct with regard to the operating expense for the debtor’s vehicle. She could not take the deduction for the operating expense for a vehicle she owned free and clear of any liens. On the issue of means test deductions for mortgage payments where the debtor indicates an intention to surrender the home, the court held that, the plain language of the statute coupled with the debtor’s existent contractual obligation to make the payments on the home resulted in the holding that the debtor was permitted to take the deductions for the mortgage payments on the home she intended to surrender. As a result of Lamey Law Firm’s litigation of this case the debtor’s bar has more guidance with respect to what deductions can be taken on the means test and as such which clients qualify to file a Chapter 7 bankruptcy as opposed to a Chapter 13.