In Re Rahim
442 B.R. 578
Bankr. E.D. Mich.2010Background
- Debtors’ aggregate income exceeds $509,000 annually after imputed vehicle payments and support payments not disclosed in Schedule I/J.
- Debtors’ Schedule I shows $39,400 monthly from medical practice; additional $2,046 monthly vehicle payments and $1,000 monthly niece support are undisclosed.
- Total monthly expenses are disclosed at $39,380 on Schedule J, but actual expenses are at least $42,426 due to undisclosed items and withdrawals from the medical practice.
- Debtors’ Schedule D lists secured debts of $3,417,423; Schedule F lists unsecured claims of $6,671,939, primarily guaranties of Florida real estate investments.
- Court finds the case filed in bad faith under 11 U.S.C. § 707(a) given lavish lifestyle and lack of effort to reduce expenses, with potential avoidance of a meaningful dividend to creditors through Chapter 11 as a more appropriate path.
- Trustee notes substantial assets possible for administration, but Chapter 11 would yield larger distributions than Chapter 7, and this does not undermine the finding of cause to dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether debtors qualify for Chapter 7 relief given income and expenses. | Rahim and Abdulhussain argue expenses negate need for Chapter 7. | Rahim/Abdulhussain argue income/expenses do not support dismissal under 707(a). | No; court finds lack of good faith and cause to dismiss. |
| Whether there is “cause” to dismiss under 11 U.S.C. § 707(a). | Debtors contend no cause due to business debts; 707(a) not limited to consumer cases. | Court should consider ability to pay and lavish expenses as cause. | There is cause to dismiss under § 707(a). |
Key Cases Cited
- In re Zick, 931 F.2d 1124 (6th Cir.1991) (lack of good faith can justify dismissal; not limited to § 707(b))
- In re Krohn, 886 F.2d 123 (6th Cir.1989) (ability to repay debt from future earnings can support dismissal for neediness)
- Perlin v. Hitachi Capital Am. Corp., 497 F.3d 364 (3d Cir.2007) (income/expense factors under 707(a) are not constrained to § 707(b) and cannot solely determine bad faith)
- Local Loan Co. v. Hunt, 292 U.S. 234 (1934) (bankruptcy for the honest but unfortunate debtor)