NJ Bankruptcy Lawyer Provides The Most Common Reasons Why A Chapter 7 Case May Be Denied.
The denial or rejection of a NJ. chapter 7 bankruptcy case and/or the trustee unexpectedly selling a debtor’s property is unusual. Although there are numerous reasons why a chapter 7 case may be denied, I will discuss the most likely reasons for a denial. Most denials are based on fraud, attorneys lack of attention to detail and mistakes made on petitions.
The attorney must be knowledgeable of the law and understand what is expected by the local trustees and courts. Also, the attorney must be detailed and thorough with the bankruptcy petition information. Additionally, the debtor’s attorney must ask any and all necessary and relevant questions needed for the bankruptcy petition and the case. Any mistakes in preparing the petition and/or improper information on the petition may result in a denial of other related issues.
The main chapter 7 discharge criteria is that the debtor’s household income is less than the debtor’s necessary and reasonable monthly household expenses. In other words, the debtor must show that he is unable to make any monthly payments toward the debt. A clear example of an improperly completed petition regarding such an issue is as follows. A petition that reflects a $2,000.00 monthly food expense for a household of two is excessive. Consequently, the trustee will reduce such expense to the amount that he believes is reasonable and appropriate. If the debtor cannot provide proof of this excessive expense, the adjustment would result in a substantial amount of monthly disposable income. As a result the chapter 7 discharge would most likely be denied.
In order to prevent such issues, the attorney must know the amount that the trustees and courts perceive as a reasonable food expense for specific household member amounts. In the above explained example, the debtor’s attorney should have known that a reasonable monthly food expense would result in monthly disposable income. In this situation, the debtor may have filed a chapter 13, waited to file the chapter 7 or not file for bankruptcy protection.
The petition must include all of the debtor’s assets and the value of each asset. If the value is substantial in relation to the loan payoff, regarding such asset, the trustee may be permitted to sell the asset. The petition must accurately reflect the asset value and mortgage payoff. A problem may arise if the petition reflects a real estate value of $150,00.00 and the trustee realizes that the actual value is $200,000.00. The equity difference of $50,000.00 may result in the unexpected sale of the house. The debtor and attorney must confirm the property value prior to the filing to avoid such issues. Please note that it may be possible to avoid the sale in this situation.
The attorney must ask detailed questions about the debtor’s finances, assets, recent transactions, and any other financial related questions, that are relevant to the bankruptcy case. If specific questions are not asked, the debtor would not know that certain acts will result in serous ramifications. For example, if a debtor is not asked if he sold real estate within the last year, he would not know that the receipt of $80,000.00 from a recent sale, would result in serious discharge issues. By way of another example, unless explained by an attorney, a debtor would not know that the receipt and deposit of a $15,000.00 payment, from his brother in law, would be a problem.
An attorney’s detailed discussion with the client and review of his documents and information should resolve and/or limit the above listed issues. The above issues could possibly have been avoided by waiting to file the chapter 7 to a future date, or by filing a chapter 13 bankruptcy case.
Robert Manchel may be contacted at 866 503 5644 to discuss your New Jersey bankruptcy law questions.