In the recent court case of Witcher v. Early (In re Witcher) (11th Cir., 2012), the 11th Circuit Court of Appeals held that even though the debtors passed the "means test" contained in the Bankruptcy Code, and therefore their case was not "presumed to be an abuse," their case should still be dismissed because the debtors' ability to pay their debts can be taken into account as part of the "totality of circumstances" analysis contained in Sec. 707(b)(3) of the Bankruptcy Code.

In this case, the debtors were proposing to keep certain luxury items, including a camper, a boat, a trailer, and a tractor, and continue to make payments on these items, while paying nothing to their unsecured debts. In other words, if they did not pay for their "toys," they would be able to pay something to their unsecured debts, under a chapter 13 plan.

The trial (bankruptcy) court found that:

"the Debtors' ability to pay, as well as their reluctance to change their lifestyle in order to provide a distribution to creditors, together indicate that granting relief in this chapter 7 case would be an abuse." Because "a meaningful distribution to unsecured creditors could be made by simply surrendering those items that are being kept for merely recreational purposes," reasoned the court, the Witchers' decision to keep paying for these "unnecessary, luxury items" showed that they were not prepared to earnestly engage in the "give and take process" of bankruptcy." 

And the 11th Circuit agreed, holding that a debtor's ability to pay is one factor that may be considered in determining whether the "totality of circumstances" indicates that a chapter 7 case should be dismissed.

So even though your case may meet the "mechanical" means test of Sec. 707(b)(2) of the Bankruptcy Code, the Court can still consider your ability to pay as one factor in the "totality of circumstances" of your situation and decide that you are not entitled to continue in Chapter 7 and receive a discharge.

This is yet another reason to have an expert bankruptcy lawyer help you with your case, particularly if you are trying to file chapter 7 and yet keep luxury items that you still owe money on, like a Harley Davidson, a camper, a boat, RV, or ATV. The case does not say that you cannot do it, but it does say that your continuing to pay for such items and at the same time proposing to discharge or cancel your unsecured debts, is something that a court can take into account in deciding whether or not to grant you a chapter 7 discharge.

J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization