How to Settle a 707(b) Abuse Motion the Easy Way

24 May How to Settle a 707(b) Abuse Motion the Easy Way

If you have a filed a chapter 7 case, chances are you will not be subject to the means test. Even if you are, it is likely you will “pass” the means test and obtain a discharge of your debts as a matter of course. It is also likely that none of your exemptions will be challenged, and you will be able to keep all your property, bank accounts and other possessions.

However, what if your chapter 7 trustee challenges your exemptions, and what if you also suffer the misfortune of having the U.S. Trustee challenge your right to a discharge by invoking section 707(b), claiming you should be paying your debts in a chapter 13? This might seem like a “double whammy” which could doom your case, but don’t give up on chapter 7 yet. You might be able to turn this situation to your advantage by pitting one trustee against the other — and here’s how.

If the chapter 7 trustee is confident of prevailing on the objection to exemptions, he or she has an interest in seeing the U.S. Trustee’s 707(b) motion defeated. This is because if your case is dismissed under section 707(b), the chapter 7 trustee will get none of your assets, even the trustee had a solid objection to your claims of exempt property. A dismissed case is just that: it is dismissed, the trustee is discharged, and now the trustee cannot pay himself or herself from your nonexempt assets. All the chapter 7 trustee’s time spent so far will have been wasted, with no prospect of making additional attorney fees by administering nonexempt assets.

This is where your lawyer has an opportunity to induce the U.S. Trustee to withdraw its 707(b) dismissal motion. If the U.S. Trustee’s dismissal motion is granted, creditors get nothing; but if the dismissal motion is withdrawn, and if the debtor agrees not to contest the chapter 7 trustee’s objection to exemptions, creditors may receive a handsome dividend. This gives the chapter 7 trustee a reason to side with the debtor in opposing, at least informally, the U.S. Trustee’s 707(b) dismissal motion.

In this situation, the debtor might be able to arrange for a withdrawal of the 707(b) motion, thus securing the all-important chapter 7 discharge, in return for surrendering some nonexempt property. Depending on the amount of debts to be discharged, and the amount of property which might be surrendered, this could be an excellent option for the debtor to consider.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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