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Timing is Everything-or Is It? – Cortez Challenges the “Snapshot” Approach to Analyzing Abuse Pursuant to 11 USC – 707(b)

November 17, 2006


It has been said that life is all about timing. This is especially true when examining someone’s financial status. Someone could be solvent today and insolvent tomorrow (or vice versa). On this same note, timing is crucial when analyzing a debtor’s Chapter 7 bankruptcy options.

When a debtor is consulting with counsel regarding financial options and bankruptcy eligibility, the present status of the debtor’s assets, liabilities and income are carefully examined. The debtor’s information is then usually processed to determine if non-bankruptcy options are feasible in comparison to bankruptcy options. The bankruptcy analysis entails determining a debtor’s eligibility to discharge debts, as well as an ability to exempt their assets.

In addition, a debtor’s current monthly income and current monthly expenses are examined to ensure that it would not be “abuse” to grant the debtor a Chapter 7 discharge pursuant to 11 U.S.C. § 707(b). If the Chapter 7 debtor appears to have the ability to repay their debts based on their current income and expenses, grounds for dismissal pursuant § 707(b) may exist.

The rationale is that if a debtor has the ability to repay some or all of their debts, the debtor should be compelled to file a Chapter 13 bankruptcy. In fact, the Chapter 7 analysis has become even more crucial since the enactment of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”), as the newly created “means test” enumerated in §707(b)(2) requires a more precise examination of the debtor’s income for the six month time period “ending on the last day of the calendar month immediately proceeding the date of the commencement of the case.”

The Snapshot Approach to Analyzing § 707(b)

When examining a Chapter 7 debtor’s eligibility, bankruptcy courts traditionally employ the “snapshot” approach. Under the snapshot approach, the debtor is required to accurately disclose the accuracy of their debts, assets, income and expenses as of the day of the filing of the petition. In essence, this gives the Court and creditors a financial snapshot of the debtor’s status as of the petition date.

Pursuant to this approach, most post-petition changes in the debtor’s finances are irrelevant for purposes of determining eligibility to obtain a Chapter 7 discharge. These post-petition irrelevant changes may include incurring new debt, purchasing assets, and incurring a fluctuation (either up or down) in monthly expenses and/or income. Traditionally, these post-petition changes are irrelevant due to the fact that they are outside of the snapshot that was created on the day the petition was filed…

You may read more at the link below.

by: Justin H. Dion, Esquire

American Bankruptcy Institute
October 2006

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