Bankruptcy Court Orders that either debtor convert Chapter 7 case to Chapter 11 case or the Court would Order the case be dismissed for Abuse of Process by debtor.

In this case, the bankruptcy trustee filed a motion to dismiss debtor’s petition after concluding that debtor had the ability to repay his obligations.

The Bankruptcy Code provides that the Court, on its own motion or on a motion by the trustee/creditor, may dismiss a case filed by an individual debtor if it finds that the granting of relief would be a substantial abuse of the Code.

Here, although the Court concluded the debtor would not be eligible for a Chapter 13 repayment plan, the Court found that the debtor’s monthly disposable income after expenses was almost $2,000. The debtor had over $130,000 in unsecured debts. The Court found that the $2,000 of available monthly income should be used to repay the creditors.

This Court held that if a debtor has an ability to repay his creditors out of future income, then it would be a substantial abuse of the bankruptcy process to grant relief to the debtor.

In this case, the Court noted that all the creditors could be repaid if the debtor converted the case to a Chapter 11 repayment plan.  In re Kenneth Scheinberg, 132 B.R. 443.

Author: Charles R. Harroun, Attorney at Law