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Court rules that property owner did not abuse bankruptcy process

Ohio residents who are struggling to cope with unmanageable financial situations sometimes seek debt relief by filing Chapter 7 bankruptcies, but their petitions may be denied if it appears that they are abusing the bankruptcy process to take unfair advantage of their creditors. A Chapter 7 trustee made this argument in the case of a Virginia man who filed a Chapter 7 bankruptcy while paying the expenses associated with maintaining two homes, but a federal bankruptcy court ruled that the man had not abused the process.

The court made its decision after considering the totality of the man's financial situation. The debtor was finding it difficult to keep up with two mortgage payments and about $60,000 in student loans after it became clear that his elderly mother-in-law would no longer be able to take care of herself. The man's wife purchased a larger home in order to accommodate her mother. The Chapter 7 trustee claimed that the man could have paid his creditors if he had sold one of his homes or made partial restitution if he had filed a Chapter 13 petition, but the court ruled that the man had not acted in bad faith.

The court said that the man's lifestyle choices were not lavish or reckless and his decision to file a Chapter 7 instead of a Chapter 13 bankruptcy was not an abuse of the process. The court also noted that the man's financial resources had been stretched to their breaking point.

Attorneys with debt relief experience may have encountered clients who were reluctant to file bankruptcies because they were concerned about how their financial decisions would be viewed by the courts. In these situations, attorneys may explain that the nation's bankruptcy laws were passed to provide second chances and not to punish poor choices.

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