FAILURE TO SCHEDULE RENTAL INCOME MAY BE BAD FAITH IN BANKRUPTCY PART 2

But there was indeed rental income. So what’s going on? The US Trustee noted that the couple’s 2009 joint federal income tax return included $49,350 as rental income. The debtor said she and her husband kept separate accounts, that he contributed very little money to the household expenses, and she did not receive an allowance from him. He was Mr. Deadbeat, in other words. She said the rental properties were bought by her husband, and she had nothing to do with them. She said she filed for bankruptcy because she lost her job and could not afford to pay her bills. The US Trustee asked the bankruptcy court to dismiss the case pursuant to Section 707(b)(1) and (b)(3). The bankruptcy court said it did not need to decide whether the debtor’s husband’s income needed to be included for purposes of determining whether the debtor had the ability to repay her debts under the totality of the circumstances test of Section 707(b)(3)(B) because the bankruptcy was filed in bad faith under Section 707(b)(3)(A). The debtor failed to identify her husband’s rental property income in Schedule I even though she deducted the rental property mortgage expenses in Schedule J, and then she failed to amend her schedules to include the rental income. Hence the court considered debtor’s failure to disclose the rental income while deducting the rental property mortgage expense as bad faith.

Section 707(b)(1) states that the court, after notice and a hearing, … may dismiss a case filed by an individual debtor under chapter 7 whose debts are primarily consumer debts, or with the debtor’s consent, convert the case to a case under Chapter 11 or 13, if it finds that the granting of relief would be an abuse of bankruptcy law. Section 707(b)(3)(A) states that in considering whether granting relief would be abuse of bankruptcy law, the court shall consider whether the debtor filed the petition in bad faith. In (3)(B) the court refers to the totality of circumstances to determine if there was abuse.

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.