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  1. #1
    Join Date
    Feb 2005
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    109

    Default What Happens in an Involuntary Bankruptcy if the Debtor Doesn't Meet the Means Test

    My question involves bankruptcy in the state of: PA

    As a creditor in an involuntary bankruptcy proceeding against a debtor, what happens if the debtor doesn’t meet the Means Test (assuming Chapter 7)? Does the involuntary BK get thrown out?

    If so, can the spouse of the debtor be included jointly in an involuntary bankruptcy? None of the debt is held by the debtor’s spouse, however, so I’m thinking not.

  2. #2
    Join Date
    Oct 2006
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    14,762

    Default Re: Involuntary Bankruptcy — What if Debtor Doesn’t Meet Means Test

    Quote Quoting beekrock
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    My question involves bankruptcy in the state of: PA

    As a creditor in an involuntary bankruptcy proceeding against a debtor, what happens if the debtor doesn’t meet the Means Test (assuming Chapter 7)? Does the involuntary BK get thrown out?

    If so, can the spouse of the debtor be included jointly in an involuntary bankruptcy? None of the debt is held by the debtor’s spouse, however, so I’m thinking not.
    No, you cannot go after the spouse. PA is not a community property state.

  3. #3
    Join Date
    Oct 2014
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    6,787

    Default Re: What Happens in an Involuntary Bankruptcy if the Debtor Doesn't Meet the Means Te

    I think the means test is inapplicable to an involuntary case. The means test is found in 11 U.S.C. § 707(b). The first sentence of paragraph (b)(1) of that section reads:

    After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor's consent, convert such a case to a case under chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions of this chapter.

    (Bolding added.) As indicated by the bolded text, the means test applies only to those cases in which the debtor files the chapter 7 petition. But in an involuntary petition, it is the creditors who file the petition, not the debtor. This makes sense since the idea of the means test is to prevent abuse by debtors filing under Chapter 7 to dump their debts when they could pay off the debts (or at least a good portion of them) under a Chapter 13 bankruptcy. When the creditors file an involuntary petition under Chapter 7 or 11, they are not abusing the system; that's the only bankruptcy option available to them.

    Thus, it seems to me an involuntary case isn't going to be dismissed because of a failure of the debtor to meet the means test.

    The creditors cannot force the spouse, who is not a debtor, to join the involuntary bankruptcy or go after the assets of the non debtor spouse for the debtor's liabilities (unless a fraudulent conveyance argument can be made).

  4. #4
    Join Date
    Sep 2010
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    463

    Default Re: What Happens in an Involuntary Bankruptcy if the Debtor Doesn't Meet the Means Te

    Quote Quoting Taxing Matters
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    Thus, it seems to me an involuntary case isn't going to be dismissed because of a failure of the debtor to meet the means test.
    The analysis is correct.

    In an Involuntary case, the Order for Relief is entered only after the debtor was given the opportunity to Answer the Complaint and defend his/her right NOT to be in bankruptcy. If an Order for Relief under Chapter 7 is signed, there has already been a determination that the Chapter 7 is appropriate.

    Edit to add: If the debtor losses his/her fight to get out of bankruptcy and wants to keep control of his/her assets, he/she can move to convert the case to whatever Chapter he/she deems appropriate. The Court will decide if a Motion to Convert filed by the debtor should or should not be granted.

    Des.

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