Wife’s Solo Bankruptcy Filing Doesn’t Pass ‘Smell Test’

Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.

By Diane Davis

A wife’s Chapter 7 bankruptcy case must be dismissed for abuse because it doesn’t pass the “smell test,” the U.S. Bankruptcy Court for the Eastern District of North Carolina held ( In re Hamilton-Conversano , 2017 BL 344899, Bankr. E.D.N.C., No. 17-00128-5-SWH, 9/28/17 ).

The case “contravenes the intended purposes of the Bankruptcy Code” to give a discharge to an “honest but unfortunate debtor seeking a fresh start, not a head start,” Judge Stephani W. Humrickhouse wrote Sept. 28.

Sara Lianne Hamilton-Conversano filed Chapter 7 without her husband Francis Conversano. They owned joint property worth $200,000, and a mortgage of $149,595. They jointly owned two cars, and had one American Express card that they jointly used to pay for all household expenses.

After the American Express bill’s balance got up to $46,692, she stopped making payments on it. American Express sued, and Hamilton-Conversano filed Chapter 7.

Conversano has substantial income, but only his actual contributions to the household expenses must be included as her income, Hamilton-Conversano argued.

The court disagreed. Conversano tried to avoid any responsibility for their shared expenses by putting all of the household expenses in Hamilton-Conversano’s name, the court said.

Because Hamilton-Conversano wanted to discharge a debt incurred entirely to pay household expenses, while the household budget, including Conversano’s income, was enough to pay at least a portion of the debt there’s a presumption of abuse under Bankruptcy Code Section 707(b)(1), the court said. No evidence rebutted that presumption.

Hamilton-Conversano’s filing was also abusive under a “totality of the circumstances” test under Bankruptcy Code Section 707(b)(3), the court held.

It allowed Sara 14 days to convert her case to one under Chapter 13, in which she repays her creditors in a three-to five-year plan.

William E. Brewer Jr., Janvier Law Firm PLLC, Raleigh, N.C., represented Hamilton-Conversano; Trustee Richard Dewitte Sparkman, Richard D. Sparkman P.A., Angier, N.C., represented himself.

To contact the reporter on this story: Diane Davis in Washington at DDavis@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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