Gambling losses may justify denial of discharge if they cannot be documented In re Mantra, N.D. Ill. 2004

§727(a)(5) provides that "[t]he court shall grant the debtor a discharge, unless . . . The debtor has failed to explain satisfactorily . . . Any loss of assets or deficiency of assets to meet the debtor's liabilities[.]" In this case the Court observed that: §727(a)(5) is broadly drawn and clearly gives a court broad power to decline to grant a discharge in bankruptcy where the debtor does not adequately explain a shortage, loss, or disappearance of assets. Martin, 698 F.2d at 886 (citations omitted). The Court is not concerned with the wisdom of a debtor's disposition of assets but instead focuses on the truth, detail and completeness of the debtor's explanation of the loss. See In re D'Agnese, 86 F.3d 732, 735 (7th Cir. 1996). The Creditor in this case demonstrated that in January 2003 the Debtor obtained approximately $64,000.00 from the refinance of a first mortgage, but by October the funds were no longer available. The only evidence adduced at trial was the Debtor's testimony that he lost the money gambling.The Debtor offered no documentary or other testimonial evidence to corroborate his explanation. Those gambling loses were not reflected in his bank account records. The Court therefore found that the Debtor had not satisfactorily explained the loss of those funds.

High income and ability to pay 11% of unsecured debt is not "substantial abuse"

In re Shinn, M.D.N.C. 2004

Debtor had unsecured debts of $145,000 and in a 36 month Plan could pay Unsecured Creditors an 11% dividend. Given Debtor's mortgage debt of $763,197.87 and the likelihood that the mortgage would not be fully paid in a foreclosure, resulting in an additional unsecured deficiency, the Court found even that figure optimistic. A representative of the Chapter 13 Trustee who reviewed the Debtor's income and expenses testified that the Debtor did not have sufficient disposable income to fund a 36 month plan that would pay 25% to unsecured creditors. Based on the foregoing the Court found that there had been no showing that the Debtor had the ability to pay for purposes of §707(b).The Court also considered the circumstances leading to the filing of the case and whether there were extenuating circumstances such as illness, loss of employment or calamity.

Debtor need not obtain Court authority to employ Divorce Attorney during Chapter 13

In re Powell, Bankr. N.D. TX, 2004

The Debtor employed Divorce Attorneys who requested compensation and reimbursement of $65,276.79. While the Court did not enter an order authorizing the Debtor to retain Divorce Counsel during the Chapter 13 case, it also concluded that a Chapter 13 Debtor does not need Court authorization to employ an Attorney. The Code provides that a “Trustee” may, with Court approval, employ an Attorney. §327(a), (e). This requirement does not extend to the Debtor. However, note that the Code does require Court approval of fees.

Pre-Petition Attorneys' Fees not dischargeable in Chapter 13

In re Busetta-Silva, 10th Cir. BAP 2004

Debtor's Attorney ran up several hundred dollars in prepetition services that remained unpaid as of the filing. The Attorney filed a motion for Court approval of the fees.The only issue addressed at the final hearing was whether those fees could be paid as an administrative expense. The Attorney, the Trustee and a third party appearing amicus curiae argued without opposition in favor of allowing the fees. Shortly after the final hearing the Court entered an Order allowing all Post-Petition fees and costs requested as an administrative expense (the "Postpetition Fee Order"). The Court did not rule on the Pre-Petition fees in the Postpetition Fee Order, stating that the matter remained under advisement.The Court subsequently entered its memorandum opinion and order disallowing the Pre-Petition fees as an administrative expense and allowing them as a general unsecured claim to be paid pro rata with the claims of other unsecured prepetition creditors.The Bankruptcy Court held that, despite case law and sound policy in favor of treating the Pre-Petition fees as an administrative expense, such treatment was not expressly authorized by §§330 or 507, and that those sections could not be interpreted to grant such claims priority in light of the fundamental distinction between prepetition and postpetition assets and liabilities.The 10th Circuit BAP reversed, apparently holding that fees incurred prepetition could be deemed administrative expenses under §503(b)(1)(A), treated as priority claims under §507(a)(1) and paid in full through the Plan.

Note: The opinion fails to explain exactly how services performed prepetition may be deemed administrative expenses.