Automated Summary
Key Facts
Jordan Reese Clark and Kadri Clark filed a Chapter 7 bankruptcy petition on March 18, 2025, operating a real estate business. The Bankruptcy Administrator filed an amended motion to dismiss for abuse under 11 U.S.C. § 707(b)(2) and (b)(3), contending the debtors miscalculated their Current Monthly Income (CMI) by omitting cryptocurrency sale proceeds of $67,674.60 received during the six-month means testing period. The court held that cryptocurrency proceeds constitute income for CMI purposes and that the debtors' schedules inaccurately reflected their financial condition. Additionally, the court found abuse under the totality of circumstances due to excessive expenses including private school tuition, luxury spending, and schedule inconsistencies while seeking to discharge over $300,000 in unsecured debt. The motion to dismiss was ALLOWED.
Issues
- Whether the debtors' financial situation, including excessive expenses, inaccurate schedules, and lifestyle choices that ignore obligations to creditors, demonstrates abuse under the totality of circumstances analysis under 11 U.S.C. § 707(b)(3)
- Whether proceeds from the sale of cryptocurrency must be included in a chapter 7 debtor's calculation of current monthly income for purposes of the means test under 11 U.S.C. § 707(b)(2)
- Whether the debtors' current monthly income, when properly calculated including cryptocurrency proceeds, exceeds the median income threshold creating an unrebutted presumption of abuse under 11 U.S.C. § 707(b)(2)
Holdings
The court held that cryptocurrency sale proceeds received during the six-month means testing period must be included in the debtor's calculation of current monthly income (CMI) for purposes of the means test. The court found the Clarks' CMI calculation was inaccurate due to the omission of $67,674.60 in cryptocurrency sale proceeds. Based on the corrected CMI of $19,862.70, the court found an unrebutted presumption of abuse under 11 U.S.C. § 707(b)(1). Additionally, the court found that the totality of the circumstances demonstrated abuse under § 707(b)(3), including excessive discretionary expenses (private school tuition, luxury items) and inaccurate financial schedules. The court allowed the Bankruptcy Administrator's amended motion to dismiss the Chapter 7 case for abuse under both 11 U.S.C. § 707(b)(1) and § 707(b)(3).
Remedies
The court granted the Bankruptcy Administrator's amended motion to dismiss the chapter 7 bankruptcy case for abuse under both 11 U.S.C. § 707(b)(1) and § 707(b)(3). The Clarks may convert their case to another chapter within 14 days of the order date, failing which the case will be dismissed.
Legal Principles
- In motions to dismiss under § 707(b), the party seeking dismissal bears the initial burden to show the debtor's figures are incorrect. Once established, the burden shifts to the debtor to prove their figures are correct or demonstrate special circumstances. Debtors exercise more control over evidence relating to their income and expenses.
- Under the means test, if a debtor's current monthly income exceeds the applicable median income, there is a presumption of abuse. The debtor must then show special circumstances to rebut this presumption. The court finds the case presumed to be an abuse when CMI is above median income.
- The court examines whether the petition was filed in good faith by considering the totality of circumstances, including budget adequacy, schedule accuracy, and financial transparency. The court finds that continuing unreasonable expenses while discharging substantial debt demonstrates bad faith.
- The court determined cryptocurrency sale proceeds must be included in CMI calculation because the asset was liquidated for cash and used to pay household obligations. The court rejected the argument that cryptocurrency is equivalent to legal tender, finding it was an investment vehicle that generated realized gains.
Precedent Name
- Comm'r v. Glenshaw Glass Co., 348 U.S. 426 (1955)
- In re Green, 934 F.2d 568 (4th Cir. 1991)
- In re Montalto, 537 B.R. 147 (Bankr. E.D.N.Y. 2015)
- In re Walsh, 287 B.R. 154 (Bankr. E.D.N.C. 2002)
- In re Curcio, 387 B.R. 278 (Bankr. N.D. Fla. 2008)
- In re Zahn, 391 B.R. 840 (B.A.P. 8th Cir. 2008)
Cited Statute
- Bankruptcy Code provision for consumer debt abuse
- Bankruptcy Code presumption of abuse formula
- Bankruptcy Code current monthly income definition
- Bankruptcy court subject matter jurisdiction
- Bankruptcy Code totality of circumstances abuse standard
Judge Name
Pamela W. McAfee
Passage Text
- Based on the weight of authority, the court concludes that the gains realized from the sale of an investment asset during the six months prior to filing must be included as 'income' for purposes of calculating CMI.
- The court finds that the Clarks' calculation of CMI is inaccurate due to the omission of the cryptocurrency sale proceeds, the inclusion of which creates an unrebutted presumption of abuse, and that the totality of the circumstances in this case demonstrates abuse. Accordingly, the BA's amended motion to dismiss the case for abuse is ALLOWED under both 11 U.S.C. § 707(b)(1) and § 707(b)(3). The Clarks may convert their case to another chapter within 14 days of the date of this order, failing which the case will be dismissed.
- In summary, based upon all the foregoing, the court finds that the totality of the circumstances demonstrate abuse. There are several enumerated expenses that, taken collectively and in the context of an effort to discharge over $300,000 in general unsecured debt, are unreasonable. There is no meaningful effort on the debtors' part to adjust a very comfortable lifestyle to try to pay creditors. The schedules do not reflect a full and accurate picture of the Clarks' financial circumstances, and, to the extent that the court does have the necessary information and insight, the resulting picture tips the scales toward bad faith.