Chapter 7 Dismissal: When Courts Reject Bankruptcy Petitions

Yes, a court can dismiss a Chapter 7 petition if it finds that the use of Chapter 7 would constitute substantial abuse. According to the Bankruptcy Code and related rules, a Chapter 7 case may be dismissed for substantial abuse if it is determined that the debtor could easily repay creditors under a Chapter 13 plan. 12

Key Points:

• Substantial Abuse: The court may dismiss a Chapter 7 case for substantial abuse if the debtor's financial situation indicates that they could repay a significant portion of their debts under a Chapter 13 plan. This determination is typically made based on the debtor's income and expenses, as evaluated through the means test. 45
• Means Test: The means test is used to assess whether a debtor's income is sufficient to repay debts under a Chapter 13 plan. If the debtor's current monthly income exceeds the state median and, after deducting certain expenses, they have enough disposable income to repay a significant portion of their debts, the case may be presumed abusive. 45
• Procedure for Dismissal: A motion to dismiss a Chapter 7 case for substantial abuse must be filed within 60 days after the first date set for the meeting of creditors, unless the court extends this time for cause. The party filing the motion must provide notice to the debtor, the trustee, the United States trustee, and any other entity as the court directs. 1
• Conversion to Chapter 13: In some cases, instead of dismissing the Chapter 7 case, the court may convert it to a Chapter 13 case with the debtor's consent, if it is determined that the debtor can repay debts under a Chapter 13 plan. 12