In re Weixel, 2013 WL 3243563 (U.S. Bankr. App. Ct. 6th Cir. 2013)
It’s hard to give up a life of luxury. You get used to fine dining, flying first class, and living in an expansive home with a beautifully manicured lawn or a spacious apartment downtown. You love your country club membership and attend all the events hosted there. Your children go to the right schools and wear the right clothes. That way of life is easy to love and tough to afford. If you live too close to your means, a small hiccup can topple you into a pit of financial ruin. What happens when economic calamity strikes and you face giving up the luxury life?
With five children, you’d think it would be hard to ever put financial worries out of your mind, no matter how much money you make. Raising kids is expensive, especially if you expect to maintain a lavish lifestyle. At first, the Weixels brought in well over $200,000 every year (between his mortgage brokerage company and her fitness center) and had no trouble affording their expensive tastes. When the financial crisis hit, thousands across the country lost their homes and their livelihoods. Millions felt the pinch and tightened their belts.
The Weixels were no exception to the devastation. His mortgage brokerage company fell to pieces and he had to take a job as a loan officer. His income fell from more than $200,000 to about $50,000 in two years. His wife’s fitness center was slightly less affected. Combined, they earned about $10,000 each month. In re Weixel, 2013 WL 3243563 (U.S. Bankr. App. Ct. 6th Cir. 2013).
Net income of $120,000 a year is nothing to scoff at – unless, of course, you spend almost $2 million on a luxurious house, frequent travel, and fine dining. Even with a six-figure income, that’s difficult to manage. It helps if you don’t file income taxes for a few years and refuse to make your $5,500 monthly mortgage payments, but even with that extra cash, you’ll end up under a mountain of debt. Unsurprisingly, the Weixels learned this the hard way. In re Weixel, 2013 WL 3243563 (U.S. Bankr. App. Ct. 6th Cir. 2013).
When you find yourself in debt up to your eyeballs, you probably want to tighten your belt a notch. Move into a more modest house, eat at home more often, and take fewer vacations. The Weixels, however, would brook no austerity. To save their massive house, they filed for bankruptcy the day before it was sold at auction and continued to live their lavish lifestyle. They ate at restaurants and shopped for new clothes. When their bank accounts were overdrawn they continued to spend money on entertainment and Mr. Weixel traveled to play in poker tournaments around the country.
The bankruptcy court looked at their case, their spending, and their income, and dismissed the case. The Weixels, faced with terrible debts and foreclosure, appealed. The lower court accused them of filing “in bad faith” for failing to curb an unnecessarily extravagant lifestyle. The appellate court reviewed this decision to make sure the lower court had used the correct standard for bad faith in bankruptcy.
The court may dismiss a bankruptcy case based on a finding of bad faith or abuse of the Chapter 7 process. Id. at 5. A debtor who files dishonestly or when bankruptcy is not actually necessary is considered abusive. 11 U.S.C.A. §707(b)(3). Courts consider a debtor’s honesty (or lack thereof) by investigating the “forthrightness in preparing and filling his schedules,… whether he has made substantial purchases on the eve of bankruptcy,… and whether the Chapter 7 filing was caused by unforeseen or catastrophic events.” Weixel, 2013 Westlaw at 5. In other words, “a debtor living beyond his means and refusing to adjust his budget and change his lifestyle support dismissal for abuse under §707(b)(3).” Id.
The Weixels purchased a house worth about $600,000 and financed it entirely, later borrowing another $50,000 against their home. Mr. Weixel continued to travel and play poker; when he won money, he spent it on further poker opportunities rather than using it to pay off his bills. The Weixels neglected to pay taxes for several years and allowed their expensive house to fall into foreclosure. No catastrophic event caused their bankruptcy; they still had ample means and simply refused to adapt accordingly. The appellate court determined that “the Weixels appeared to have made no adjustment to their lifestyle despite their economic distress.” Id. at 6. The court upheld the lower court’s decision and dismissed the Weixel’s case. They would have to face their debts outside the protective umbrella of bankruptcy.
Bankruptcy does not shield dishonest debtors. If you accrued your debts through gambling, lavish vacations, and luxurious tastes, the court will have very little pity on you. Bankruptcy is meant to help those deserving of another financial chance, not those who have ample means but choose to overspend them anyway. Make a good faith effort to cure your own financial situation before you turn to bankruptcy. The court will appreciate your genuine intention to pay off your debts.
Image from Flickr user firstname.lastname@example.org