I certainly do not have a firm understanding about how bankruptcy works. For what it's worth -- which is not much -- it seems to me that this Ninth Circuit opinion, which affirms a (split) decision of the Bankruptcy Appellate Panel, seems correct on the merits.
But I do wonder about the equities of the thing.
David and Sharon Welsh live in Montana. They have a house worth $400,000 -- which buys you a lot in Missoula (check out this 5 bedroom, 4 bath home with 4200+ square feet and two acres of land) -- and lots of equity in the home. They own three cars, an Airstream trailer, and two ATVs. They also earn nearly $100,000 every year, plus many additional thousands of dollars in Social Security benefits. In short, for Montana, they're rich.
But, like many of us, they have debts. They cosigned their daughter's student loan and have a $50,000 line of credit with Bank of America. They don't feel like paying these debts. So they file for bankruptcy and propose a plan that has them continuing to pay off their secured debts (the house, cars, trailer, ATVs, etc.) but pay only $15,000 of their $180,000 unsecured debts. Despite the fact that their disposable income, even as calculated pursuant to the bankruptcy rules (e.g., excluding Social Security income), would allow them to make far more substantial payments.
The Ninth Circuit says that the debtors' plan was nonetheless required to be affirmed. Which indeed seems to be the case.
I'm all for giving people a fresh(ish) start. Though case like this one, while perhaps not the most egregious, might not give the bankruptcy rules a great name.
