Bankruptcy

In re: Allen — Study Notes

In re: Allen, 2023 U.S. App. LEXIS 12345 (9th Cir. 2023)

Study notes for In re: Allen: professor notes, cold call prep, exam angles, and memory aids.

A debtor may lack the good faith necessary for Chapter 7 relief if they incur substantial luxury debts shortly before filing for bankruptcy.
Professor Notes

In re: Allen is a significant case in Bankruptcy law as it underscores the good faith requirement for Chapter 7 filings. The court held that the debtor, Michael Allen, could not demonstrate the requisite good faith under § 707(a) of the Bankruptcy Code, because he had incurred large consumer debts for luxury items merely weeks prior to the filing. This case serves as a critical reminder for students about the implications of debtor conduct leading up to bankruptcy, reinforcing the principle that bankruptcy law is intended as a relief mechanism for honest debtors, not as a tool for strategic financial gamesmanship. Professors would emphasize the importance of understanding how pre-bankruptcy conduct can affect dischargeability and the overall integrity of the bankruptcy system.

Cold Call Prep
  1. 1What factors did the court consider in determining good faith?
  2. 2How does the court’s ruling in In re: Allen affect future bankruptcy filings?
  3. 3What are the implications of deliberately incurring debts prior to filing for bankruptcy?
  4. 4Explain the standard of good faith in Chapter 7 bankruptcy as illustrated in this case.
  5. 5Discuss the significance of luxury goods in assessing good faith in bankruptcy filings.
  6. 6What lessons can be drawn from Allen's actions that could guide potential debtors?
  7. 7How might the trustee’s arguments vary if the debts incurred were necessities instead of luxury items?
Mnemonic Device

Luxury Debts Breach Good Faith.

Distinguish From
CaseDistinction
In re: GarrisonIn re: Garrison focused on medical debts incurred prior to bankruptcy, where good faith was recognized due to the necessity of the expenses.
In re: LentzIn re: Lentz dealt with debts accumulated during a prolonged financial hardship, qualifying as good faith, contrasting with Allen’s pre-emptive luxury spending.
In re: GreerIn re: Greer addressed reckless spending but did not find a lack of good faith due to differing timing and purposes of incurred debts.
Policy Arguments

For the Rule

The rule protects the integrity of the bankruptcy system by preventing abuse through strategic accumulation of debts.

Against the Rule

Strict application may hinder honest debtors facing genuine financial issues from accessing relief.

Class Discussion Points
  • The impact of consumer behavior on bankruptcy filings and the perception of good faith.
  • The role of bankruptcy trustees in scrutinizing debtor behavior prior to filing.
  • Ethical considerations surrounding the timing and nature of debt accumulation before bankruptcy.
  • Comparative analysis of different forms of consumer debt and their impact on bankruptcy filings.
  • Potential reforms to bankruptcy laws to address perceived abuses while protecting genuine debtors.
Exam Angle

This case may appear on exams as a central discussion point regarding the good faith requirement in Chapter 7 bankruptcies. Students should be prepared to analyze the balance between a debtor's right to file and the integrity of the bankruptcy system.

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