A federal bankruptcy watchdog is questioning Toni Braxton's recent bankruptcy filing but the Grammy-winning singer's attorney expects the matter to be resolved favorably soon.
In her Chapter 7 bankruptcy petition, filed in Los Angeles on Sept. 30, Braxton reported assets in the range of $1 million to $10 million and debts in the range of $10 million to $50 million.
Recently a court-docket entry from the federal watchdog, the U.S. trustee, notified the Los Angeles bankruptcy court that Braxton's bankruptcy filing is currently presumed to be an abuse of the bankruptcy process.
"The United States trustee has reviewed all the materials filed by the debtor and has determined that the debtor's case is presumed to be an abuse under Section 707(b)," said the trustee, who's part of the Department of Justice. That section of bankruptcy law allows for the dismissal of conversion of an individual's bankruptcy proceeding after notice and a hearing.
According to Debra Grassgreen, Braxton's bankruptcy attorney, her client's bankruptcy filing is valid and that the notice was simply a timing issue. The U.S. trustee had to make a preliminary determination within days of Braxton's Chapter 7 bankruptcy filing as to whether the singer met the requirements of that chapter (in which an independent official will be tapped to liquidate Braxton's assets and distribute the proceeds to creditors). But this deadline came before Grassgreen was able to submit all of the necessary documents for the trustee's investigation.
If the R&B and pop singer's debts were primarily consumer debts, then she would have had to complete a means test to ensure she qualified for Chapter 7 bankruptcy. But she didn't, Grassgreen said, because Braxton's debts are primarily business debts, and she is therefore exempt from the means test.
"We understand that the U.S. trustee has to conduct an investigation," Grassgreen said. "We're cooperating and we are optimistic that once the investigation is completed, the trustee will conclude that Braxton's debts are primarily business debts and therefore not an abuse of the bankruptcy system."