162 B.R. 31 (Bkrtcy.N.D.Ga. 1993), 92-80660, In re Lee

• Citation: 162 B.R. 31
• Party Name: In re Martin E. LEE, Sandra S. Lee, Debtors.
• Case Date: December 20, 1993
• Court: United States Bankruptcy Courts, Eleventh Circuit

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162 B.R. 31 (Bkrtcy.N.D.Ga. 1993)

In re Martin E. LEE, Sandra S. Lee, Debtors.

Bankruptcy No. 92-80660.

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

December 20, 1993

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B. Morris Martin, McKenzie, Martin, Taylor & McConnaughey, Atlanta, GA, for debtors.

James H. Morawetz, Guy G. Gebhardt, Atlanta, GA, for U.S. Trustee's Office.

ORDER

MARGARET H. MURPHY, Bankruptcy Judge.

This case is before the court on the U.S. Trustee's motion to dismiss pursuant to 11 U.S.C. § 707(b). Debtors filed a brief in opposition to the U.S. Trustee's motion. Hearing was held and the parties filed post hearing briefs and Debtors filed amended schedules. For the reasons set forth below, this case is dismissed pursuant to § 707(b).

In the schedules Debtors initially filed with their Chapter 7 bankruptcy petition, Debtors showed a net monthly income of $3,581.43 and total monthly living expenses in the amount of $2,064.00, leaving a net disposal income of $1,517.43. The schedules also show Debtors' total unsecured debt equals $15,384.71. An analysis of these amounts shows Debtors would have the ability to repay 100% of their unsecured debt in less than 12 months.

The brief filed by Debtors in response to the U.S. Trustee's motion was accompanied by an affidavit which disclosed a recent move by Debtors' family from Arkansas to Georgia and the return home of Debtors' older son. Debtors also have a 13-year-old son. The affidavit corrected an error in Debtors' take home pay to show it as $3,549.98. Additionally, Debtors adjusted their monthly living expenses upward by $1,346. The adjusted monthly expenses included $700 per month for food, $400 per month for transportation (exclusive of car payments), $100 per month for entertainment, and $350 per month as a tithe to Berean Baptist Church. Debtors filed amended schedules which show a net disposable income of $226.98.

An affidavit by the pastor of Berean Baptist Church was presented by Debtors with their post-hearing brief. That affidavit showed that Debtor Martin E. Lee recently became a deacon in the church. The affidavit avers that election to deacon requires a deacon to fulfill his "stewardship" responsibilities. The pastor states in his affidavit that tithing is a part of a church members' stewardship responsibilities. The pastor also states that if a prospective deacon "cannot faithfully attend to the responsibilities outlined in the Church Constitution, including the stewardship responsibilities, he is asked to exempt himself from further consideration as a Deacon." The Church Constitution provides that a deacon must "[b]e faithful in personal Bible study and prayer, soulwinning activities, stewardship responsibilities, and faithful church attendance unless providentially hindered."

Debtor Martin Lee's affidavit avers that he believes his obligation to tithe arises not from his position as deacon but from the obligations imposed upon him by God as a Christian. He admits, however, that previously, in times of financial hardship, he has not tithed. Debtors' tithing to Berean Baptist Church began in January, 1993, shortly after Debtors' Chapter 7 bankruptcy petition was filed.

CONCLUSIONS OF LAW

Section 707 provides:

(a) The court may dismiss a case under this Chapter only after notice and a hearing and only for cause, including--

(1) Unreasonable delay by the debtor that is prejudicial to creditors;

(2) Nonpayment of any fees and charges required under Chapter 123 of Title 28; and

(3) Failure of the debtor in a voluntary case to file, within 15 days or such additional

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time as the court may allow after the filing of the petition commencing such case, the information required by ¶ (1) of § 521, but only on motion by the United States Trustee.

(b) After notice a hearing, the court, on its own motion or on a motion by the United States Trustee, but not at the request or suggestion of any party in interest, may dismiss a case filed by an individual debtor under this Chapter whose debts are primarily consumer debts if it finds that the granting of relief would be a substantial abuse of the provisions of this Chapter. There shall be a presumption in favor of granting the relief requested by the debtor.

Because a presumption exists in favor of according relief to a debtor, the burden of proof is upon the U.S. Trustee to show a debtor's case should be dismissed.

Section 707(b) was enacted as a part of the Bankruptcy Amendments and Federal Judgeship Act of 1984 (hereinafter "1984 Amendments"), in response to criticisms leveled at the Bankruptcy Reform Act of 1978 (hereinafter "Bankruptcy Code") by the consumer credit industry. ¹ The legislative history of § 707(b) indicates its enactment was the result of perceived abuses by Chapter 7 and Chapter 13 debtors which resulted from the liberal provisions of the Bankruptcy Code. ² The provisions of the Bankruptcy Code which were blamed for such abuses were the expansive automatic stay, the overly generous exemption standards, the broadened scope of discharge protection, the Debtor's unfettered choice to elect a no-asset Chapter 7 liquidation, and the lack of any meaningful payment requirement as the condition to confirmation of Chapter 13 plans. Breitowitz, New Developments in Consumer Bankruptcy: Chapter 7 Dismissal on the Basis of "Substantial Abuse", 59 Amer.Bankr.L.J. 327 (1985). ³

The consumer credit industry alleged it suffered significant losses as a result of the increase in the number of bankruptcies which followed the enactment of the Bankruptcy Code. Id. A study conducted by the Credit Research Center affiliated with the Krannert School of Management of Purdue University concluded that a significant percentage of the number of persons filing for relief under Chapter 7 would be able to pay most or all of their debts from their excess disposable income without undue hardship. Id. Those debtors were, however, filing Chapter 7 petitions under which creditors received nothing on their claims.

The proposals made to Congress, including proposals which would limit access to Chapter 7 based on a debtor's ability to pay his debts under Chapter 13, failed to gain sufficient support for enactment prior to 1984. Id. Then, amidst the frenetic legislating in 1984 to amend the Bankruptcy Code to overcome the constitutional defect identified in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), Congress passed the Consumer Credit Amendments, including the enactment of § 707(b). No definition of the term "substantial abuse" is contained in § 707(b) or elsewhere in the Bankruptcy Code. ⁴ The Senate Report which accompanied the enactment of § 707(b), however, sheds some light on Congressional

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intent behind the passage of § 707(b):

This provision represents a balancing of two interests. It preserves the fundamental concept embodied in our bankruptcy laws that debtors who cannot meet debts as they come due should be able to relinquish non-exempt property in exchange for a fresh start. At the same time, however, it upholds creditors' interests in obtaining repayment where such repayment would not be a burden. Crushing debt burdens and severe financial problems place enormous strains on borrowers and their families. Family life, personal emotional health, or work productivity often suffers. By enabling individuals who cannot meet their debts to start a new life, unburdened with debts they cannot pay, the bankruptcy laws allow troubled borrowers to become productive members of their communities. Nothing in this bill denies such borrowers with unaffordable debt burdens bankruptcy relief under Chapter 7. However, if a debtor can meet his debts without difficulty as they become due, use of Chapter 7 would represent a substantial abuse.

S.Rep. No. 98-65 to accompany S. 445, 98 Cong., 1st Sess. (1983) p. 43. Thus, it appears that the primary purpose for the enactment of § 707(b) was to provide for dismissal of the Chapter 7 cases of debtors who can pay their debts from their excess disposable income.

The decision of the Ninth Circuit in Zolg v. Kelly, 841 F.2d 908 (9th Circuit 1988), holds that a debtor's ability to pay his debts defines substantial abuse. In the Kelly case, the debtors filed a Chapter 7 bankruptcy petition primarily to discharge a judgment debt of approximately $25,000. Before filing bankruptcy, the Kellys paid off all their unsecured creditors, consolidating some of their debt into their secured line of credit. Mr. Kelly sold his one-third interest in his law firm for the nominal sum of $100. The Kellys listed $181,350 in assets and $147,000 in debts secured by mortgages against their home. The debtors claimed a $50,000 homestead exemption. The debtors also listed an excess monthly income of $441. Their actual excess monthly income was substantially more because certain of their monthly expenses were found by the bankruptcy court to be excessive. In re Kelly, 57 B.R. 536 (Bankr.Ariz.1986).

The Ninth Circuit examined most of the cases which had been decided under § 707(b) and concluded that the overwhelming majority of cases held "that the principal factor to be considered in determining substantial abuse is the debtor's ability to pay the debts for which a discharge is sought." Kelly, 841 F.2d at 913. The Ninth Circuit, however, went one step further by concluding that "a finding that a debtor is able to pay his debts, standing alone, supports a conclusion of substantial abuse." Id. at 914.

In the case of Green v. Staples, 934 F.2d 568 (4th Cir.1991), the court was not persuaded by the Kelly holding that ability to pay, standing alone, would support dismissal under § 707(b). The Fourth Circuit adopted a...