In re Bell, Bankruptcy No. 85-02150-R.
| Decision Date | 13 January 1986 |
| Docket Number | Bankruptcy No. 85-02150-R. |
| Citation | 56 BR 637 |
| Parties | In re George Robert BELL, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Michigan |
Iris Rubin, Southfield, Mich., for debtor.
ORDER DISMISSING DEBTOR'S CHAPTER 7 PETITION
On June 26, 1985, George Robert Bell filed this voluntary petition under Chapter 7 of the Bankruptcy Code. Following a review of the debtor's petition, the Court, sua sponte, issued an order to appear and notice of hearing pursuant to 11 U.S.C. § 707(b), because the Court was concerned that the granting of relief may constitute a substantial abuse of the provisions of Chapter 7 of the Bankruptcy Code.
The evidence before the Court consists of an Amended Schedule of Current Income and Current Expenditures, filed on October 28, 1985; an affidavit executed by Emma Bell, the debtor's wife, filed on November 14, 1985; and the testimony and exhibits submitted by the debtor at the hearing on October 29, 1985. This evidence indicates that the debtor's current net pay is $3,136.20 per month, pursuant to an employment contract (Exhibit D) entered into in 1983 pursuant to which the debtor became president of the Wayne County Community College. However, he no longer serves in that position. Rather he is on the faculty and teaches. His contract expires in February of 1986, and he has no reason to believe that it will be extended. An instructor with his teaching load would earn approximately $40,000, and he has begun to look for other work in education. His paycheck stub (Exhibit E), shows deductions for FICA, federal income tax, state income tax, city income tax, and a voluntary tax exempt annuity. Bell testified that after July or August of each year, the bi-monthly FICA deduction of $218 is no longer deducted. The voluntary annuity deduction is $410 bi-monthly.
His expenses are as follows:
Home Mortgage Payment $ 400
Utilities 235
Food 480
Clothing 75
Laundry and Cleaning 130
Newspapers, etc. 10
Medical and Drug Expenses 10
Home Insurance 17
Transportation, Gas, and Car
Maintenance 608
Recreation 100
Property Tax 133
Child Support 375
Condominium Dues 60
Condominium Special
Assessment 50
______
Total $2,683
The automobile transportation expense of $608 consists of $450 per month for a lease payment on a 1984 Audi, including taxes and insurance. The balance of the transportation expense consists of $20-25 per week for gas, $5 per week for car wash and $8-10 per week for maintenance. He drives approximately 150-175 miles per week.
His recreation expense of $100 per month consists of six hours of racquetball per week at $6 per hour and movies with his son. The affidavit of Emma Bell, the debtor's wife, from whom he is separated, indicates that Bell voluntarily contributes to her $300 per month for his son's support and $75 per month for clothes and allowance. Bell further testified that the special assessment of $50 per month would expire at the end of 1985.
Regarding the expenditure of $480 per month on food, Bell indicated that this consists of approximately $50 per month at the grocery store and the balance is for eating out at restaurants. He testified that he eats essentially all of his meals at restaurants since he is away from home from the early morning until the late evening.
Bell further testified that he filed bankruptcy because his grocery business, Bell Market Inc., which has also filed a Chapter 7 petition, was unsuccessful and he had put his personal funds into it. He had had no trouble with his debts previously. He also had a consulting company which was unsuccessful.
The Michigan National Bank has a third mortgage on his home resulting from a $100,000 loan to his business which he personally guaranteed. Although it is unlikely that this debt will be paid, it is not clear to him that the bank will foreclose this third mortgage.
In his schedules, the debtor indicated a first mortgage on his condominium to the Bank of the Commonwealth (Comerica) in the amount of $33,000; a second mortgage to the City of Detroit-Community and Economical Development Department in the amount of $15,000; and a third mortgage to the Michigan National Bank for the personal guarantee in the amount of $104,000. Thus the total on Schedule A-2 for creditors holding security is $152,000.
In Schedule A-1, the debtor disclosed $5,477.12 in taxes owing to the United States.
On Schedule A-3, the debtor disclosed unsecured debts of $81,281.28.
On Schedule B-1, the debtor disclosed that his condominium has a market value of $60,000.
In Schedule B-2, the debtor disclosed personal property worth $29,200, including approximately $13,200 in individual retirement accounts and the above-mentioned tax exempt annuity.
On Schedule B-4, the debtor claimed as exempt his annuities, home, furnishings, and jewelry.
On October 28, 1985, the debtor filed an application to amend the schedules and added an unsecured debt in the amount of $43,486, raising the total of the unsecured debt to $127,459.52.
11 U.S.C. § 707(b) provides:
After notice and a hearing, the court, on its own motion and 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.
This section was added to the Bankruptcy Code by Section 312 of the Bankruptcy Amendments and Federal Judgeship Act of 1984, Public Law 98-353.
It is clear from the debtor's petition and from his testimony at the hearing that his debts are "primarily consumer debts"; the debtor does not seriously contend otherwise. See: 11 U.S.C. § 101(7) and In re White, 49 B.R. 869 (Bankr.W.D.N.C.1985). Accordingly, the Court so finds. Thus the only issue is whether the granting of relief would be a "substantial abuse" of the provisions of Chapter 7.
The term "substantial abuse" is not defined in the Code. However, the Court can seek guidance from several prior cases which have addressed this issue.
In In re Bryant, 47 B.R. 21 (Bankr.W.D. N.C.1984), the Court held that the term "substantial abuse" should be given its ordinary, plain meaning. After reviewing the circumstances of the debtor's financial position, and noting the debtor's "relatively exorbitant life style", the court dismissed the petition.
In In re White, supra, the Court held that, in determining whether there is substantial abuse, it should consider the totality of circumstances presented, including the effects upon the petitioner and his creditors should relief under Chapter 7 be granted, or alternatively, denied. Specifically, the Court noted:
In addition to the Petitioner and Creditor\'s circumstances, this Court in judging cases under § 707(b) has heretofore considered the Petitioner\'s excess income and the amount he could have paid in a Chapter 13 case over a plan period of three years. This is compared to the total debt amount to determine whether such future payments would be material with respect to the debt. A large excess income amount or the ability to pay a significant amount of such debts is of course, considered indicative of substantial abuse. 49 B.R. at 874.
The Court further noted, "Implicit in this term `substantial abuse' is some type of an unfair advantage that is obtained by the debtor because of his filing as against his creditors." Id. at 875. Finally, the Court noted that where a debtor is ineligible to file a petition under Chapter 13 under 11 U.S.C. § 109(e), it is appropriate to look to the possibility of a Chapter 11 petition. Id. at 874-75.
In In re Edwards, 50 B.R. 933 (Bankr.S. D.N.Y.1985), the Court held with respect to a proceeding under Section 707(b):
It is to be used to deny Chapter 7 relief to those persons whose pleadings in the form of the petition, schedules, statement of affairs and statement of income and expenses fail to reflect a need for the relief being sought because they do not reflect that the debtor is now suffering or will suffer in the near future from any meaningful economic hardship. 50 B.R. at 936.
After reviewing Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230 (1934), the Court held, "It is reasonable to conclude that a debtor whose income and reasonable expenses indicate that he could pay over three years an amount equal to 100% of the principle owed to his creditors, is not suffering from sufficient economic hardship to warrant use of Chapter 7." Id. at 937. In an extended footnote to this statement, the Court developed the premise that Section 707(b) was not intended to address abuses resulting from fraud by the debtor, as these abuses can be fully remedied by resort to other Code sections, such as 11 U.S.C. §§ 523 and 727. The Court noted however that this 100% figure was intended as only the threshold inquiry level and that in some cases a considerably lower figure might suffice. 50 B.R. at 938, n. 6.
In In re Grant, 51 B.R. 385 (Bankr.N.D. Ohio 1985), after an extended discussion of the legislative history, the Court held that the issue of substantial abuse would be determined by a number of factors:
Whether the debtors have a likelihood of sufficient future income to fund a chapter 13 plan which would pay a substantial portion of the claims of the unsecured creditors is one factor. Whether the debtors have exhibited any bad faith in the filing of their petitions and schedules, or have engaged in eve of bankruptcy purchases is another...
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