In re Cortez
| Decision Date | 20 July 2006 |
| Docket Number | No. 05-10459.,05-10459. |
| Citation | 457 F.3d 448 |
| Parties | In Re: Carlos Vicente CORTEZ; Suzanne Hallman Cortez, Debtors. United States Trustee, Appellee, v. Carlos Vicente Cortez; Suzanne Hallman Cortez, Appellants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Erin Marie Schmidt, U.S. Dept. of Justice, Office of U.S. Trustee, Dallas, TX, William Kanter, Tara Leigh Grove (argued), U.S. Dept. of Justice, Civ. Div., Washington, DC, for Appellee.
Behrooz P. Vida (argued), Venable & Vida, Bedford, TX, for Appellants.
Appeal from the United States District Court for the Northern District of Texas.
Before KING, STEWART and DENNIS, Circuit Judges.
This case arises from the debtors' bankruptcy filed under Chapter 7 on April 8, 2004, and the United States Trustee's motion to dismiss for substantial abuse filed under 11 U.S.C. § 707(b) on July 9, 2004. The issue presented on appeal is whether a bankruptcy court should consider post-petition events in deciding whether to dismiss a case for substantial abuse under § 707(b). The bankruptcy court determined that post-petition events should not be considered, and the district court reversed, holding that such circumstances should be considered in determining substantial abuse. Based on the version of § 707(b) that applied to cases filed before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, we AFFIRM the district court's judgment and REMAND the case to the district court with instructions to remand it to the bankruptcy court for further proceedings consistent with this opinion.
On April 8, 2004, Carlos Vicente Cortez and Suzanne Hallman Cortez (collectively, "the Cortezes") jointly filed for bankruptcy under Chapter 7. In addition to their voluntary petition, the Cortezes filed their schedules, showing one secured claim in the amount of $176,000 on their homestead and unsecured debt in the amount of $85,719, the majority of which consisted of credit card debt. Schedule I listed the Cortezes' net income as $4147 per month, and Schedule J listed the Cortezes' total expenses as $5320 per month. At that time, Mr. Cortez was unemployed and Mrs. Cortez was employed as a registered nurse, so all of the income listed on Schedule I was attributable to Mrs. Cortez.1
At the bottom of Schedule I, debtors are instructed to "[d]escribe any increase or decrease of more than 10% in any of the above categories anticipated to occur within the year following the filing of this document." In response, the Cortezes disclosed that Mr. Cortez "believes he will be employed this month, but he has not started working yet."
On April 12, 2004, four days after the Cortezes filed for Chapter 7, Mr. Cortez was offered a position with Aramark Healthcare Management Services ("Aramark") as the Human Resource Director. Mr. Cortez accepted the position and began working for Aramark on April 26, 2004. As the Human Resource Director, Mr. Cortez earned an annual salary of $95,000, making his net income $5896 per month, and received a $5000 signing bonus after sixty days of employment. Mr. Cortez was also eligible to receive a company car.
After Mr. Cortez began working for Aramark, Mrs. Cortez reduced her hours so that her net income as of October 1, 2004, was approximately $750 per month. With Mr. Cortez's new job and Mrs. Cortez's reduced hours, the Cortezes' net income was $6646 per month, exceeding their expenses by $1325 per month. The Cortezes provided documents to the United States Trustee ("Trustee") showing that Mr. Cortez was employed by Aramark and testified to the same at the § 341 meeting of the creditors on May 10, 2004.
On July 9, 2004, the Trustee filed a motion to dismiss under 11 U.S.C. § 707(b), asserting that the Cortezes "appear to have the means to repay a substantial portion of their debts through a Chapter 13 plan," given that the Cortezes' income now exceeded their expenses by $1325 per month, and that it would therefore be a substantial abuse to grant the Cortezes' relief under Chapter 7. On July 28, 2004, the Cortezes filed their response, contending that Mr. Cortez was unemployed at the time they filed their Chapter 7 petition and that it was inappropriate for the court to consider post-petition events, including Mr. Cortez's employment with Aramark, in deciding whether to dismiss their case under § 707(b).
On November 5, 2004, the bankruptcy court denied the Trustee's motion to dismiss, concluding "that post-petition events should not be considered in deciding whether to dismiss a case under section 707(b) unless the events were clearly in prospect at the time of filing for bankruptcy." Relying on In re Pier, 310 B.R. 347, 355 (Bankr.N.D.Ohio 2004), the bankruptcy court interpreted the phrase "granting of relief" in § 707(b) to mean an "order for relief," which occurs at the commencement of the case, under 11 U.S.C. § 301. The bankruptcy court reasoned that its analysis must therefore "focus on whether the order for relief granted on the Petition Date by operation of section 301 was proper, not whether substantial abuse would occur if the court were to grant that same relief for the first time today." The bankruptcy court concluded that it was barred from considering facts that arose after the commencement of the case in deciding substantial abuse under § 707(b). In other words, the bankruptcy court determined that it could consider the circumstances only as they existed on the petition date "including anticipating post-petition events known to be in prospect at the time of filing."
The bankruptcy court explained that using the date of filing for deciding whether substantial abuse exists was consistent not only with the language of §§ 301 and 707(b), but also with the Bankruptcy Code's general policy of using the filing date to determine a party's rights in a bankruptcy case. The bankruptcy court pointed out that the automatic stay under § 362, the debtor's entitlement to exemptions under § 522, and the determination of secured claims under § 506, among other Code provisions, all use the petition date as the point of reference.
Applying its interpretation of § 707(b) to the Cortezes' case, the bankruptcy court found that Mr. Cortez's post-petition employment could not be considered because it was not an event clearly in prospect at the petition date.2 Given that it could not consider Mr. Cortez's post-petition improvements in earnings, the bankruptcy court concluded that the debtors did not have the ability to fund a Chapter 13 plan and therefore denied the Trustee's motion to dismiss.
On March 9, 2005, the district court reversed the bankruptcy court's order, holding that the language of § 707(b) makes clear "[t]hat post-petition events are to be taken into account in ruling on a motion under § 707(b)." The district court explained that § 707(b) specifically instructs courts not to consider whether a debtor has made, or continues to make, charitable contributions. The district court reasoned that the fact that no other limitations are placed on the court in ruling on such motions provides sufficient support for its conclusion that the text of § 707(b) takes post-petition events into account, except to the extent that the debtor continues to make charitable contributions.
The district court also distinguished In re Pier, 310 B.R. 347, the primary case the bankruptcy court relied on in its interpretation of § 707(b), as standing "for the proposition that a later change in circumstances will not necessarily save a bankruptcy whose original filing was a substantial abuse of the provisions of Chapter 7." The district court explained that
[s]uch is not the case here, where the issue is whether debtors have the ability to make significant payments to their creditors from future income. Moreover, there was no need for the bankruptcy court to rely on Pier in making a case for assessing a § 707(b) motion as of the time of filing of a petition. All of the pertinent authorities implicitly, if not explicitly, recognize that a debtor's current and future expected income is to be taken into account in determining whether the debtor is in need of Chapter 7 relief.
(citing Behlke v. Eisen (In re Behlke), 358 F.3d 429, 434-35 (6th Cir.2004), Stuart v. Koch (In re Koch), 109 F.3d 1285, 1288 (8th Cir.1997), and In re Laman, 221 B.R. 379, 381 (Bankr.N.D.Tex.1998)).
On March 4, 2005, while the case was on appeal to the district court, Mr. Cortez lost his job at Aramark. The Cortezes contend that the district court was unable to consider Mr. Cortez's job loss because the district court issued its order and final judgment on March 9, 2005, without oral argument and before the Cortezes could file a reply brief advising the district court of their post-petition change in financial circumstances. As of May 2, 2006, Mr. Cortez was still unemployed.
On April 7, 2005, the Cortezes filed this appeal, arguing that (1) the district court erred in concluding that § 707(b) takes into account post-petition events, and (2) the district court erred in limiting the bankruptcy court's ability to consider additional post-petition changes on remand, such as Mr. Cortez's job loss and current unemployment.
Before addressing the merits of this dispute, we first must consider whether we have jurisdiction to hear this appeal. Although neither party raised the issue before this court, "`we are obligated to examine the basis for our jurisdiction, sua sponte, if necessary.'" Chunn v. Chunn (In re Chunn), 106 F.3d 1239, 1241 (5th Cir.1997) (quoting Williams v. Chater, 87 F.3d 702, 704 (5th Cir.1996)).
We have jurisdiction to hear "appeals from all final decisions, judgments, orders, and decrees" in bankruptcy matters entered under § 158(a) and (b). 28 U.S.C. § 158(d)(1); see also Andrews & Kurth L.L.P. v....
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