In Re Damian Gerald Chapman

• Decision Date: 10 June 2010
• Docket Number: No. BKY 0835303.,BKY 0835303.
• Citation: 431 B.R. 216
• Parties: In re Damian Gerald CHAPMAN and Melissa Ann Chapman, Debtors.
• Court: U.S. Bankruptcy Court — District of Minnesota

431 B.R. 216

In re Damian Gerald CHAPMAN and Melissa Ann Chapman, Debtors.

No. BKY 0835303.

United States Bankruptcy Court,

D. Minnesota.

June 10, 2010.

Craig W. Andersen, Craig W. Andersen Law Office, Bloomington, MN, for Debtors.

Jasmine Z. Keller, Minneapolis, MN, Michael J. Iannacone, Lake Elmo, MN, Trustees.

ORDER DENYING MOTION OF UNITED STATES TRUSTEE FOR DISMISSAL UNDER 11 U.S.C. § 707(b)(1)

GREGORY F. KISHEL, Bankruptcy Judge.

This case came on before the Court for hearing on the motion of the United States Trustee for dismissal pursuant to 11 U.S.C. §§ 707(b)(1)-(3). The United States Trustee appeared by his attorney, Sarah J. Wencil. The Debtors appeared by their attorney, Craig W. Andresen. The Debtors' response raised an issue that appeared to go to the fundamental availability of relief under § 707(b) in this case, as it was then postured. Further proceedings on the motion were held in abeyance, to determine how best to address this issue. Analysis of the relevant statutory text revealed that the issue was dispositive. This order sets forth the disposition and its supporting rationale.

The Debtors in this joint case are husband and wife. They started this case by filing a voluntary petition under Chapter 13 on October 10, 2008. After one pre-confirmation modification, their plan was confirmed on January 29, 2009. In the early fall of 2009, relief from stay was granted to two secured parties, the holder of a mortgage against the Debtor's homestead and the creditor on the one auto loan that was treated under their plan. The Debtors had not contested either motion. On October 16, 2009, the Debtors converted this case to one under Chapter 7.

On December 28, 2009, the U.S. Trustee filed a motion for dismissal under 11 U.S.C. § 707(b)(1). He cited grounds under 11 U.S.C. § 707(b)(2) (invoking the presumption of abuse that arises from that statute's so-called “means test” for relief under Chapter 7) and 11 U.S.C. § 707(b)(3) (maintaining that the “totality of circumstances” of the Debtors' income, expenses, debt structure, and history in bankruptcy evidenced an abuse of Chapter 7 remedies).

Both of the U.S. Trustee's theories implicated substantial issues of fact. However, in their response the Debtors raised an issue purely of law: whether § 707(b)(1) even applies in a case that had been commenced via a petition under Chapter 13, and was converted to one under Chapter 7 post-petition. As it turns out, the issue is one of simple statutory construction, resolved by reference to the face of the governing statutes. And, it has been explored by other courts in an appreciable number of published decisions that are readily-accessible and reasonably clear in their logic. Thus, further briefing or argument from the parties is not warranted the record at bar is an adequate platform for a decision now.

The relevant statutory text that creates the remedy now invoked is:

After notice and a hearing, the court, ... on a motion by the United States trustee, ... 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 an abuse of the provisions of [Chapter 7].

11 U.S.C. § 707(b)(1) (emphasis added). The italicized language creates the dispute at bar; the question is the meaning of the phrase “filed ... under this chapter,” i.e., Chapter 7, the chapter of the Bankruptcy Code in which the governing section, § 707(b), is located.

The issue is created by a potential inconsistency in statutory language, specifically in the verbs that are used in participle form to identify signal events for the application of the Code's substantive provisions.¹ The inconsistency is that, in the direct sense of the nouns and verbs in the Code's general structural provisions, a bankruptcy “case” is not “filed,” in and of itself.² Rather, a bankruptcy case is “commenced,” via the filing of a specific document, a discrete statement of an intention to invoke bankruptcy remedies that is called a “petition.” 11 U.S.C. § 301(a).³ Then, via something like the tertiary part of a syllogism, “[t]he commencement of a voluntary case under a chapter of [the Bankruptcy Code] constitutes an order for relief under such chapter.” 11 U.S.C. § 301(b) (emphasis added).⁴

A consistent vocabulary, with precise linkages and meaning, is the basis of these provisions-springing as they did from the carefully-balanced craftsmanship that produced the Bankruptcy Code's original, 1978 enactment. That consistency is underlined by the text of 11 U.S.C. § 348(a), which is the same today as when enacted in 1978. This paragraph opens a section that governs the effect of the conversion of a case between the governance of different chapters of the Code; and it provides as follows:

Conversion of a case from a case under one chapter of [the Bankruptcy Code] to a case under another chapter of [the Bankruptcy Code] constitutes an order for relief under the chapter to which the case is converted, but ... does not effect a change in the date of the filing of the petition, the commencement of the case, or the order for relief.

11 U.S.C. § 348(a) (emphasis added).⁵

So, on the sense of the basic, structural provisions of the Bankruptcy Code alone, the participle-modifier “filed” in the prefatory text of § 707(b) unequivocally signifies the act of initiating the bankruptcy process, “under” a particular chapter of the Code as requested in the petition. The case then is propelled forward under that chapter via a figurative “order” for such relief that is deemed to have been issued at the instant of commencement. The case remains pending under that chapter, i.e., substantively governed by the specific provisions of the chapter and funneled through the chapter's own complex of remedies, until its administration is completed or until it is converted to a case under another chapter. If it is converted to a case under another chapter, the new figurative order directing that new track of remedies, deemed to have been issued coincident with the event of conversion, “does not effect a change in the filing of the petition, the commencement of the case, or the order for relief,” per § 348(a). And, the reference just quoted to the unchanged order for relief must be read as the case's original order for relief, or the language makes no sense in context.

This textual backdrop from the Code's general governance is so clear that it arguably obviates any inquiry into the sense of the specific provision, § 707(b)(1), or its implications in light of the policy underlying § 707(b). The language in question is from a specific provision, § 707(b), in a comprehensive enactment, the Bankruptcy Code; but it has its reference points in general provisions of the same enactment, and the consistency of the general provisions makes the meaning of the specific provision unambiguous in context. All of these parts of the Code are appropriate sources from which to identify “the plain meaning” of a statute, and specific language “must always be read in its proper context.” McCarthy v. Bronson, 500 U.S. 136, 139, 111 S.Ct. 1737, 114 L.Ed.2d 194 (1991). See also Crandon v. United States, 494 U.S. 152, 158, 110 S.Ct. 997, 108 L.Ed.2d 132 (1990) (“In determining the meaning of the statute, we look not only to the particular statutory language, but to the design of the statute as a whole ...”) When that exercise is complete, the courts' inquiry is finished and the language is to be enforced according to its plain meaning. K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291, 108 S.Ct. 1811, 100 L.Ed.2d 313 (1988).

This is the case with the language at bar, under the analysis above. The only exception is “the ‘rare case’ ... that [would] produce[ ] an ‘absurd result’ ” from the application of the text's plain meaning. Owner-Operator Indep. Drivers Ass'n v. United Van Lines, LLC, 556 F.3d 690, 694 (8th Cir.2009). But if one goes through that further exercise, one cannot identify an “absurd result” so out of kilter with the purpose of § 707(b), even post-BAPCPA; so, the above construction of the word “filed,” in the fixed, narrow context of § 707(b) alone, is still fully sustainable.

The reason is as follows. In this district, at least, the U.S. Trustee premises almost all motions under § 707(b) on a general fact-based proposition: where a debtor has the ability to pay something of substance to unsecured creditors over a span of future time, allowing that debtor to proceed to an unqualified, general discharge of unsecured debt would be “an abuse of the provisions of” Chapter 7. This proposition is used under either substantive prong of the statute. When the U.S. Trustee invokes § 707(b)(2), the U.S. Trustee relies entirely on the “deeming” effect of that statute's means test and presumption, triggered with little reference to the debtor's actual financial circumstances, current and future.⁶ The other prong, § 707(b)(3), is phrased broadly enough to prompt its invocation on a comparable showing, though on case-specific facts rather than by attributing uniform financial characteristics to the debtor. The U.S. Trustee does not hesitate to do that.⁷

Where a debtor is “coming in fresh” into bankruptcy (i.e., he is seeking Chapter 7 relief in the first instance, based solely on his and his counsel's anticipatory analysis under the means test and the “totality” approach), the field should be relatively open for a properly-founded challenge to that analysis via a motion under § 707(b)(1). After all, there would be nothing in the debtor's actual past experience to corroborate his assertion, that he simply could not perform under the post-BAPCPA regime of Chapter 13 and should be allowed the full benefit of Chapter 7; and, the clear tenor of BAPCPA's amendments to § 707(b) is that the debtor's initial conclusion on this point is not entitled to any initial deference. Performed by a detached party like the U.S. Trustee, analysis between...