In re Davis, Case No. 08-19602 (Bankr. N.D. Ohio 12/9/2009)
| Decision Date | 09 December 2009 |
| Docket Number | Case No. 08-19602. |
| Parties | In re: Cameia Davis Chapter 7, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
RANDOLPH BAXTER, Bankruptcy Court.
The matter before this Court is the U.S. Trustee's Motion to Dismiss pursuant to §707(a) and §707(b)(3) of the Bankruptcy Code (the "Motion"). The Debtor, Cameia Davis, filed an objection to said Motion. Core jurisdiction of this matter is acquired under provisions of 28 U.S.C. § 157(b)(2), 28 U.S.C. § 1334, and General Order No. 84 of this district. Upon a duly noticed evidentiary hearing and an examination of the record, generally, the following factual findings and conclusions of law are herein rendered:
*
The Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code on December 7, 2008. The Debtor filed an earlier petition under Chapter 7 of the Bankruptcy Code on November 6, 2006. In her prior petition, the Debtor listed two (2) creditors. The majority of the debt listed on the prior petition was held by creditor, United Mortgage and Loan Investment on a mortgage against real property located at 1768 Noble Road, East Cleveland, Ohio. The Debtor classified this debt as primarily business in nature. Upon this classification, the U.S. Trustee filed a Motion to Dismiss the Debtor's bankruptcy case. The U.S. Trustee argued that the debts were primarily consumer in nature and, as such, the Debtor should be subject to the means test. After applying the means test, the U.S. Trustee asserted that the Debtor had disposable income and granting her a discharge would constitute an abusive filing pursuant to § 707 of the Bankruptcy Code. The Debtor objected to the U.S. Trustee's contentions. Upon a duly noticed evidentiary hearing, the Court entered a Memorandum of Opinion and Order. In that opinion, the Debtor's debts were determined to be primarily consumer in nature. Although, a presumption of abuse was not found pursuant to § 707(b)(2), abuse was found pursuant to § 707(b)(3). Specifically, the Court denied the Debtor a discharge because she was found to have disposable income. [11 U.S.C. § 707(b)(3)].
In the case at bar, the Debtor lists five (5) secured creditors who hold secured claims against the same real property scheduled in the Debtor's earlier case. As in the prior case, the Debtor classified these debts as primarily business in nature. Upon this classification, the U.S. Trustee renewed his dismissal motion.
The U.S. Trustee asserts that the Debtor filed the current petition in an attempt to circumvent the Court's prior decision. He argues that the current petition is virtually identical to the prior petition because they both list the "same debts." The U.S. Trustee asserts that the nature of the Debtor's debts were previously litigated and determined to be primarily consumer in nature. He further asserts that the Court previously determined that granting the Debtor a discharge would be abuse under § 707(b)(3). The Court's prior order was final and appealable, however, the Debtor did not file an appeal. Thus, the U.S. Trustee avers, the Debtor is collaterally estopped from re-litigating these issues. See Motion to Dismiss. The U.S. Trustee also asserts that the Debtor lacks the need for a discharge because she is gainfully employed, enjoys a stable source of income and has disposable income. Finally, the U.S. Trustee avers that the Debtor's financial condition has not changed since her prior bankruptcy case which was dismissed for abuse under § 707(b)(3), and no evidence was presented to show otherwise.
The Debtor objects to the U.S. Trustee's contentions. Firstly, the Debtor concedes that the debts listed on the Current Petition are primarily consumer in nature. Notwithstanding this concession, the Debtor asserts that the debts listed on the current petition are not the "same debts" listed on the prior petition. Specifically, the Debtor contends that the prior petition listed only two creditors, the largest holding a mortgage against the real property, while the current petition lists five creditors, four of which hold a secured claim against the Debtor's property.
Secondly, the Debtor argues that her income and expenses have changed since her prior bankruptcy case. According to the Debtor, her employer, the U.S. Postal Service, reduced overtime which decreased her monthly income. Simultaneously, she contends her expenses increased. Lastly, she asserts that, although her schedules indicate a net monthly disposable income of $130.92, this amount does not accurately reflect her monthly income. The Debtor argues that her current monthly income mistakenly includes the $192.00 Social Security benefit she receives for her minor daughter. After subtracting the Social Security benefit, the Debtor avers that her monthly disposable income, which is the difference between her current monthly income and her expenses, would be a negative $61. Thusly, she contends that the presumption of abuse does not arise. Therefore, the Debtor asserts that the U.S. Trustee's Motion should be denied.
**
The Court must determine whether a presumption of abuse arises to warrant dismissal of the Debtor's case pursuant to §707(a) and § 707(b)(3) of the Bankruptcy Code.
*** The U.S. Trustee seeks dismissal pursuant to §707(a) and §707(b)(3), which provide in pertinent part:
(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 or charges required under chapter 123 of title 28; and (3) failure of the debtor in a voluntary case to file, within fifteen days or such additional time as the court may allow after the filing of the petition commencing such case, the information required by paragraph (1) of section 521, but only on a motion by the United States trustee.
(b)(3) In considering under paragraph (1) whether the granting of relief would be an abuse of the provisions of this chapter in a case in which the presumption in subparagraph (A)(1) of such paragraph does not arise or is rebutted, the court shall consider — (A) whether the debtor filed the petition in bad faith; or (B) the totality of the circumstances (including whether the debtor seeks to reject a personal services contract and the financial need for such rejection as sought by the debtor) of the debtor's financial situation demonstrates abuse.
11 U.S.C. §707(a), (b)(3). The party moving for dismissal under §707(a) or §707(b)(3) bears the burden of proof by a preponderance of the evidence standard. In re Oot, 368 B.R. 662, 665 (Bankr.N.D. Ohio 2007); In re Baker, 400 B.R. 168 (Bankr.N.D. Ohio 2009). Section 707(a):
Pursuant to §707(a), a court may dismiss a case filed under Chapter 7 of the Bankruptcy Code for cause. Cause may be determined by the factors listed in §707(a), supra, but may also include a "lack of good faith." In re Zick, 931 F.2d 1124, 1127 (6th Cir.1991). Dismissal based on a lack of good faith must be undertaken on an ad hoc basis. In re Weeks, 306 B.R. 587, 590 (Bankr.E.D. Mich. 2004). It should be confined carefully and is generally "utilized only in those egregious cases that entail concealed or misrepresented assets and/or sources of income, and excessive and continued expenditures, lavish lifestyle, and an intention to avoid a large single debt based on conduct akin to fraud, misconduct, or gross negligence." Zick 931 F.2d at 1129. In other words, dismissal for "lack of good faith" or, more simply put, "bad faith", in the context of § 707(a) may only be utilized in cases where the debtor's motives are clearly inconsistent with the established purpose of the Bankruptcy Code. In re Motaharnia, 215 B.R. 63, 68 (Bankr.C.D. Cal. 1997).
Herein, the U.S. Trustee asserts that the Debtor's case was filed in bad faith because the Debtor is not needy. Specifically, she contends that the Debtor's financial condition has not changed since her prior bankruptcy case, which was dismissed for abuse upon a finding that the Debtor was found to have disposable income. Therefore, the U.S. Trustee argues the Debtor's current case should be dismissed because she has disposable income and lacks the "need" for a discharge.
Dismissal of a bankruptcy case based solely on a lack of need is not explicitly addressed in the language of §707(a). It is, however, discussed within the legislative history of §707(a). The Senate and House Reports provide that "§707(a) does not contemplate...that the ability of the debtor to repay his debts in whole or in part constitutes adequate cause for dismissal." H.R.Rep. No. 595, 95th Cong., 1st Sess.380 (1977); S.Rep.No.95-989, 95th Cong., 2d Sess. 94 (1978). Other than the Debtor's disposable income, the U.S. Trustee presented no other evidence to show that the Debtor's petition was filed in bad faith due to egregious circumstances or to a misrepresentation in assets or to fraud in connection with seeking a discharge of a large single debt. Therefore, the U.S. Trustee failed to meet his burden to dismiss the Debtor's case on bad faith grounds pursuant to§707(a).
The ability to pay alone is insufficient to warrant a dismissal pursuant to § 707(a) or §707(b)(3). Courts may, however, use this factor in determining whether the totality of the circumstances warrants dismissal pursuant to §707(b)(3). In re Pandl, 407 B.R. 299, 301 (Bankr.S.D. Ohio 2009).
A debtor's ability to repay his or her debts for purposes of § 707(b)(3) is commonly determined by examining whether a debtor could adequately fund a Chapter 13 plan. Behlke v. Eisen (In re Behlke), 358 F.3d 429, 434-35 (6th Cir.2004); In re Glenn, 345 B.R. 831, 836 (Bankr.N.D.Ohio 2006). Funding for a Chapter 13 plan is determined by the amount of "disposable income" the debtor has available. Section 1325(b)(2) of the Bankruptcy Code provides the guidelines for computing disposable...
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