In re Davis

• Decision Date: 22 March 2013
• Docket Number: No. 12–11122.,12–11122.
• Citation: 489 B.R. 478
• Parties: In re Stacy C. DAVIS, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Georgia

489 B.R. 478

In re Stacy C. DAVIS, Debtor.

No. 12–11122.

United States Bankruptcy Court,

S.D. Georgia,

Augusta Division.

March 22, 2013.

Terrance P. Leiden, Leiden & Leiden, PC, Augusta, GA, for Debtor.

OPINION AND ORDER

SUSAN D. BARRETT, Chief Judge.

Before this Court is a Motion to Dismiss pursuant to 11 U.S.C. § 707(b) filed by the United States Trustee (“UST”) seeking dismissal based upon the presumption of abuse under 11 U.S.C. § 707(b)(2) or in the alternative, seeking dismissal for bad faith under 11 U.S.C. § 707(b)(3). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2) and the Court has jurisdiction under 28 U.S.C. § 1334. For the following reasons, I find 11 U.S.C. § 707(b) applies in cases converted to chapter 7.

FINDINGS OF FACT

Stacy C. Davis (“Debtor”) commenced this case by filing a chapter 13 petition on June 26, 2012. The Chapter 13 Trustee argued Debtor was ineligible to be a chapter 13 debtor because her non-contingent, liquidated, unsecured debts exceed the chapter 13 debt limits pursuant to 11 U.S.C. § 109(e).¹ In response, Debtor converted her case to chapter 7.

According to her schedules, Debtor is a physician with income of roughly $200,000.00 per year and a household consisting of three persons (herself and two minor children, ages 6 and 8). As set forth in Debtor's means test, the median income for a family of three in Georgia is $57,470.00. Dckt. No. 49. Debtor's income is well above the median income for a family of her size. Because the presumption of abuse arises, the UST filed a motion to dismiss. In her response to the UST's motion, Debtor argues § 707(b) applies only to cases originally commenced under chapter 7 and not to cases that are subsequently converted to chapter 7. Conversely, the UST contends that § 707(b) applies to all chapter 7 cases involving individual debtors, not just those originally filed under chapter 7.

CONCLUSIONS OF LAW

The threshold issue is whether 11 U.S.C. § 707(b) applies to cases that are converted to a chapter 7 case. “It is well established that ‘when the statute's language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms.” ’ Lamie v. U.S. Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004).

The plain meaning of legislation should be conclusive, except in the rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters. In such cases, the intention of the drafters, rather than the strict language, controls.

United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989)(internal quotation marks and citation omitted).

Section 707(b)(1) of the Bankruptcy Code provides “[a]fter notice and a hearing, the court ... may dismiss a case filed by an individual debtor under this chapter....” 11 U.S.C. § 707(b)(1).² In the present case, Debtor argues the term “filed” modifies both the phrase “by an individual debtor” and the phrase “under this chapter.” Debtor argues since she did not originally file a chapter 7 case, § 707(b) does not apply. Conversely, the UST construes “filed” as modifying only the phrase “by an individual debtor,” and therefore, argues § 707(b)(1) applies to all chapter 7 cases involving individuals.

Both Debtor's and the UST's interpretation have been recognized as permissible readings of the statutory language at issue. Compare Advanced Control Solutions, Inc., v. Justice, 639 F.3d 838, 840 (8th Cir.2011)(“[A]s we have previously indicated, § 707(b)(1) applies with equal force to bankruptcy proceedings that commenced under chapter 7 as with those converted from chapter 13.”); In re Perfetto, 361 B.R. 27 (Bankr.D.R.I.2007) (same); In re Lassiter, 2011 WL 2039363 (Bankr.E.D.Va. May 24, 2011)(same); In re Chapman, 447 B.R. 250 (8th Cir. BAP 2011) (same); In re Willis, 408 B.R. 803 (Bankr.W.D.Mo.2009)(same); In re Kellett, 379 B.R. 332 (Bankr.D.Or.2007)(same) with In re Pate, 2012 WL 6737814 (Bankr.S.D.Tex. Dec. 28, 2012)(§ 707(b) does not apply to converted cases); In re Layton, 480 B.R. 392 (Bankr.M.D.Fla.2012)(same); In re Dudley, 405 B.R. 790 (Bankr.W.D.Va.2009)(same); In re Fox, 370 B.R. 639 (Bankr.D.N.J.2007) (same); In re Miller, 381 B.R. 736 (Bankr.W.D.Ark.2008)(same).

After considering the matter, I find the plain language of the statute comports with the UST's interpretation.

“It is a fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.” Davis v. Michigan Dept. of Treasury, 489 U.S. 803, 809, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989). First, the effect of conversion pursuant to 11 U.S.C. § 348(a) supports the UST's interpretation. A voluntary bankruptcy case is commenced by the filing of a petition. 11 U.S.C. § 301(a).³ Commencement of a bankruptcy case constitutes an order for relief. 11 U.S.C. § 301(b). Pursuant to 11 U.S.C. § 348, conversion of a case “constitutes an order for relief under the chapter to which the case is converted....” 11 U.S.C. § 348(a).⁴ There is no change in the date of filing of the petition, commencement of the case, or date of the order for relief. Id. Accordingly, filing is equivalent to conversion, and “an application of § 348(a) of the Bankruptcy Code mandates that the term ‘filed under’ incorporates the term ‘converted to.’ ” Lassiter, 2011 WL 2039363, at *6. Therefore, a debtor who converts her chapter 13 case to chapter 7 is deemed to have filed a chapter 7 case as of the original petition date. In re Resendez, 691 F.2d 397, 399 (8th Cir.1982) (“[I]t is also established that when there is a conversion, the debtors are deemed to have filed a Chapter 7 case at the time the Chapter 13 case was filed.”); In re Chapman, 447 B.R. 250, 253 (8th Cir. BAP 2011) (holding that cases filed under chapter 13 and later converted to chapter 7, are considered to be “filed under” chapter 7 for the purposes of § 707(b)(1)); see also, In re Knighton, 355 B.R. 922, 926 (Bankr.M.D.Ga.2006) (“[C]onverting a case from Chapter 13 to Chapter 7 causes the case to be one that is filed under Chapter 7 on the same date the Chapter 13 petition was filed.”).

In addition, most courts considering the similar phrase “in a case filed under chapter 7” appearing in § 1328(f)(1) have held this language applies to converted cases as well as cases originally filed under chapter 7.⁵See In re Finney, 486 B.R. 177 (9th Cir. BAP 2013); In re Dalton, 2010 WL 55499 (Bankr.M.D.N.C. Jan. 7, 2010) (“under section 348(a), when a debtor converts a chapter 13 case to a chapter 7 case, it ‘constitutes an order for relief under’ chapter 7, retroactively effective as of the date of the filing of the chapter 13 case.”); In re Grice, 373 B.R. 886 (Bankr.E.D.Wis.2007); In re Ybarra, 359 B.R. 702 (Bankr.S.D.Ill.2007); In re Knighton, 355 B.R. 922 (Bankr.M.D.Ga.2006); In re Grydzuk, 353 B.R. 564 (Bankr.N.D.Ind.2006); In re Sours, 350 B.R. 261 (Bankr.E.D.Va.2006); In re Capers, 347 B.R. 169 (Bankr.D.S.C.2006); but see In re Hamilton, 383 B.R. 469 (Bankr.W.D.Ark.2008)(holding that the two year look-back period applied when the first bankruptcy case was originally filed under chapter 13, even though it was later converted to chapter 7).

As one court considering the § 707(b) argument explained,

The Court is particularly persuaded by the apparently unanimous agreement among courts that, for purposes of 11 U.S.C. § 1328(f), the phrase “filing under Chapter 7” encompasses cases converted from Chapter 13 to Chapter 7. Identical words used in different parts of the same statute generally are presumed to have the same meaning. The phrase in § 707(b) “filed by and individual debtor under this chapter [Chapter 7]” is not “identical” to the language in § 1328(f), but it is sufficiently similar to warrant application of this statutory canon. Moreover, this interpretation of § 1328(f) supports what this Court believes to be a more accurate reading of § 348(a) and (b).

In re Willis, 408 B.R. 803, 809 (Bankr.W.D.Mo.2009)(footnote omitted).

Other courts supporting Debtor's interpretation argue that § 348(b) supports their interpretations.⁶ However, § 348(b) does nothing more than delineate the Code sections where the order for relief refers to the conversion of the case. Willis, 408 B.R. at 809;In re Kerr, 2007 WL 2119291, *3 (Bankr.W.D.Wash.2007). As the Kerr court explained,

As this Court reads Section 348, however, the clear intent of the section is to retain the original filing date as the date of the “filing of the petition,” “commencement of the case,” or “order for relief” except in the circumstances provided for in subsections (b) and (c), where these terms are instead deemed to refer to the conversion date. Because Section 707(b) is not mentioned in either subsection (b) or (c) of Section 348, it follows that the original filing date is retained upon conversion, but the case is otherwise treated as if the debtor had originally filed under the converted chapter.

Kerr, 2007 WL 2119291, at *3. Accordingly, § 348(b) simply does not control “whether the phrase ‘filed ... under this chapter’ in § 707(b) encompasses cases converted to Chapter 7.” Willis, 408 B.R. at 809.

Moreover, the UST's interpretation comports with other dismissal statutes in chapters 11, 12, and 13, where respective Bankruptcy Code sections 1112, 1208, and 1307 all refer to dismissal of “a case under this chapter.” Lassiter, 2011 WL 2039363, at *3–*4. By drafting the phrase “filed by an individual debtor” between “may dismiss a case” and “under this chapter” Congress delineated that § 707(b)(1) applies to cases involving individuals—not business entities. “The Court is convinced that the absence of ‘filed by an individual debtor’ from §§ 1112(b)(1), 1208(b), and 1307(b) of the Bankruptcy Code demonstrates that Congress intended for those words...