On appeal from the bankruptcy court, the district court sits as an appellate court. See 28 U.S.C. § 1334(a). Findings of fact are not to be set aside unless clearly erroneous; conclusions of law are reviewed de novo. Virginia Beach Federal Sav. and Loan Ass'n v. Wood, 901 F.2d 849, 851 (10th Cir.1990); In re Schneider, 864 F.2d 683, 865 (10th Cir.1988); see Bankruptcy Rules 7052 and 8013. "Just as the court of appeals may not conduct an evidentiary hearing for a bankruptcy appeal, so too a district court may not conduct such hearing when it is acting in its capacity as an appellate court. In a bankruptcy appeal, a district court may alter or amend its judgment pursuant to Fed.R.Civ.P. 59(e), but may not conduct a hearing to take additional testimony or other evidence." In re Branding Iron Motel, Inc., 798 F.2d 396, 399 (10th Cir.1986).
When reviewing factual findings, an appellate court is not to weigh the evidence or reverse the finding because it would have decided the case differently. Id. at 400. The Tenth Circuit has held in the bankruptcy context that "the bankruptcy court's findings should not be disturbed absent the most cogent reasons appearing in the record." Id. (quoting In re Reid, 757 F.2d 230, 233-234, (10th Cir.1985)). A factual finding is clearly erroneous when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. Hall v. Vance, 887 F.2d 1041, 1043 (10th Cir.1989).
The underlying facts of this case are undisputed. On August 3, 1992, Heller filed a voluntary petition for relief pursuant to Chapter 7 in the United States Bankruptcy Court for the District of Kansas. Heller's total debt is $40,360.95, which consists exclusively of credit card debts. None of Heller's debts are secured. Prior to filing his voluntary petition, Heller remained current on his payments to his creditors and paid each creditor in monthly installments.
According to the schedules filed, Heller's monthly take home income is $1,829.01; his monthly expenses are $2,249.40 — creating a monthly deficit of $420.39. Heller's monthly expenses included $1,170, which is allocated to pay unsecured credit card debts. If the unsecured creditors were discharged, Heller would have a monthly surplus of $749.61. The approximate value of Heller's exempt property is $8,573.27, of which $6,323.27 is a qualified pension plan.
On November 6, 1992, the United States Trustee filed a motion to dismiss pursuant to 11 U.S.C. § 707(b), alleging that the surplus of Heller's income could be used to fund a Chapter 13 plan, and that this fact alone was a substantial abuse of the provisions of Chapter 7. On January 26, 1993, after a hearing on the Trustee's motion, the bankruptcy court filed its memorandum decision sustaining the Trustee's motion. The order of dismissal states in pertinent part:
4. Debtors (sic) income and expense statements reflect a monthly disposable income of $749.61.
5. At no time has debtor contested the "consumer" nature of the debt nor has debtor contested the amounts shown as expense and income and the amount of disposable income. Debtor has not amended his schedules.
6. The existence of $749.61 of disposable income exhibits an ability to repay the debts for which a Chapter 7 discharge is sought.
7. The existence of $749.61 and the ability to repay is a substantial abuse of the provisions of Chapter 7 of the United States Bankruptcy Code.
Heller timely appeals to this court.
An Overview of U.S.C. § 707(b)
In In re Scheinberg, 134 B.R. 426 (D.Kan. 1992), this court recently considered section 707(b):
Section 707(b) is one of several consumer credit amendments to the Bankruptcy Code made by Congress in 1984 in response to pressure from the consumer credit industry. In re Green, 934 F.2d 568, 570 (4th Cir.1991). Section 707(b) provides:
(b) After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, but 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 provision creates the means for preventing an unscrupulous debtor from abusing Chapter 7 and from unfairly taking advantage of consumer creditors. The courts have broken down the applicability of § 707(b) into two separate inquiries. First, are the debtor\'s debts primarily consumer debts? Second, would the allowance of Chapter 7 relief to the debtor be a substantial abuse of this chapter? In this case, there is no dispute that the debtors have primarily consumer debts. What constitutes "substantial abuse" and what factors should be considered under this inquiry are specifically the questions raised on appeal.
134 B.R. at 427-428.
In determining the meaning of the phrase "substantial abuse" found in § 707(b), this court commented:
Congress chose not to define this term in the text of § 707(b), and there is no significant legislative history behind it. n3 Consequently, courts have struggled with the concept and have adopted differing approaches.n4 As of the `date of this opinion, the Tenth Circuit has not addressed the meaning of "substantial abuse" in the § 707(b) context or the factors to be weighed under it.
Footnotes
n3 Legislative history does reflect that § 707(b) was one of the amendments intended to stem the use of Chapter 7 by unneedy debtors. In re Walton, 866 F.2d 981, 983 (8th Cir.1989). Some courts have resorted to legislative history behind Senate Bill, S. 445, which was introduced in 1983 and contained many of the 1984 amendments. See, e.g., In re Kelly, 841 F.2d 908, 914 (9th Cir.1988). But see, e.g., In re Green, 934 F.2d at 571. The committee report on the final version of S. 445 states that "if a debtor can meet his debts without difficulty as they come due, use of Chapter 7 would represent a substantial abuse." S.Rep. No. 98-65, 98th Cong., 1st Sess. 54 (1983).
n4 The Fourth Circuit has hypothesized that the ambiguity of the term, "substantial abuse," and the lack of any statutory definition is explained by Congress\' difficulty in balancing the competing policies of giving the debtor a fresh start and of limiting consumer credit abuse. In re Green, 934 F.2d at 571.
As adopted by the Ninth Circuit, one approach is "that a debtor\'s ability to pay his debts will, standing alone, justify a section 707(b) dismissal." In re Kelly, 841 F.2d 908, 914 (9th Cir.1988) (citations omitted); see also In re Krohn, 886 F.2d 123, 126 (6th Cir.1989) ("That factor ability to repay alone may be sufficient to warrant dismissal.") The Ninth Circuit reached this conclusion after reviewing numerous bankruptcy court decisions which had considered the principal factor for determining substantial abuse to be the debtor\'s capability for repayment of the debts. 841 F.2d at 914.
In contrast, other courts have looked to the totality of the circumstances and given emphasis to the debtor\'s ability to pay the debts for which discharge is requested. In re Green, 934 F.2d 568 at 571-73; In re Walton, 866 F.2d 981, 984-85 (8th Cir. 1989); Waites v. Braley, 110 B.R. 211, 215 (E.D.Va.1990); In re Vesnesky, 115 B.R. 843, 847-48 (Bankr.W.D.Pa.1990). Other factors to be considered include:
(1) Whether the bankruptcy petition was filed because of sudden illness, calamity, disability, or unemployment;
(2) Whether the debtor incurred cash advances and made consumer purchases far in excess of his ability to repay;
(3) Whether the debtor\'s proposed family budget is excessive or unreasonable;
(4) Whether the debtor\'s schedules and statement of current income and expenses reasonably and accurately reflect the true financial condition; and
(5) Whether the petition was filed in good faith.
In re Green, 934 F.2d at 572 (quoting In re Strong, 84 B.R. 541, 545 (Bankr.N.D.Ind. 1988); In re Grant, 51 B.R. 385, 392 (Bankr.N.D.Ohio 1985)). Under this approach, the courts do not per se dismiss when the debtor has the ability to repay but balance this factor along with other mitigating circumstances. See, e.g., In re Vesnesky, 115 B.R. at 849; In re Higginbotham, 111 B.R. 955, 964-65 (Bankr.N.D.Okla.1990).
Regardless of the approach taken, it is clear that the primary factor involved in § 707(b) determinations is the debtor\'s capacity for repayment. The rationale behind the significance given to this factor is equally clear. A debtor would receive a "head start" rather than a "fresh start" if he could escape debts for which he has the means to repay. Waites v. Braley, 110 B.R. at 215. "`It is morally and legally unconscionable that a person should be able to extinguish his obligations without first making a
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