In re Layton

• Decision Date: 19 October 2012
• Docket Number: No. 8:10–bk–02014–MGW.,8:10–bk–02014–MGW.
• Citation: 480 B.R. 392
• Parties: In re Ronda L. LAYTON, Debtor.
• Court: U.S. Bankruptcy Court — Middle District of Florida

480 B.R. 392

In re Ronda L. LAYTON, Debtor.

No. 8:10–bk–02014–MGW.

United States Bankruptcy Court,

M.D. Florida,

Tampa Division.

Oct. 19, 2012.

Joseph B. Battaglia, The Golden Law Group, Brandon, FL, for Debtor.

MEMORANDUM OPINION ON UNITED STATES TRUSTEE'S MOTION TO DISMISS

MICHAEL G. WILLIAMSON, Bankruptcy Judge.

Bankruptcy Code § 707(b)(1) provides for the dismissal or voluntary conversion of a “case filed by an individual debtor under this chapter [i.e., chapter 7] whose debts are primarily consumer debts ... if [the Court] finds that the granting of relief would be an abuse of the provisions of [chapter 7].” ¹ A presumption of abuse arises where a chapter 7 debtor fails the Means Test.²

It is undisputed in this case that the Debtor fails the Means Test and a presumption of abuse arises. However, the Debtor contends that § 707(b) is not applicable here because she did not file her petition under chapter 7. Instead, the Debtor filed her petition under chapter 13, but later converted the case when she could not afford to fund her chapter 13 plan. Thus, the issue before the Court is whether § 707(b) applies to debtors who originally filed their case under chapter 13 and later convert the case to chapter 7. ³

Several courts have previously addressed this issue, and two lines of precedent have developed. The majority position is the so-called “common sense” view, which holds that converted cases are subject to § 707(b) because Congress intended for the Means Test to be applied in all chapter 7 cases.⁴ In contrast, a significant minority of courts taking up the issue have opted for the “plain language” view, holding that § 707(b) does not apply to converted cases because such cases have not been filed under chapter 7.⁵

Both positions cite anomalies within the Bankruptcy Code and the accompanying Rules that would occur if the opposite view were to prevail.⁶ Unfortunately, these anomalies are not exclusive to a particular view and are readily existent regardless of the position the Court takes. However, for reasons mentioned herein, the Court concludes that the “plain language” view is the better interpretation of the statute. Based on this conclusion, the Court will deny the Motion to Dismiss to the extent it relies on a finding of abuse arising under § 707(b)(1).⁷

Factual Background

On January 29, 2010, the Debtor filed her petition under chapter 13 of the Bankruptcy Code. The Court subsequently confirmed the Debtor's chapter 13 plan, which provided for the abandonment of the Debtor's undersecured homestead and a 100% payout to the Debtor's unsecured creditors. Unfortunately, the Debtor lost her job following the confirmation of her plan and was unable to make timely payments to the chapter 13 Trustee. As such, on December 7, 2011, the Debtor voluntarily converted to a chapter 7 case in accordance with § 1307(a) and subsequently amended her schedules to reflect her unemployment.

Following the conversion, the Debtor was fortunate enough to find a new position and became re-employed prior to receiving her chapter 7 discharge. However, pursuant to this new employment, the Debtor now has disposable monthly income of at least $1,282.94—an amount far in excess of that allowed under the Means Test. Accordingly, the Trustee has moved to dismiss the case pursuant to § 707(b)(1).

Conclusions of Law⁸

Section 707(b)(1) of the Bankruptcy Code provides in relevant part that:

After notice and a hearing, the court ... may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor's consent, convert such a case to a case under chapter 11 or 13 of [the Bankruptcy Code], if it finds that the granting of relief would be an abuse of the provisions of [chapter 7].⁹

The section does not appear to be ambiguous on its face.¹⁰ A plain and rational interpretation suggests that an individual debtor must have voluntarily filed his or her original petition under chapter 7 in order for § 707(b) to apply. Despite this, several courts have framed sophisticated arguments against the plain language application of the statute in order to comply with purported legislative intent.

The arguments for and against both interpretations are discussed below. The first two arguments could be grouped with the “common sense” view in that they clearly aim to apply § 707(b) to all chapter 7 cases whether originally filed under chapter 7 or filed under another chapter and then converted to chapter 7. However, the Court will categorize them as hybrid arguments because, although they arrive at the “common sense” conclusion, they purportedly base their conclusion on literal compliance with the language of the statute.

The third argument is what the Court considers to be the true “common sense” approach. At its heart, this argument implies that the BAPCPA ¹¹ amendments were poorly drafted and that a court should apply them in line with the intent of the drafters, rather than adhering to the plain meaning of the statute. Unlike the hybrid argument, the true “common sense” argument readily concedes that a plain meaning application of the statute would not lead to the result it advocates. Lastly, the Court will address the “plain language” argument and the reasons for adopting it.

1. The Hybrid Arguments ¹²

The first hybrid argument leading to the “common sense” result is the grammatical rule of last antecedent. Under this rule, “[a] limiting clause or phrase ordinarily is to be read as modifying only the noun or phrase it immediately follows.” ¹³ As applied to § 707(b)(1), the rule would limit the applicability of the word “filed” to the directly ensuing noun “debtor.” ¹⁴ Thus, as long as the case at issue was filed by an individual debtor with primarily consumer debts, those courts following the rule of last antecedent would apply § 707(b)(1), regardless of the chapter under which the case was filed.

This Court is not persuaded that the rule of last antecedent can be used in interpreting this statutory language. Applying the last antecedent rule in this fashion creates a strange irony in that it presupposes the drafters took great care and precision in drafting the language of § 707(b), but simultaneously ignores the bulk of superfluous language left in the wrath of its interpretation.¹⁵ This is because under the last antecedent approach, the phrase “under this chapter” ¹⁶ adds nothing substantive to the statute because § 103(b) already limits the applicability of § 707(b) to chapter 7 cases.¹⁷ Because “courts should generally disfavor interpretations of statutes that render language superfluous,” ¹⁸ the Court concludes that it is not appropriate to follow the last antecedent approach in interpreting: “a case filed by an individual debtor under this chapter....” ¹⁹

In a similar vein, some courts utilizing the hybrid approach have re-defined the word “filed” to mean “to enter (e.g., a legal document) on public official record.”²⁰ Under this expansive definition, a case is “filed” under chapter 7 when a motion to convert is filed. As a result, cases are deemed to be filed under chapter 7 for § 707(b) purposes when they are converted. Once again, this argument in furtherance of a “common sense” conclusion encounters the problem of rendering language superfluous. If “filed” meant something other than the initial filing, the word would lose all substantive contribution to the statute. As the court in In re Dudley²¹ noted, the statute would have the same substantive meaning if “filed” was stricken and it simply said “under this chapter.” ²²

Moreover, this definition of “filed” is contrary to the word's settled meaning in other chapter 7 contexts. As the court in In re Fox has correctly noted, the words “filed” and “filing” refer to the initial petition filing in §§ 342(d), 707(b)(3), 707(b)(4)(A), 707(c)(2) and 707(c)(3).²³ The normal rule of statutory construction requires that “identical words used in different parts of the same act are intended to have the same meaning.” ²⁴ This Court sees no reason in the present case to sway from this fundamental canon and therefore concludes that “filed” within § 707(b)(1) refers to the initial filing of the petition and does not include every subsequent filing made by the Debtor.

2. The Common Sense Argument

The court in In re Perfetto²⁵ is most representative of the “common sense” argument in finding that “a look at the statute makes it clear that § 707(b) is not at all ambiguous,” ²⁶ but nevertheless noting that exceptions to the plain meaning rule apply where (1) such application would be contrary to legislative intent or (2) would lead to absurd results.²⁷

Courts applying the “common sense” interpretation hold that both of the above exceptions are applicable in the present context. First, courts correctly note that a primary goal of the BAPCPA amendments was to prevent chapter 7 discharges in cases where debtors possessed disposable income that could be paid to creditors.²⁸ Congress indisputably acted in furtherance of this goal by creating the Means Test and by making successful passage of the Means Test a general prerequisite to receiving a chapter 7 discharge. As a result, the “common sense” courts opine that allowing debtors to avoid the Means Test by filing chapter 13 petitions and subsequently converting to chapter 7 would make a mockery of the system and lead to absurd results. ²⁹ Namely, a debtor could receive an otherwise impermissible discharge by playing fast and loose with the bankruptcy process.³⁰ In perhaps the most substantive argument for a “common sense” interpretation, the courts adopting that approach have also cited Bankruptcy Rule 1019(b), which provides an extension of time for a trustee to file a motion to dismiss under § 707(b) in cases converted to chapter 7.³¹

Thus, while “common sense” courts readily acknowledge anomalies in other sections of the Code created by their interpretation,³² they have balanced all the...