In re Piazza

• Citation: 451 B.R. 608,23 Fla. L. Weekly Fed. B 39
• Decision Date: 17 June 2011
• Docket Number: No. 10–40807–JKO.,10–40807–JKO.
• Parties: In re Craig PIAZZA, Debtor.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Florida

451 B.R. 608

23 Fla. L. Weekly Fed. B 39

In re Craig PIAZZA, Debtor.

No. 10–40807–JKO.

United States Bankruptcy Court, S.D. Florida.

June 17, 2011.

Jeffrey Solomon, Esq., Hollywood, FL, for Debtor.Robert A. Angueira, Miami, FL, for Trustee.

Order Granting Creditor Nueterra Healthcare Physical Therapy, LLC's Motion to Dismiss Case [ECF No. 29]

JOHN K. OLSON, Bankruptcy Judge.

On January 18, 2011, Creditor Nueterra Healthcare Physical Therapy, LLC, the holder of a substantial judgment against the Debtor, filed a Motion to Dismiss Case and Request for Clerk to Hold Discharge Pending Hearing. See [ECF No. 29]. On February 22, 2011 Debtor Craig Piazza filed a Response to the Creditor's motion. See [ECF No. 35]. The court conducted a hearing on March 1, 2011 at 10:00 a.m. where, although the Creditor's written motion only cited to § 707(b), the Creditor argued that the case should be dismissed for cause under § 707(a) if the Debtor were found to be a non-consumer debtor. The court took the matter under advisement.

Background

The Debtor filed his Chapter 7 Voluntary Petition on October 8, 2010, about a day before a deadline to produce documents relevant to a state court final judgment. The judgment was entered against the Debtor for failure to pay a business guarantee to the Creditor. The Debtor filed Schedules A through J along with the petition and then amended Schedules I and J on December 31, 2010.

The Debtor had been employed for almost three years as a physical therapist and earned $7,740.00 per month at the time he filed his amended Schedule I. His wife has worked at an insurance company for 35 years and, at the time the amended Schedule I was filed, she earned $7,709.00 per month. The Debtor continued to contribute money to his wife's 401k and make her credit card payments even though she had a well paying job and he had a large state court judgment against him.

Schedule F indicates a total of $319,683.00 in unsecured debt, of which $161,383.00 is owed to the Creditor. The Debtor neglected to include a consumer debt owed to American Honda Finance on Schedule F ($13,298.85 at the petition date—the remainder due for an Acura TL lease which the Debtor has reaffirmed). The Debtor also omitted $48,441.00 worth of interest from Schedule F that had accrued on the state court final judgment pursuant to Fla. Stat. § 55.03(3).

The Creditor's written motion explicitly asks the court to dismiss this case pursuant to 11 U.S.C. § 707(b)(1), (b)(2), and (b)(3), and also includes totality of the circumstances arguments which implicitly ask the court to dismiss this case under § 707(a). All of the Creditor's § 707(b) arguments hinge on the assumption that the Debtor improperly declared that the majority of his debt is non-consumer (business) debt. If the Debtor is, instead, primarily a consumer debtor, the Creditor argues that the Debtor's case should be dismissed because he failed the means test.¹ The Creditor contends that: (1) had the Debtor's consumer debts been calculated correctly, he would be subject to the means test; and (2) the monthly expenses the Debtor paid on behalf of his spouse were used to manipulate his income and expenses so that he would pass the means test.

At the March 1, 2011 hearing, in addition to the § 707(b) arguments, the Creditor argued that this case should be dismissed for bad faith and abuse based on the totality of the circumstances under § 707(a). The Creditor put forth the following facts to support dismissal under § 707(a):

(1) the Debtor filed his petition to avoid a final judgment;

(2) the Debtor failed to disclose the amount of debt owed to American Honda Finance;

(3) the Debtor had the ability to repay his debts or a portion of his debts;

(4) the Debtor continues to maintain high expenditures and a lavish lifestyle, making biweekly payments to his wife, paying her credit card expenses, and leasing a luxury vehicle.

The Creditor's written motion did not cite § 707(a), and Debtor's counsel objected to raising § 707(a) at the March 1st hearing.

The Debtor argues that his case cannot be dismissed under § 707(b)(1)-(3) because his debts are primarily non-consumer debts. He argues that the interest on the $161,382.00 state court final judgment increased that debt to $209,824.00, or approximately 55% of the Debtor's total unsecured debt (even including the debt owed to American Honda Finance). The Debtor also argues that the facts presented by the Creditor do not support bad faith or abuse based on the totality of the circumstances under § 707(a).

Discussion

I. Dismissal under 11 U.S.C. § 707(b)(1), (2), & (3)

Dismissal § 707(b)(1)-(3) is appropriate: (i) where a presumption of abuse arises because “a debtor's monthly net income is greater than certain statutory benchmarks known as the means test” or; (ii) if no presumption of abuse arises, if the debtor filed in bad faith or the totality of the circumstances of the debtor's financial situation shows abuse.² Section 707(b)(1) provides that:

After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts ... if [the court] finds that the granting of relief would be an abuse of the provisions of this title.Before dismissing a case under § 707(b), a court must determine that the debtor has primarily consumer debts, and this determination hinges upon the reasons why the debts were incurred.³ Consumer debts are “debt[s] incurred by an individual primarily for a personal, family or household purpose.” ⁴ Non-consumer debts are generally those which are incurred for a profit motive,⁵ but not all non-consumer debts must be incurred with profit in mind.⁶ Courts have taken different approaches in determining whether a debtor has primarily consumer debts or primarily non-consumer (business) debts.⁷ Most courts hold that a debtor has “primarily consumer debts” if consumer debt composes more than 50% of total debt.⁸ This court will accordingly analyze this matter under the majority view, where “primarily means over 50 percent.” ⁹ The threshold inquiry in determining whether this case should be dismissed under § 707(b) is whether more than 50% of the Debtor's debts were incurred “primarily for a personal, family or household purpose.” ¹⁰

Here, the Creditor argues that the Debtor is a consumer debtor and that he improperly declared that his debt was not primarily consumer debt. The Creditor supports this argument with evidence that the Debtor did not include a $13,298.85 obligation to American Honda Finance under a lease agreement on Schedule F. The Creditor contends that, as a result, the $161,383.00 listed on Schedule F as the Debtor's business debt (comprising 50.48% of total debt) and $158,300.00 listed on Schedule F as consumer debt is not accurate. The Debtor's consumer debt rises to $171,598.75, or 51.1% of Debtor's total debt, when the $13,298.85 owed to American Honda Finance is included. Were the court to accept the creditor's argument, the Debtor's case would be subject to § 707(b) dismissal, but the creditor misses an important point.

Even if the debt to American Honda Finance were included in the calculus as consumer debt, it makes no difference because the Debtor's largest business debt is the Creditor's Final Judgment against the Debtor, which has accrued interest for at least 996 days at an interest rate of 11%. ^{11, 12}. Accordingly, at least $48,441.00 in post-judgment interest is owed to the Creditor on top of the Creditor's $161,383.00 Final Judgment listed on Schedule F. Consequently, the business debt owed to the Creditor rises to at least $209,824.00, or 55% of total debt (even when the debt to American Honda Finance is included in the calculus as consumer debt).

The court does not need to reach the issue of how to classify the Debtor's student loan debt because, as discussed above, the Debtor's non-consumer (business) debt is at least 55% of the total. Section § 707(b) dismissal is only available when a Chapter 7 debtor has primarily consumer debts, and the Creditor cannot proceed under that subsection. Notwithstanding the Debtor's objection at the hearing, I find that the Creditor's motion provides ample notice of grounds giving rise to dismissal under § 707(a), and I construe the Creditor's motion as a Motion to Dismiss under both § 707(a) and (b).

II. Dismissal under 11 U.S.C. § 707(a)A. Bad Faith

The Eleventh Circuit has not addressed whether bad faith constitutes cause for dismissal of a Chapter 7 case under § 707(a). This district has addressed the issue in several cases and has reached conflicting decisions. In re Farkas ¹³ and In re Isham¹⁴ found that there is no good faith filing requirement in a Chapter 7 case. The petitions in those cases were, however, filed before BAPCPA became effective. In re Kane & Kane ¹⁵ and In re Boca Village Ass'n ¹⁶ are more recent decisions in this district where the court took the opposite view, that bad faith can constitute cause for dismissal of a non-consumer Chapter 7 case. Both of these more recent cases were filed several years after BAPCPA became effective. Significantly, BAPCPA amended § 707(b)(3) to include bad faith as grounds for dismissal. Since the 2005 BAPCPA amendments became effective, courts are increasingly taking the view that bad faith can constitute cause for dismissal under § 707(a), so frequently in fact that it is the current majority view.¹⁷

This growing trend is consistent with one of the primary policy aims of bankruptcy, to give the honest yet unfortunate debtor a fresh start—not the dishonest business person a head start.¹⁸ Whether a debtor is a consumer or non-consumer debtor is, under the new majority view, irrelevant to whether a Chapter 7 case may be dismissed for bad faith. Furthermore, § 707(a) gives the court authority to...