In re Robertson

• Decision Date: 03 July 2007
• Docket Number: No. 06-32329.,06-32329.
• Parties: In re Lance Van ROBERTSON and Pamela Jean Robertson, Debtors.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of Minnesota

370 B.R. 804

In re Lance Van ROBERTSON and Pamela Jean Robertson, Debtors.

No. 06-32329.

United States Bankruptcy Court, D. Minnesota.

July 3, 2007.

Joseph L. Kelly, Kelly Law Office, Burnsville, MN, for Debtors.

ORDER DENYING MOTION OF UNITED STATES TRUSTEE FOR DISMISSAL PURSUANT TO 11 U.S.C. § 707(b)

GREGORY F. KISHEL, Chief Bankruptcy Judge.

This Chapter 7 case came on before the Court for hearing on the motion of the United States Trustee ("the UST") for dismissal under 11 U.S.C. § 707(b). The UST appeared by his attorney, Michael R. Fadlovich. The Debtors appeared by their attorney, Joseph L. Kelly. The following order memorializes the disposition of the motion, based on the pre- and post-hearing written submissions and the arguments of counsel.

NATURE OF MOTION

This case was commenced by a voluntary petition filed on September 30, 2006. This was after the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub.L. No. 109-8 ("BAPCPA"); hence the provisions of BAPCPA apply to it.

Before the enactment of BAPCPA, 11 U.S.C. § 707(b) had been known as the "substantial abuse" provision of Chapter 7. Under the former text, the Chapter 7 case of an individual whose debts were primarily consumer debts could be dismissed on motion of the UST, if allowing the case to proceed to a general discharge of debt "would be a substantial abuse of the provisions of' Chapter 7. The pre-2005 version of the statute did not define the term "substantial abuse." Nor did it identify relevant factors to be considered in applying the term, or outline the analysis to be used.

But over the years after its first enactment in 1984, the Eighth Circuit (and other courts) construed former § 707(b) to focus on whether the debtor had the financial ability to support a confirmable plan under Chapter 13 that would pay a meaningful distribution to unsecured creditors. Under this line of authority, the showing of such an ability equated to the prospect of substantial abuse, which would merit dismissal of the Chapter 7 case. E.g., In re Taylor, 212 F.3d 395 (8th Cir.2000); In re Koch, 109 F.3d 1285 (8th Cir.1997); In re Huckfeldt, 39 F.3d 829 (8th Cir.1994); United States Trustee v. Harris, 960 F.2d 74 (8th Cir.1992); Fonder v. United States, 974 F.2d 996 (8th Cir.1992); In re Walton, 866 F.2d 981 (8th Cir.1989); In re Cox, 315 B.R. 850 (8th Cir. BAP 2004); In re Nelson, 223 B.R. 349 (8th Cir. BAP 1998). Incorporating as it did the considerations of 11 U.S.C. § 1325(b), this line of authority left much to the process of factfinding by the bankruptcy judge — not to mention an individualized exercise of judgment, as to which of a debtor's proposed personal expenditures were "reasonably necessary to be expended" for the maintenance and support of the debtor and dependents, among other issues.

The 2005 legislation multiplied the length of the text of § 707(b) by 13 to 14 times, if an eyeballed estimate from the published pages would serve. Congress re-identified the putative wrong against which § 707(b) lies, by deleting the qualifying adjective from the identifier; now the court may dismiss "if it finds that the grant of relief [under Chapter 7] would be an abuse of the provisions of [that] chapter." (The emphasis is added.) One is not sure what the point is, of that; but then the amendment directs the bulk of the burgeoned text to process by which the court is to get to the point of dismissal, i.e., the finding of a prospect of "an abuse," by specifying a detail-heavy analysis.

A number of trial-level courts have already published decisions applying the new statute. Several of them have identified the underlying congressional purpose as the reduction of judicial latitude and discretion in the process of fact-finding and legal adjudication under § 707(b). In re Hartwick, 352 B.R. 867, 870 (Bankr. D.Minn.2006); In re Haman, 366 B.R. 307, 317 (Bankr.D.Del.2007); In re Longo, 364 B.R. 161, 164 (Bankr.D.Conn.2007); In re Randle, 358 B.R. 360, 363 (Bankr.N.D.Ill. 2006); In re Barr, 341 B.R. 181, 185 (Bankr.M.D.N.C.2006). The more free-ranging exercise of judgment as to a debtor's ability to repay debt seems to have been significantly constrained. Now, if the movant relies on the test added by the amendments, the court is to go through a much more formulaic process of identifying the debtor's "current monthly income" — now a defined term under new 11 U.S.C. § 101(10)(A), limned by source and calculated as an average over a specified time — and then deducting certain specifically identified, deemed charges from it. The goal is to identify an amount which, if positive, is deemed to be available for debt repayment on a monthly basis. If that amount, as it would accumulate over 60 months, either meets a floor specified by dollar amount or would be sufficient to service a specified fraction of the debtor's general unsecured debt, "the court shall presume abuse exists." (Presumably, then, a prima facie case for dismissal has been made; however, it is not specified whether this presumption is rebuttable or irrebuttable, and the statute does not indicate what proof would be necessary to rebut it.)

Strictly speaking, this is not a matter of "eligibility" for Chapter 7; Congress did not push this complicated verbiage into 11 U.S.C. § 109, which is entitled "Who may be a debtor." Rather, it is a matter of singling out, on a case-by-case basis, those petitioners already in Chapter 7 who are then to be deemed not entitled to finish up their cases to receive the complex of relief available to individual debtors in bankruptcy liquidation. It amounts to a culling from the court's Chapter 7 docket, done after the fact of filing a petition, on individual motion by the UST.

At least for the majority of cases, the motion will be brought in challenge of the debtor's preliminary showing of entitlement to Chapter 7 relief.¹ This newly-required debtor's showing is now to be made at the inception of the case on the so-called "means test document," Form B22A.²

THE ISSUE AT BAR, AS IT ARISES FROM THE PROCEDURAL HISTORY OF THIS MOTION

This case presents a threshold issue under the new regime of dismissal-for-abuse in Chapter 7 cases. That issue does not entail the substantive merits under § 707(b) on which the UST based his original request for dismissal. Instead, it emerges from the procedural antecedents of the motion.

The original means test form filed by the Debtors did not show a surplus of household income at all, let alone one in an amount that exceeded the statutory maxima so as to trigger the presumption of abuse under § 707(b)(2)(A)(i). Pursuant to Fed. R. Bankr.P.2002(a)(1), the clerk's notice issued on the filing of the Debtors' petition set the date of the meeting of creditors for November 9, 2006. On November 20, 2006, the office of the UST caused to have the following entry placed on the docket for this case:

The United States Trustee has determined that the debtor has not filed nor transmitted all of the required means testing documents and that without these documents, the United States Trustee cannot make a determination as to whether debtor's case is presumed abusive under section 707(b).³

On December 14, 2006, the UST filed the motion at bar, giving notice of a hearing on January 16, 2007. In that motion, the UST's attorney acknowledged the facial content of the Debtors' Form B22A. However, he stated that the UST had "identified errors with respect to the Debtors' CMI and expense deductions on their Form B22A." Going on, the UST had "recalculated the information on Form B22A" after considering the additional information and making certain assumptions. On that basis the UST had concluded that "the Debtors do in fact have monthly disposable income totaling $1,030.11," which if "multiplied by 60 exceeds $10,000.00." Thus, as the UST would have it, "the presumption of abuse arises in this case," prompting this motion. He urged that the presumption standing alone is a basis for dismissal.

The Debtors' counsel filed his clients' response on January 10, 2007. In it, the Debtors defended the motion on its merits, as to the specifics of the means-to-pay factors. But they also raised a threshold, procedural issue, that the motion was barred because the UST had never filed a "statement as to whether the debtors' case would be presumed to be an abuse under [11 U.S.C. §]707(b)," as required under 11 U.S.C. § 704(b)(1)(A). The Debtors' counsel argued that 11 U.S.C. § 704(b)(2) makes the filing of a statement to that effect a prerequisite for the filing of a motion for dismissal that relies on the presumption of § 707(b)(2)(A). Thus, he maintained, the lack of a filed statement by the UST speaking directly to the existence of the presumption made the motion at bar fatally deficient as to a statutorily-required prerequisite.

Interestingly enough, on January 16, 2007 — on the day counsel argued this motion, but after the hearing ended — the UST filed a document entitled "Statement of Presumed Abuse." The text of this document reads as follows:

The United States Trustee previously filed a statement under section 704(b)(1)(A) of the Bankruptcy Code indicating an inability to determine whether this case would be presumed to be an abuse. The United States Trustee has reviewed all materials filed and submitted by the Debtor, including certain additional documents received after the filing of the United States Trustee's initial statement under section 704(b)(1)(A). Based on this review, the United States Trustee has determined that the Debtor's case is presumed to be an abuse under 11 U.S.C. section 707(b)(2).

DISCUSSION

This threshold issue appears to be a matter of first impression, insofar as published case law is concerned. There is only one extant decision that applies the mandates of new § 704(b)(1) to the treatment of a motion for dismissal under new § 707(b)(2), In, re Close, 353 B.R. 915 (Bankr.D.Kan.2006), and that...