In re St. Jean, Case No. 3:09–bk–6745–PMG

• Decision Date: 24 January 2011
• Docket Number: Case No. 3:09–bk–6745–PMG
• Citation: 515 B.R. 864
• Parties: In re: Michael John St. Jean, and Kim Ann St. Jean, Debtors.
• Court: U.S. Bankruptcy Court — Middle District of Florida

515 B.R. 864

In re: Michael John St. Jean, and Kim Ann St. Jean, Debtors.

Case No. 3:09–bk–6745–PMG

United States Bankruptcy Court,

Jacksonville Division.

Jacksonville Division

Signed January 24, 2011

William E. Horne, Jr., Jacksonville, FL, for Debtors.

Jill E. Kels, Miriam G. Suarez, Office of the United States Trustee, Orlando, FL, for U.S. Trustee.

Chapter 7

ORDER ON MOTION TO DISMISS PURSUANT TO 11 U.S.C. SECTION 707(b)(1)

PAUL M. GLENN, Chief Bankruptcy Judge

THIS CASE came before the Court to consider the Motion to Dismiss Pursuant to 11 U.S.C. Section 707(b)(1) filed by Donald F. Walton, the United States Trustee for Region 21 (the UST). (Doc. 45). The Debtors, Michael John St. Jean and Kim Ann St. Jean, filed a written Response to the Motion. (Doc. 58).

A threshold issue presented by the Motion and Response is whether the UST may file a motion to dismiss a case pursuant to § 707(b) if the case was originally filed under Chapter 13 of the Bankruptcy Code and later converted to a case under Chapter 7. The Court finds that § 707(b) applies to converted cases.

Additionally, the Court finds that the Debtors in this case are individuals whose debts are primarily consumer debts within the meaning of § 707(b) of the Bankruptcy Code. The presumption of abuse has arisen under § 707(b)(2), and has not been rebutted by a showing of special circumstances. Consequently, the UST's Motion to Dismiss should be granted.

Background

The Debtors filed a petition under Chapter 13 of the Bankruptcy Code on August 12, 2009.

On November 22, 2009, the Debtors filed a Second Amended Chapter 13 Plan. (Doc. 19).

On December 23, 2009, the Court entered an Order Confirming Chapter 13 Plan, Allowing Claims, and Directing Distribution. (Doc. 22).

On March 11, 2010, the Chapter 13 Trustee filed a Motion to Dismiss for Failure to Make Confirmed Plan Payments. (Doc. 27).

On April 7, 2010, the Debtors filed a Notice of Conversion from Chapter 13 Case to Chapter 7 Case. (Doc. 30).

On May 24, 2010, the UST entered a statement on the docket that the case was presumed to be an abuse under § 707(b) of the Bankruptcy Code.

On June 23, 2010, the UST filed a Motion to Dismiss Pursuant to 11 U.S.C. Section 707(b)(1) Based on Presumption of Abuse Arising under 11 U.S.C. Section 707(b)(2) and Abuse Arising under 11 U.S.C. Section 707(b)(3). (Doc. 45). In the Motion, the UST asserts that the Debtors' annualized current monthly income is $127,963.80, which exceeds the median income for a household of four in Florida, and that the Debtors' disposable income is $2,357.38 per month (or at least $141,442.72 over a 60–month term). Accordingly, the UST contends that the Debtors' case is presumed to be an abuse under § 707(b) of the Bankruptcy Code. (Doc. 45, pp. 4–7).

On October 31, 2010, the Debtors filed a written Response to the Motion. (Doc. 58). The Debtors do not attempt to rebut the presumption of abuse by demonstrating special circumstances pursuant to § 707(b)(2)(B) of the Bankruptcy Code. Instead, the Debtors assert that the provisions of § 707(b) do not apply to their case for two reasons.

First, the Debtors assert that § 707(b) applies only to cases “filed by an individual debtor under this chapter.” Since their case was originally filed under Chapter 13, and not Chapter 7, the Debtors contend that § 707(b) does not apply to their converted case. Second, the Debtors assert that § 707(b) should not apply to their case because their debts are not “primarily consumer debts” within the meaning of the statute.

Discussion

For the reasons discussed below, the Court finds that § 707(b) applies to cases that were initially commenced as Chapter 13 cases and later converted to Chapter 7 cases. Additionally, the Court finds that the Debtors in this case are individuals with primarily consumer debts under § 707(b) of the Bankruptcy Code.

I. “Filed by an individual debtor under this chapter”

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

11 USC § 707. Dismissal of a case or conversion to a case under Chapter 11 or 13

...

(b)(1) After notice and a hearing, the court, on its own motion or on a motion by the United States 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, or, with the debtor's consent, convert such a case to a case under chapter 11 or 13 of this title if it finds that the granting of relief would be an abuse of the provisions of this chapter.

11 U.S.C. § 707(b)(1)(Emphasis supplied). A threshold question under § 707(b)(1) is whether the section applies only to cases that were initially “filed under” Chapter 7, or whether it also applies to cases that were initially filed under another chapter, but later converted to a case under Chapter 7.

The decisions that have addressed the issue are not unanimous. A number of courts have held that § 707(b)(1), or the related presumption of abuse analysis under § 707(b)(2), applies to converted cases. Justice v. Advanced Control Solutions, Inc., 2008 WL 4368668 (W.D.Ark.); In re Willis, 408 B.R. 803 (Bankr.W.D.Mo.2009); In re Kellett, 379 B.R. 332 (Bankr.D.Or.2007); In re Kerr, 2007 WL 2119291 (Bankr.W.D.Wash.); In re Perfetto, 361 B.R. 27 (Bankr.D. R.I.2007).

Other courts, however, have held that converted cases are not subject to dismissal or the abuse analysis under § 707(b) of the Bankruptcy Code. In re Chapman, 431 B.R. 216 (Bankr.D.Minn.2010); In re Guarin, 2009 WL 4500476 (Bankr.D.Mass.); In re Dudley, 405 B.R. 790 (Bankr.W.D.Va.2009); In re Ryder, 2008 WL 3845246 (Bankr.N.D.Cal.); In re Fox, 370 B.R. 639 (Bankr.D.N.J.2007).

A. The Code and Rules

It is clear from the cases cited above that the issue involves the interplay of multiple provisions of the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure.

1. The initial Chapter 13 case

A bankruptcy case is commenced by the filing of a petition. Section 301 of the Bankruptcy Code provides that a voluntary bankruptcy case is commenced by the filing of a petition, and that the commencement of the case constitutes an order for relief. 11 U.S.C. § 301.

The duties of a debtor in a bankruptcy case are set forth in § 521 of the Bankruptcy Code. Section 521(a)(1)(B)(v), for example, requires the debtor to file a “statement of the amount of monthly net income, itemized to show how the amount is calculated.” 11 U.S.C. § 521(a)(I)(B)(v). Additionally, Rule 1007(b)(6) of the Federal Rules of Bankruptcy Procedure provides:

(b) Schedules, Statements, and Other Documents Required.

...

(6) A debtor in a chapter 13 case shall file a statement of current monthly income, prepared as prescribed by the appropriate Official Form, and, if the current monthly income exceeds the median family income for the applicable state and household size, a calculation of disposable income made in accordance with § 1325(b)(3), prepared as prescribed by the appropriate Official Form.

Fed.R.Bankr.P. 1007(b)(6)(Emphasis supplied).

The Official Form for Chapter 13 debtors is Form 22C. Part I of Official Form 22C requires the Chapter 13 debtor to report his income based on the “average monthly income received from all sources, derived during the six calendar months prior to filing the bankruptcy case.”

Part V of Official Form 22C is entitled “Determination of Disposable Income under § 1325(b)(2).” Section 1325 of the Bankruptcy Code sets forth the confirmation requirements for Chapter 13 Plans. 11 U.S.C. § 1325. For a Chapter 13 Plan to be confirmed over an objection by the trustee or a creditor, the Plan must provide that all of the debtor's projected disposable income will be applied to payments under the Plan. 11 U.S.C. § 1325(b)(1)(B).

2. Conversion from Chapter 13 to Chapter 7

Section 1307 of the Bankruptcy Code provides that a Chapter 13 debtor may convert his case to a case under Chapter 7 at any time. 11 U.S.C. § 1307(a).

The effect of a conversion is governed by § 348 of the Bankruptcy Code. Subsections (a) and (b) of § 348 provide:

11 U.S.C. § 348. Effect of conversion

(a) Conversion of a case from a case under one chapter of this title to a case under another chapter of this title constitutes an order for relief under the chapter to which the case is converted, but, except as provided in subsections (b) and (c) of this section, does not effect a change in the date of the filing of the petition, the commencement of the case, or the order for relief.

(b) Unless the court for cause orders otherwise, in sections 701(a), 727(a)(10), 727(b), 728(a), 728(b), 1102(a), 1110(a)(1), 1121(b), 1121(c), 1141(d)(4), 1146(a), 1146(b), 1201(a), 1221 and 1228(a), 1301(a), and 1305(a) of this title, “ the order for relief under this chapter ” in a chapter to which a case has been converted under section 706, 1112, 1208, or 1307 of this title means the conversion of such case to such chapter.

11 U.S.C. § 348(a),(b)(Emphasis supplied).

In addition to the statutory effect of conversion, Rule 1019 of the Federal Rules of Bankruptcy Procedure sets forth the procedural requirements that a debtor must satisfy upon conversion of his case. Rule 1019(1)(A) provides:

Rule 1019. Conversion of a Chapter 11 Reorganization Case, Chapter 12 Family Farmer's Debt Adjustment Case, or Chapter 13 Individual's Debt Adjustment Case to a Chapter 7 Liquidation Case

When a chapter 11, chapter 12, or chapter 13 case has been converted or reconverted to a chapter 7 case:

(1) Filing of Lists, Inventories, Schedules, Statements.

(A) Lists, inventories, schedules, and statements of financial affairs theretofore filed shall be deemed to be filed in the chapter 7 case, unless the court directs otherwise. If they have not been previously filed, the debtor shall comply with Rule 1007 as if an order for relief had been entered on an involuntary petition on the date of the entry of the order directing that the case continue under chapter 7.

Fed.R.Bankr.P. 1019(1)(A)(...