Walton, In re, 86-2497

Citation866 F.2d 981
Decision Date21 April 1989
Docket NumberNo. 86-2497,86-2497
CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)
Parties, 20 Collier Bankr.Cas.2d 533, 18 Bankr.Ct.Dec. 1407, Bankr. L. Rep. P 72,605 In re Ronald Carlester WALTON, Appellant.

Frank J. Niesen, Jr., St. Louis, Mo., for appellant.

Before McMILLIAN, FAGG, and BOWMAN, Circuit Judges.

BOWMAN, Circuit Judge.

Ronald Carlester Walton appeals the final decision of the District Court 1 affirming the Bankruptcy Court's 2 dismissal of his Chapter 7 petition for "substantial abuse" under amended 11 U.S.C. Sec. 707(b). We affirm.

Walton, who had gone through bankruptcy in 1974, filed a Chapter 7 (liquidation) bankruptcy petition in July 1985. The Bankruptcy Court ordered a hearing under 11 U.S.C. Sec. 707(b) to determine whether Walton's petition represented an abuse of Chapter 7. After the hearing, the court found discrepancies in Walton's income and expenditure schedules. The court further found that Walton's monthly income exceeded his monthly expenses by $218, and that this surplus could be used to pay off a substantial portion of his debts under a 60-month Chapter 13 reorganization plan. See 11 U.S.C. Sec. 1322(c) (bankruptcy court "for cause" can approve plans which provide for payments during a period up to five years). Therefore, the court concluded that granting Walton relief would constitute a "substantial abuse" of Chapter 7 and dismissed his petition.

On appeal to the District Court, Walton argued that the Bankruptcy Court had improperly read a future income standard into section 707(b), and had failed to give effect to the last sentence of section 707(b) creating a presumption in favor of granting the requested relief. After reviewing the law, the court concluded that the essential factor in determining "substantial abuse" for purposes of section 707(b) was the ability of the debtor to pay a substantial portion of his debts under a Chapter 13 plan. The court then reviewed the record and found that Walton's total unsecured debt was $26,484 and that his monthly surplus was $497, which would allow him to make payments totaling almost $30,000 over the next five years under a Chapter 13 plan. Because of Walton's ability to propose a workable Chapter 13 plan, the District Court affirmed dismissal of his Chapter 7 petition. In re Walton, 69 B.R. 150 (E.D.Mo.1986). 3

Walton raises the same issues on appeal to this Court. Specifically, he argues that dismissal of a Chapter 7 petition on the ground that the debtor's disposable future income could fund a Chapter 13 plan conflicts with the express will of Congress that no one be forced into Chapter 13. Walton also argues that the legislative history of section 707(b) indicates that Congress specifically rejected a future income analysis for determining "substantial abuse." Walton's narrow interpretation of "substantial abuse" apparently would preserve Chapter 7 liquidation rights for any debtor who demonstrates "meaningful economic hardship." Appellant's Brief at 14. His own good faith filing, Walton maintains, plus the statutory presumption favoring relief, should prevent the dismissal of his petition. We disagree.

With the enactment of the Bankruptcy Amendments and Federal Judgeship Act of 1984 (Act), debtors no longer have unfettered access to voluntary Chapter 7 relief. Section 707 of the Bankruptcy Code, providing for the dismissal of Chapter 7 cases, was substantially amended by the addition of subpart (b):

(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.

11 U.S.C. Sec. 707(b).

Although the term "substantial abuse" is not defined in the Act, legislative history indicates that the amendments to the Code were aimed primarily at stemming the use of Chapter 7 relief by unneedy debtors. See S.Rep. No. 65, 98th Cong., 1st Sess. 3 (1983) ("the number of consumer bankruptcy cases filed each year has risen dramatically"). Requirements for a mechanical future income threshold test were deleted from earlier drafts of the proposed section 707(b) and replaced with the undefined term "substantial abuse." 4 Walton argues that this deletion, along with comments of opponents of the Act who characterized the deletion as a complete elimination of the future income issue, evidences Congress's intent that courts not consider future income in deciding whether to dismiss a case for "substantial abuse." See 129 Cong.Rec. S5387 (daily ed. April 27, 1983) (statement of Sen. Metzenbaum) ("the future income matter is no longer in the legislation"). We believe, however, that Walton reads too much into the legislative history of the Act.

"To the extent that legislative history may be considered, it is the official committee reports that provide the authoritative expression of legislative intent," not the "stray comments by individual legislators" on the floors of the House and Senate. Zolg v. Kelly (In re Kelly ), 841 F.2d 908, 912 n. 3 (9th Cir.1988) (citing Garcia v. United States, 469 U.S. 70, 76, 105 S.Ct. 479, 483, 83 L.Ed.2d 472 (1984)). Statements by opponents of a bill shed little light on the intent of Congress in passing legislation. See NLRB v. Fruit & Vegetable Packers, Local 760, 377 U.S. 58, 66, 84 S.Ct. 1063, 1068, 12 L.Ed.2d 129 (1964); Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384, 394-95, 71 S.Ct. 745, 750-51, 95 L.Ed. 1035 (1951). In this case, there were no committee reports on the final version of the Act. Therefore, the report on an earlier draft, S. 445, although far from conclusive, "is the best available evidence of Congress's intent in enacting section 707(b)." Kelly, 841 F.2d at 914 n. 7. This report states that section 707(b) "upholds creditors' interests in obtaining repayment where such repayment would not be a burden" on the debtor. S.Rep. No. 65 at 53. "[I]f a debtor can meet his debts without difficulty as they come due, use of Chapter 7 would represent a substantial abuse." Id. at 54. This language seems to anticipate that a court, in considering "substantial abuse" under section 707(b), will look to a debtor's ability to repay his creditors out of his future income. We believe that in deleting the mandatory future income threshold formula, Congress simply replaced a rigid test with a flexible "substantial abuse" standard that does not foreclose the courts from considering, inter alia, the debtor's ability to pay his debts out of his future income. See Kelly, 841 F.2d at 914.

Walton argues essentially that Congress intended "substantial abuse" to mean nothing more than "bad faith." Certainly the court may take the petitioner's good faith and unique hardships into consideration under section 707(b). See, e.g., In re Grant, 51 B.R. 385, 393-94 (Bankr.N.D.Ohio 1985). But the cramped interpretation of section 707(b) that Walton advances would drastically reduce the bankruptcy courts' ability to dismiss cases filed by debtors who are not dishonest, but who also are not needy. And it would needlessly duplicate other provisions of the Code that have always required petitioners to file in good faith. Several sections enumerate specific abuses, see, e.g., 11 U.S.C. Sec. 523(a)(2) (the fraud or false pretense or false financial statement exception), and the absence of a laundry list of abuses in section 707(b) further suggests that the drafters did not intend a narrow interpretation of "substantial abuse." Cf. In re Edwards 0 B.R. 933, 937 n. 3 (Bankr.S.D.N.Y.1985). Although the statute does not mandate a future income test, we are satisfied that it does not preclude the consideration of future income in giving meaning to the "substantial abuse" standard.

We note that almost all the courts that have interpreted the "substantial abuse" language of section 707(b) have concluded that this language encompasses consideration of the debtor's ability to pay his debts out of future income. See, e.g., In re Gaukler, 63 B.R. 224, 225 (Bankr.D.N.D.1986); In re Kress, 57 B.R. 874, 878 (Bankr.D.N.D.1985); In re Hudson, 56 B.R. 415, 419 (Bankr.N.D.Ohio 1985); Grant, 51 B.R. at 394; Edwards, 50 B.R. at 937-38. 5 In each of these cases the bankruptcy court decided that a crucial factor in determining "substantial abuse" was whether the debtor's future income could fund a repayment plan under the protections of Chapter 13. 6 But see, e.g., In re Deaton, 65 B.R. 663, 665 (Bankr.S.D.Ohio 1986) ("the mere ability to fund a Chapter 13 plan is not sufficient to constitute 'substantial abuse' "). 7 Cf. In re Mastroeni, 56 B.R. 456 (Bankr.S.D.N.Y.1985) (debtor ineligible for Chapter 13 relief because of debts exceeding the statutory maximum; debtor's Chapter 7 petition held not a "substantial abuse" under Sec. 707(b)).

The bankruptcy courts' consideration of future income follows the analysis favored by most bankruptcy commentators. "The primary factor that may indicate substantial abuse is the ability of the debtor to repay the debts out of future disposable income." 4 Collier on Bankruptcy, p 707.07, at 707-19 (15th ed. 1988). "Notwithstanding Senators Kennedy and Metzenbaum's disclaimer ['the future income test has been completely deleted,' S.Rep. No. 65 at 90], it is obvious that the primary, if not exclusive, focus of the court would be on the debtor's projected income and expenses as indicated on the schedules and the availability of that future income to pay off prepetition debts." Breitowitz, New Developments in Consumer Bankruptcies: Chapter 7 Dismissal on the Basis of "Substantial Abuse", 59...

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