Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055. www.bublicklaw.com
In the case of Perlin v. Hitachi Capital America Corp., ___ F.3d ___, 2007 WL 2215602 (3rd Cir. 2007), the Court held that the newly-added provisions of section 707(b), which create a presumption of abuse against consumer debtors who have an ability to repay (ie. the "means test"), do not impliedly prohibit a bankruptcy court from considering a debtor's income and expenses in adjudicating a motion to dismiss "for cause" under section 707(a). The Court further held that a bankruptcy court may consider a debtor's income and expense together with other factors in assessing dismissal for lack of good faith under section 707(a). In this case, the Court of Appeals found that the debtors' substantial income (debtor/husband was a radiologist) and comfortable lifestyle were insufficient to demonstrate bad faith and upheld the Bankruptcy Court's denial of the creditor's motion to dismiss the case.
In the proceedings below, the Bankruptcy Court denied the creditor's motion to dismiss the debtors' chapter 7 case on the ground that the case was filed in bad faith. In considering the motion to dismiss, the Bankruptcy Court refused to consider the debtors' substantial income and expenses as evidence of bad faith. The Bankruptcy Court reasoned that the negative implication of section 707(b) as amended by BAPCPA is that a bankruptcy court is precluded from considering a debtor's income and expenses in deciding a motion to dismiss under section 707(a). The Bankruptcy Court opined that the newly-created presumption of abuse under section 707(b), which arises when a consumer debtor meets a specified income/expense test, excludes the possibility that a debtor's ability to repay may be considered under a motion to dismiss under section 707(a). The appeal was certified directly to the Court of Appeals pursuant to 28 U.S.C. section 158(d)(2)(B).
The Court of Appeals reviewed that section 707(a) governs the dismissal of all bankruptcy filing where "cause" is shown and section 707(b) governs the dismissal only of bankruptcy filings involving primarily consumer debts where the granting of relief would be an "abuse". The Court noted that a debtor's lack of good faith in filing a bankruptcy petition is proper cause for dismissal under section 707(a).
The Court discussed that the principle of negative implication applies only when the expressed and unmentioned items are part of a commonly associated group or series that justifies the inference that items not mentioned were excluded by deliberate choice, not inadvertence. United States v. Vonn, 535 U.S. 55 (2002), Barnhart v. Peabody Coal Co., 537 U.S. 149 (2003). The Court held that this principle of negative implication does not apply herein as Congress has not treated consumer filings under section 707(b) and consumer non-filings under 707(a) as part of a commonly associated group or series. The Court noted that subsection (a) governs the dismissal of consumer and non-consumer bankruptcy filings where adequate "cause" has been shown and subsection (b) governs dismissal of only those bankruptcy filings involving primarily consumer debts when the granting of relief would be an "abuse" of Chapter 7. The Court further found that from a historical perspective in the enactments of subsection (a) and (b), Congress treated consumer filings under section 707(b) and consumer/non-consumer filings under section 707(a) differently and not as part of a package or "commonly associated group or series."
The Court also concluded that the legislative history of section 707(b) does not indicate that the modifications to section 707(b) imply anything about dismissal under section 707(a). The Court noted that the amendments to section 707(b) effectively tighten the dismissal procedures for consumer filing and there is no indication that Congress intended to restrict a bankruptcy court's discretion in deciding motions to dismiss under section 707(a).
The Court further held that in deciding a motion to dismiss "for cause" under section 707(a), a bankruptcy court may consider a debtor's substantial income and expenses together and ability to repay his debts together with other factors in assessing good faith. The Court noted that the consideration of income and expense factors is "consonant" with section 707(a) itself, as informed by precedent and the legislative history of section 707(a). The Court rejected the debtors' argument that the legislative history to section 707(a) indicates that the bankruptcy court may not consider a debtor's ability to repay his debts in deciding a motion to dismiss "for cause" under section 707(a). The Court concluded that although the legislative history of section 707(a) establishes that a debtor's ability to repay is an invalid cause for dismissal, it does not indicate that a bankruptcy court must ignore the economic reality of a debtor's financial situation in determining whether a valid "cause" for dismissal is present. The Court stated that an assessment of a debtor's good faith requires the consideration of all the facts and circumstances surrounding the debtor's filing for bankruptcy.
The Court though noted that a finding of lack of good faith should not be lightly inferred and that dismissal should be utilized only in egregious cases that entail concealed or misrepresented assets and/or sources of income, lavish lifestyles, and intention to avoid a large single debt based upon conduct akin to fraud, misconduct, or gross negligence. In re Zick, 931 F.2d 1124, 1129 (6th Cir.1991). The Court held that to avoid undercutting congressional intent, a bankruptcy court's ultimate finding of bad faith may not be based exclusively or primarily on a debtor's substantial financial means as otherwise dismissal would essentially be based upon a debtor's mere ability to repay which is expressly prohibited by the legislative history of section 707(a).
In this case, the Court stated that there was no evidence that the debtors' schemed to conceal or misrepresent income, inflated their expenses to hide income, filed misleading statements or schedules in an effort to defraud their creditors, unduly interfered with the judicial process, or engaged in any other misconduct. On the contrary, the Bankruptcy Court found that the debtors were straightforward in their schedules, with the Court, and their creditors and that the debtors did not time the filing of the case to shield a future source of income. Also the debt was accrued from a company which had a business plan with income projections that were not unreasonable. The Court of Appeals found that the debtors' substantial income and comfortable lifestyle were insufficient to demonstrate bad faith.
The Court of Appeals therefore upheld the Bankruptcy Court's denial of the motion to dismiss for lack of good faith under section 707(a).
