1 EL ECTRONI C CI TATI ON: 13 FE D App.0003P (6th Cir.)

File Na me: 13b0003p.06

BA NK RU P TC Y A P P ELLA TE P AN EL OF THE SI XT H C IR CU IT
I n re: STEVEN J. W EI XEL A NN M

. W E IX E L,
De bto rs
.

______________________________________ ) ) ) ) No. 12-8047

Appea l from the United States B ankruptc y Court for the Norther

n District of Ohio No. 12-11313
Submit ted : May

14, 2013
Dec ided and F iled: J une 28, 2013
B e fo re : HU MPH REY , M c I VO R A ND PRE STO N , B ank

ru ptc y Ap pe llate Pane l Judg e s.

____________________ CO UN SEL
ON BR I EF: S tephe n D . H ob t, C le ve land , O hio , f or Ap pe lla nts . A my

L . G oo d, L ind a

B a tti sti , UNI TED STATES DEPARTMENT OF J USTI CE, Cleveland, Ohio, for Appellee

.

____________________ OP IN ION

____________________
G U Y R . HU M P HREY , Bank rupt c y Ap pe llate Pane l Judg e . In th is a pp e a l, t he de bto rs , Steven J . Weix el and Ann M. Weixel (t h e “W ei x els ”), a ppeal the ba

nkruptcy court’s or der dismiss ing the ir Chapter 7 c ase a s an abuse under 11 U .S.C. § 7 0 7 (b)( 1) and ( 3). F or the re asons stated in this opinion, t he Panel de termines that the ba nkruptcy court’s or der should be a ffirme d.2 I. ISS UE ON AP P EAL

The issue on a

ppeal is whe ther the bankruptcy court erre d in deter mining the totality

of the

c ir c ums tanc e s o f t

he Wei xels ’ f

ina nc ia l si tuatio n d e mon str ate d a bu se purs ua

nt t o 1 1 U .S. C. § 7 0 7 (b )(3) and re quired dismissal of the Weix els’ Chapter 7 case pursuant to § 707(b)( 1). Specifica lly , the W eixels argue that the bankruptcy court failed to consider the Weix els’ sche duled pr ior ity ta x de bt a

nd the ir ho us e ho ld’ s futur e ho us ing e xpe ns e in de te rm ini ng the ir Cha pte r 7 c a se
was a n abuse.

II. JU RI SDI CT ION AND ST ANDAR D OF RE VI EW

Th e B ank ru ptc y Ap pe llate Pane l of the Sixth Cir c uit ha s jur isd ic tio n to de c ide thi s a pp e a l. The United S tates District Court for the Norther n District o f Oh i o has authorized appe als to the Pane l, a nd no pa rt y ha s ti me ly

e le c te d to have thi s a

pp e a l he ard

by th e di st ric t c ourt . 2 8 U .S. C. §§ 15 8( b) (6 ), (c )( 1) . Aba nk ru ptc y c ourt ’s fi na l or de r m ay

be a pp e ale d as of

ri g ht p ur su ant t o 28 U. S.C. § 1 58 (a )( 1) . Fo r pur po se s of ap pe a l, an

or de r i s f ina l if it “ e nd s th e lit ig a tio n o n th e me ri ts and lea ves nothing for the c ourt to do but ex ecute the judg ment.” Midland Asphalt Corp. v . United S tates, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) ( citation and quotation marks omitted). An order dismiss ing a

bankruptc y

case is a final orde r
. In r e Ande rson , 3 97 B .R. 36 3, 36 5 (B .A .P . 6 th Cir . 2008).

“[T] he ultimate question of whe ther to dismiss” a ca se for abuse unde r § 707(b) is reviewe d for a n abuse of discretion because it is an equitable deter mination. Behlkev

. Eisen ( In r e Be hlke) , 358 F .3d 429, 434 (6th Cir. 2004). S e e M a y o r o f B a lt im o r

e v
. W

. V a
. ( I n r e Eag leP ic her In d

u s ., Inc.) , 285 F .3d 522, 527 (6th Cir. 2002) (e quitable deter m i n at i o ns are subject to an a buse of discretion standa

rd). “A n ab use of discr etion is defined a s a ‘de finite and fir m conviction that the [court below] commit ted a c lear err or of judg ment.’ ” Id. at 529. The particula r fac tual finding s of the bankr uptcy court a re reviewed for “ clea

r er ror .” Behlke , 358 F .3d at 433. Se e als o F e d. R. Ba nkr. P. 8013 (finding s of fa ct ar e re viewed unde r a c lear ly err oneous standar d).A t t he t i me t hat t he W ei xel s f i l ed t hei r pet i t i on, t o be el i gi bl e t o f i l e a Chapt er 13 cas e, ea ch 1 d e b to r’s n o n c o n tin g e n t, l iq u id a te d , un se c u re d d e b t co u ld no t ex c e e d $ 3 6 0 ,4 7 5 a n d e a c h d e b to r’s
n on con t i n g en t , l i qu i dat ed, s ec u r ed debt c ou l d n ot e x ce ed $1, 081, 400. 11 U

. S. C. § 109( e)

. T h e t ot al of t hei r s che dul ed un s ecu r ed debt on Sch edul e F wa s onl y $8 5, 14 3, but t he t ot al of t hei r s che dul ed s ecu r ed debt on Sc h edu l e D of

$1, 101, 625 w as a bov e t h e s t at u t or y c ap.

3 III . F AC TS

A. TheW

e ix e ls’ Cha pte r 7 Fi lin g, Sc he du le

s, In c om e, E

x pe ns es a nd

De bts

Th e W e ixel s f ile d a Cha pte r 7 pe tit ion on F e br

ua ry 26 , 20 12

. Th e W

e ixel s we re no t e lig ibl e fo r r e lie f un de r Cha

pte r 13 of the B ank

ru ptc y Cod e du e to t

he amou nt o f t he ir de bt. Th e ir

Sc he du le 1 Ishows five minor childre n included in their household.

Mr. W eixel is employ ed as a loan of fice r at Howar d Hanna

Mortg ag e Servic es. F rom 2002 until 2008, Mr . W

eixel owned a mortg ag e broker ag e compa ny called A BC Mortg ag e Corporation (“A BC”) . Fr om the time A BC was formed in 2002 until 2006 the business expanded, but due to the ho us ingc ri sis AB C is no w d e fu nc t. M r. W

e ixel ’s ov e ra ll i nc ome ha s d e c lin e d in recent y e ars , stabiliz ed, and r ece ntly

has shown signs that it may be increasing . The e x act f igur es ar e unava ilable, in p art be c a us e the W

e ixel s d id n ot f

ile wi th th e I nte rn a l Re ve nu e Se rv ic e (t he “ I RS” ) a ll the ir require d pre- petition tax returns a nd also beca

use t hey did not produce to the U nited S tates T rustee (t he “ UST ” ) a ll the ta x re tur ns the y did fi le wi th the I RS. On Sc he du le J, his monthl y ne t in c ome is list ed at $7,382, whic h would be $88,584 a year . Mr. W eixel’s gr oss incom e wa s betwee n $1 85 ,0 00 and

$2 00 ,0 00 in 200 5 an d pe ake d at ap pr oximate ly $2 00 ,0 00

. I n 201 0 Mr. W e ixel ’s g ro ss income wa s reduc ed to appr ox imately $1 10,000 and by

201 1 his gr oss income was $51,986.

F or a bo ut f ive y e ars pr ior

to f ili ngba nk ru ptc y , M s. W e ixel op e rate d h e r o wn busi ne ss throug h a limit ed liability company , The Ride and W

orkout, which she descr ibed as a “ h i gh-end exercise studio.” [Hr’g T r., p. 63]. Her sche duled income wa s the ave rag e g ross rec eipts from the business, which appe ars to have been fairly stable in rec ent y ear s and per haps incre asing . The 2008 throug h 201 1 business net income wa s $54,462, $47,441, $55,364 and $62,941, re spectively . TheT he av era ge m o nthly i nc o m e o f $ 1 3 ,35 3 fo r M s. W eixe l o n S ch ed ule I is n o t co rrec t b ec au se 2
t hat f i gu r e r ef l ect s he r mo nt hl y bus i nes s gr oss i ncome an d s houl d re f l ect he r mo nt hl y ne t i ncome, bas ed up o n the se p ara t e it em i za t i o n o f t he ex p en ses d ed uc t ed

. S ch ed ule J refl ec t s t ha t she h ad m o nthly b usiness ex pen s es i n t h e amou n t of $10, 519.
M r. W ei xel t est i f

i ed t hat t he m o rt gage p ayment was $ 5 , 5 0 0 ; how ever, Sche d ul e J ref l ect s t he 3 pay ment as bei ng $5, 21 6. Al l t he f i gu r es f r om t he r ecor d t hat i ncl ude f r act i ons of

a dol l ar ar e r ounded t o t he nearest do l l ar.

S c h e d u le E re flec ts tha t t h e W e ixe ls o w e the fo llo w ing inc o m e ta x e s e n ti tl e d to p rio rity 4
t reat m ent unde r t he B ankruptcy C o d e f o r t he f o l l o wi ng pe ri o d s: a) I R S – $1 8 0 , 0 0 0 f o r 20 0 7 - 20 1 0 ; b) t he st at e o f O hi o – $5 0 , 0 0 0 f

o r 2 0 0 3

- 2 0 1 1 ; and c) $1 0 , 0 0 0 f o r what ap p ears t o be ci t y t axes f o r 20 0 3 t hrough 2 0 1 1 . T h e W e ixe ls p ro v id e d the ir 2 0 1 1 tax r e tur n s to th e U S T , b u t w e re r e q u e ste d b y the U S T to su p p ly t ax r et ur ns s i nce 200 6. A ccor di ng t o M r
. W ei xel , s om e u ns peci f i ed t ax r et ur ns f

or t hat per i od wer e f

i l ed b u t no t p ro v id e d to the U S T , b u t o the r re tur n s w e re no t f iled a t all.

4 pa rt ie s a g re e d th a t, af

te r ta xes, Ms. W

e ixel ’s bu sin e ss i nc ome c on tr ibute d a bo ut $ 3, 00 0 e a c h mo nth to the household’s income. 2

The W eixels’ combined adjusted g ross income stated on their 201 1 fede ral income tax return was $1 14,927. Schedule I showed an aver ag e monthly take home pay of $20,915, althoug h the true fig ure is le s s d

u e to M s
. W

e ixe l’ s b u s in e s s e xp e n s e s n o t h av in g b e e n d e d u c te d to ar

r iv e a t that number. After

deductingMs. W

eixel’s business ex penses, the W eixels’ household monthl ytakeho me inc ome re fl e c te d o n Sc he du le I is $1 0, 39 5 [$20 ,9 15 (S c he du le Ilin e 16 ) – $1 0, 51 9 ( Sc he du le J line l6)], or over $120,000 ea ch y ear
.

Th e W e ixel s’ e xpe ns e s li ste d o n Sc he du le J inc lud e a se lf -d e sc ri be d “ re a so na

ble ” e xpe ns e of $3,500 for

future housing beca

use t he W eixels were not makingthe monthly mortg ag e pay

ment on their re sidence when the c ase w as filed, whic h was a bout $5,500 eac h month. I n addition, 3 Schedule J did not list any sug g ested e x pense fi gu re f or re paying de linquent income taxes, which

acc ording to Schedule E, totaled $240,000. The business expenses for The Ride and W

orkout are 4

se pa rate ly ite mize d in

an atta c hme nt t o Sc he du le J. Af te r e xpe ns e s, Sc he du le J show e d th e W e ixel s had a de minimus monthly net income of

$9.

The W eixels scheduled $1,426,7 6 8 i n t o tal liabiliti es. Those liabilities included thre e
mor t g ag e loans on their r esidenc e totaling $829,020; a sec ured a utomobile loan in the amount of $6,016; statutory

tax liens; and a judgme nt lien ag ainst their residenc e. The total of the sche duledI n Se pt embe r 2011 M r
. W ei x el s t ay ed at a c as i n o h ot el i n At l an t i c Ci t y a n d w i t h dr ew $500 f r om 5 a b ank acco unt

. O n Sep t em b er 15 , 20 1 1 ano t her $5 0 0 was wi t hd rawn t hrough an A T M at t he casi no hot el

. O n Sept emb er 16 , 20 11 M r
. W ei xel mad e a pur cha s e on h i s debi t ca r d f or $1, 06 7. O n D ece mb er 1 5 , 2 0 1 1 M r. W ei xel w i t hd rew $ 4 0 3 fr o m a race tr ack i n E ri e, P ennsy l vani a. O n D ecem b er 2 3 , 2 0 1 1 M r. W e i x e l m a d e a d e b i t c a r d p u r c h a s e f o r $ 6 7 i n L a s Ve g a s , b u t h e t e s t i f i e d h e w a s n o t t h e r e t o g a m b l e
. On Ja n u ar y 24, 2012 M r
. W ei x el ma de a $186 de bi t ca r d pur ch as e a t t h e G ol den N u g g et , a La s V eg as c as i n o. M r
. W ei xel s t at ed t hat t he G ol den N ug get vi s i t was a com pl i ment ar y at t endan ce f or a poker ca mp hos t ed by prof es s i onal poker pl ay er s
. O n J anu ar y 25, 201 2 M r
. W ei xel mad e a $20 pur cha s e t hr ough an i nt er net p o ker web s i t e. O n A p ri l 16 , 20 1 2 , af t er t he p et i t i o n was f

i l ed , M r. W ei xel s p ent $9 9 at a race t rack and had t wo s epa r at e $200 AT M wi t h dr aw al s t h at s ame day

. O n M ay 11, 2012 M r
. W ei x el wa s at t he H o rs e sh o e C a sin o in C le v e la n d , O h io

. B e tw e e n J u n e 1 5 - 1 8 , 2 0 1 2 M r. W e ixe l w a s b a c k in A tlan tic C ity. M r
. W ei xel t es t i f

i ed t hat s om e of

hi s t r ave l ex pens es wer e pai d by t he po ker t our namen t s
. Schedul e J does no t dir ect l y ref

erence t hese expe nses
. T he W ei xel s l i st $ 2 5 0 each m o nt h f o r ent ert ai nm ent , but i t ap p ears M r. W e ixe l did no t co nsi d er po ker an ent ert ai nm ent exp ense based on hi s p o si t i o n t hat hi s wi nni ngs e sse n tially p a id fo r th e ho b b y.

5 secur ed debt is $1,101,625. As noted, the W eixels scheduled $ 2 4 0 , 0 0 0 i n priority unsecur ed tax debt. The non- priority

unsecur ed debt is $85,143.

B. W eixe ls’ Lifestyle

I n the Spring of 2006 the W eixels purc hased for $590,000 a 3,300 square foot residenc e at 20922 A valon Drive in Rocky River, Ohio, with a li mited view of L ake E rie, a nd no money

down. Th e y re fi na nc e d the loa

n, bo rr ow ing an ad dit ion a l $50, 00 0 ag a ins t the ho me and us e d some of tho se funds for improve ments to the home. Due to their f inancial c ircumstance s, the W eix els stopped making the mortg ag e pay ments by 2009 and filed their bankruptc y petition on Febr

uary 26, 2012 – the da y be fo re the sh e ri f

f sa le wa s sc he du le d. As of the tim e of the he ari ng on the UST ’s mot ion to dis mis s, the W

e ixel s h a d n ot m ov e d b e c a us e a fo re c los ur e sa le wa s n ot i mmi ne nt.

Mr. W eixel play s poker

. He mostly

play s in a local leag ue with a $50 entr y fee ever y other

wee kend for

a total of $1,300 eac h y ear , but also has play ed in ca sino tournaments in L as V eg as and Atlantic City

. Mr. W eixel’s losses a

re cappe d for these tournaments at his entry fee and he c laimed his winnings allowe d him to “break even,” but he had no specific rec ords t o support this assertion. [Hr’g T r., p. 36]. On two occasions, those beingin 2005 and 2007, Mr. W eixel spent $1,500 to enter a poker tournament. Mr

. W eixel won $20,000 between 2008 a nd 201 0 , b u t s p en t those funds on entry fee s and “potentially any other ex penses with the family .” [ Hr’g T r., p. 58]. The W

eixels’ bank

s t at em en t s re v ea l t ra v el an d o t h er ex p en s es re l at edt o h i s gam b l i n g. 5T h e W e ixe ls’ b a n k sta te m e n ts w e re sp e c ifi c a lly a d d re sse d a t t h e he a rin g
. A s e x a m p le s, sh o rtly 6 af t er t h e Cha p t er 7 w as f i l ed, t h e W ei x el s ’ ba n k a cc ou n t s h ows $36 s pen t on a r es t au r an t on M ar ch 19, 2012 a n d $63 s pen t a t a di f f er en t re s t au r an t t h at s ame day

. O n A pr i l 16, 2012 t h e W ei x el s s pen t $63 on
ano t her r est aurant

. O n A p ri l 19 , 20 1 2 a n o the r $ 7 8 was s p ent on a rest aurant

. T wo other res t aurant expen s es f

or $50 are s hown f

or Apri l 23, 2 01 2. T he day o f t he W ei xel s ’ f

i nan ci al ed uca t i on co ur s e t hey s pent $ 4 1 a t a w i n e bar a n d w i t h dr ew a n ot h er $100 t h r ou g h a n AT M

. M r
. W ei x el c ou l d n ot e x pl ai n or d o cu m en t an y of t he sp ec i f i c A T M wit hd raw als, b ut st ated m an y of t he m we re fo r o rd i na ry exp en ses.

6 The UST also introduced other evidence as to the W eixels’ unnece ssary

spending both prior to and following the filing of the ba nkruptcy petition. 6

C. The United S

tates T rustee’s Ev idence

The UST moved to dismiss thi s case pursuant to 1 1 U.S.C. § 707(b)(1), ( 2) and ( 3). At i ssue befor e thi s court is whether the bankruptcy court erre d in gr anting the UST’s motion to dism iss under § 707(b ) ( 1 ) f

o r a b u s e o f Ch a

p te r 7 o f th e B an kr

u p tc y Co d e b a s e d u

p o n th e to ta li ty of the circ umstances of

the W eixels’ financial situation as provided f or by subsection (b)( 3).

The W eixels and J ohn W

eave r, a bankruptc y analy st f or the UST , testified at the he aringon the motion to dismiss. The majority of the W eixels’ evidence was pre sented throug h Mr. W eixel’s testimony , with Ms. W

eixel’s testim ony

beinglimit ed to the income de rived fr om her business.

The UST r ev i ew ed the W eixels’ bank statements and que stioned various ente rtainment expenses of the W

eixels. The bank s tatements show that at a time when the W eixels’ bank acc ount ha d b e e n r e pe a te dly

ov e rd ra wn , th e W

e ixel s c on tin

ue d to sp e nd

fu nd s o n e nte rt a inm e nt.

Th e UST c on c lud e d th a t th e W e ixel s, with appro pr iate bu dg e t a dju stm e nts , h a d mo nth ly disposable income of

$2,308. Rather than the $3,500 hy pothetical figure fo r h o u s i n g used by the W eixels, t h e US T ch ose the a pplicable mea

ns test housing a llowance of $1,195. This signif icant

c ha ng e re du c e d th e W

e ixel s’ ov e ra ll e xpe ns e s b y $2 ,3 05 . F oll ow ingthe same pr oc e dure , th e UST made smaller

adjustments for other

housing e x penses, pe rsonal expenses [food, cl o t h i n g, laundry

and re c re a tio n], and a

uto mob ile e xpe ns e s. Th e UST a dd e d $1 ,0 00 to pa y the sc he du led pr ior ity1 1 U .S .C . § 7 0 7 (b ) ( 2 ) (A )( iv) (“T h e d e b to r’s e x p e n se s fo r p a ym e n t o f all p rio rity cla im s . .
. 7 shal l be cal cul at ed as t he t o t al am o unt of d eb t s ent i t l ed t o pri o ri t y , divi d ed by 60

. ”).

7 unsecur ed taxes, which we re g iven a $4,000 credit under the m eans test [$240,000 / 60]. Ex cept 7 fo r t he de lin qu e nt ta xes, the UST us e d th e statut or y “ me ans te st” e xpe ns e s in de te rm ini nga

bil ity to pay
.

IV . A NA L YSI S AN D D ISC USS ION

A. S tatement of the Law
Section 707(b) wa s added to the B ankruptc y Code in 1984 with othe r ame ndments intended to addre ss consumer c redit and w as “more than a ne edless dupli cation of the ‘other provisions of the Code that have alway s require d petitioners t o file in g ood faith.’ ” In r e Kr ohn , 886 F .2d 123, 126 (6 t hC i r
. 1 9 8 9 ) ( qu o t i n g In r e W alton , 866 F .2d 981, 983 (8th Cir. 1989)). Sec tion 707(b)(1) states that “[a]fter notice a

nd a hea ring , the cour

t, on its own mot ion or on a motion by the Unit ed S tates trustee . . . may

dismiss a cas e fi l ed by

an individual debtor unde r this chapter whose de bts are primarily consumer de bts, or , with the debtor’s c onsent, conve rt such a c ase to a case under c hapter 1 1 o r 1 3 o f t

his tit le , if

it f ind s th a t th e g ra

nti ngof re lie f w ou ld b e an a

bu se of the pr ov isi on s o f t

his chapte r.” 1 1 U.S.C. § 707(b)(1). When the U ST moves to dismiss a case under § 707( b), it has the burden of proving abuse by

a pre pondera

nce of the evidenc e. In r

e Kehl , 463 B.R. 18, 21 (B ankr

. E

. D. M i ch

. 2 0 1 1 ) ( ci t i n g In r e Be cke rman , 381 B.R. 841, 844 (B ankr . E.D. Mich. 2008))

.

I n C ong ress’s most re cent sig nificant amendment of the B ankruptc y Code, it made three notable cha

ng es to § 707(b). The Ba nkruptcy Abuse Preve ntion an d Consumer Protection Act of 2005 (“B APCP

A”) : 1) cha

ng ed the f

ormer sta ndard of “substantial abuse ” to a les s er s tandar d of “abuse ;” 2) eliminated the presumption in f avor of g ranting bankruptc y relief to debt o rs ; and 3) added a “means test” t o Chapter 7 throug h § 707(b)( 2) which c reates a statutory presumption of abuse if a debtor ha s a define d minimal “c urre nt monthly income” rema ining a fter the deduction of

cer tain allowed e x penses. The se cha ng es re flec t Congr e ss’s intent to lim it the availability of Chapter 7 b ank ru ptc y re lie f t o th os e de se rv ingof a fr e shsta rt

.8

Whil e much of the focus following the enac tment of BA PCP A has re lated to the mec hanica l application of the means test, eve n if the ca lcu l at ed presumption of abuse provided for by § 707(b)( 2) does not ar ise or is rebutted, a debtor’s chapte r 7 case may still be found to be abusive under § 707(b)(3)

. Schulz v . United S tates , 529 F . 3d 343, 348 (6th Cir. 2008) ; In r e Me stemake r , 3 5 9 B

. R. 8 4 9 , 8 5 5 ( B a

n kr
. N

. D

. O h io 2 0 0 7 )

. Se c ti o n7 0 7 ( b ) ( 3 ) s tates, in rele vant p art, th a t “ [i ]n consideringunder pa

rag raph ( 1) whe ther the g ranting of relief would be an a

buse of the pr ovisions of this chapte r i n a case in which the presumption in para g raph (2)(A) (i) does not arise or is re butted, the c ourt sh a ll c on sid e r .
. . (A ) wh e the r the de bto r fi le d the pe tit ion in ba d fa ith ; or (B ) t he tot a lity of th e cir cum sta

nc e s .
. . of

the de bto r’ s f

ina nc ia l si tuatio n d e mon str a te s a bu se .” 1 1 U .S. C. § 707(b)( 3). Althoug h BA PCP A cha ng ed the standard of substantial abuse to abuse and eliminated the pre sumption i n favor

of the de btor being g rante d relief , § 707(b)( 3) otherw ise essentially codifies the principles of p re -B AP C P A case law c oncer

ning § 707( b). In r

e Goble, 401 B.R. 261, 276 (B a nkr . S. D

. O h i o 2 0 0 9 ) ( t o t a l i t y o f t h e c i r c u m s t an c e s t e s tc o d i f i e s c a s e l aw p r i o r

t o B APC P

A (c i t i n g In r

e Oot , 368 B.R. 662, 665 (B ankr . N.D. Ohio 2007))

.

I n t h e S i x t h C i rcuit, t he two seminal § 707(b) case s are Kr ohn , 886 F .2d 123 and Behlke , 358 F .3d 429. The Behlkedecision re af firms the principles of Kr ohn. Behlke

, 358 F .3d at 433-36. I n Kr ohn the Six th Circuit determined that Cong ress soug ht to curb “substantial a buse” by denying Chapter 7 r elief to the dishonest or non- needy debtors. Kr

ohn, 8 8 6 F

. 2 d at 1 2 6 (c i t i n g In r e W alton , 866 F .2d 981, 983 (8th Cir

. 1989)). Thus, a finding of a buse under

the totality

of the c ircumstance s test provided by

§ 707(b)( 3)(B ) ca

n be pre dicated upon e ither lac k of honesty , want of need or both. Bec kerm an , 381 B.R. at 844- 45. The fa ctors outlined in Kr ohn fo r as se ssi ngthe de bto r’ s h on e sty and nee d for ba

nkruptcy relief combine to serve as the framework for deter mining the totality

of the circ umstances of

the debtor’ s financia l situation. Se e In r e Sc hu be rt , 384 B.R. 777, 780 (B ankr . S.D. Ohio 2008) (listing the combined fa ctors).

An ho ne st d e bto r i s o ne wh os e “ re latio ns hip wi th h is c re d i t o r s h a s be e n ma rk e d b y e sse nti a lly honorable and u n d ec ep t i v e dealing s.” Kr ohn, 88 6 F .2 d at 12 6. F a c tor s th a t ma y be re le va nt t o
ascerta ini nga

de bto r’ s h on e sty

inc lud e the de bto r’ s f

or thr ig htn e ss i n p re pa

ri ngand fi lin g his schedule s and other doc uments, whether he has ma de substantial purc hases on the eve of“D e b to r’s a c ts w ithin the two (2 ) ye a rs p re c e d ing th e f ilin g o f his P e tit io n o f i n c u rr ing d e b ts 8 wh i ch h e cou l d n ot a f

f or d t o r epa y bu t f

or h i s r et i r eme n t i n come , ex h i bi t bad f ai t h i n f i l i n g of t h e Pet i t i on an d con s t i t u t e ‘ l a c k o f h o n e s t y ’ w h i c h i s t a n t a m o u n t t o t h e s u b s t a n t i a l a b u s e r e q u i r e m e n t o f S e c t i on 70 7(b)

. ” Ragan , 171 B

. R. a t 595.

A l t ho ugh t he W ei xel s are inel i gi b l e f o r C hap t er 1 3 , thei r i nel i gi b i l i t y is no t d i spo si t i ve and t he 9

c o u rt m a y c o n sid e r o the r fa c to rs to d e te rm ine ne e d ine ss. Kr ohn , 886 F. 2d a t 127.

9 bankruptc y

, and whe ther the Chapte r 7 filing was cause d by unfore seen or catastrophic eve nts. Id. The c ourt’s summary of the purpose of § 707(b) sheds light on the “honesty” element of § 707(b):

I n essenc e, § 707(b) allows a bankruptcy court to dea l equitably

with the unusual situation where a

n unscrupulous debtor seeks to enlist the cour t’s assistance in a scheme to take unfair advantag e of his cre ditors; it serve s notice upon thos e tempted by un pr inc ipl e d a c c umu lation of con sume r d e bt t hat th e y wi ll b e he ld t o at le a st a ru d i m en t ary

s t an d ar d o f f ai r p l ay an d h o n o rab l e d ea l i n g.

Id. T h e s p e c t r

u mo f d e b t o r s t h a tf

a l l i n t o t h e “ d i s h o n e s t ” c a t e g o r y d e s c r i b e d

b y Kr ohn cov ers a broade r swath than what may be ty pically envisioned as dishonest people, swe epingin those debtors who seek to take unfair advanta g e of their cre ditors, inc luding throug h the dischar g e of un b ri d l ed

acc umulation of consumer de bt. S e e S c hu be rt , 384 B .R. 77 7; In r e Ragan , 171 B.R. 592 (B ankr

. N.D. Ohio 1994) ( pre- BA PCP A); and In r e Barnes , 158 B.R. 105 (B ankr . W .D. T enn. 1993) ( pre- 8 B APC P A) (a ll s tand ingfo r t

he pr op os iti on th at a deb tor liv ingbe y on d h is m e ans and re fu sin g to adjust his budge t and cha ng e his lifestyle support dismissal for abuse unde r § 707(b) (3))

.

A “ ne e dy” de bto r i s o ne wh os e “ finan cia l pr e dic ame nt w arr ants the dis c ha rg e of his de bts in e xc h an g e f

o r li qu id a ti o n o f h is a s s e ts .” Kr ohn , 8 8 6 F .2d at 126. I n deter mining whe ther the debtor is “ne edy” the c ourt may consider whether

the debtor c an re pay h i s d eb t s o u t of future

ear nings. Id. “Other fac tors rele vant t o need inc lude whethe r the de btor enjoy s a stable sourc e of future inc ome, whethe r he is elig ible for a djustment of his debts through Chapte r 13 . . . , whe ther there are state re medies wit h t h e p o tential to ease his financial pr edicament, the deg ree of re lief ob ta ina ble thr ou g h p ri vate ne g oti a tio ns , a nd wh e the r h is e xpe ns e s c an b e red uc e d s ig nif

ic antl y without depriving him of adequate food, c lothing, shelter and other nece ssities.” Id. at 126-27.

910

B. The Bankruptcy

Court’s Decision

At the conc lusion of the hear ing, the bankrup t cy co urt ruled that, due to the W eixels’ tax de bt, the pr e sumpt ion of a bu se did no t ari se purs ua

nt t o § 70 7( b) (2 ), a

de te rm inatio n th a t th e UST has not appe aled, a

nd defe rre d ruling on the § 707(b)( 3) dismissal request. In an ora l decision prese nted subsequent to the da y of t he hearing , the bankr

uptcy court rule d that, under the totality of the circ umstances, the W

eixels’ c ase should be dismiss ed for abuse pursuant to § 707(b)( 1) and ( 3).
The UST did not pursue the ba d faith prong of § 707(b)(3)(A ) and the court’s de termination

wa s so le ly

ba se d u po n § 70 7( b) (3 )( B ). Di smi ssa l of c a se s f or ba d f a ithhave be e n li mit e d to the mos t “egreg ious case s that entail conc eale d or misrepre sented a ssets and/or sourc es of income , and excessive and c ontinued expenditures, lavish life-style, and intention to avoid a lar g e sing le debt based on c onduct akin to fra ud, misconduct, or g ross neg lige nce.” Indus. Ins. Serv s., Inc. v . Zick ( In r e Zick ) , 9 3 1 F

. 2 d 1 1 2 4 , 1 1 2 9 ( 6 th Ci r
. 1 9 9 1 ) ( an a ly zi n g b a d f

a it h a s e s ta b li s h in g c a

u se under § 707(a) ). Acc ording ly

, the ana ly sis of the bankr u p t cy court’s de cision will be limi ted to the g ro un ds state d und e r § 70 7( b) (3 )( B ) – wh e the r t

he tot a lity

of the c ir c ums tances of

the de bto rs ’ fi na nc ia l si tuatio n d e mon str a te s a bu se . T he ba

nk ru ptc y c ourt ’s re vie w of the tot a lity of the de bto rs ’ ci rc u m s t an ce s i s t o b e c o n d u ct ed b as ed u

p o n t h e de b t o rs ’ ci rc u m s t an ce s as o f t h e t i m e o f t h e h ea ri n g. Sc hu be rt , 3 8 4 B. R

. at 7 8 0 (c i t i n g In r e Pe nnington , 348 B.R. 647, 651 (B ankr . D. Del. 2006) ).

The ba nkruptcy court primar ily

addre ssed th e ec onomic rea lities of the W eixels’ sit uation in h e r o ra l de c isi on . T he c ourt no te d that wh ile Mr . W e ixel ’s inc ome ha d d e c re a se d o ve r t ime , M s. W e ixel ’s bu sin e ss i nc ome wa s sta ble or inc re a sin g
. An oth e r fa c tor re lie d u po n b y the ba nk ru ptc y court wa s the W

eixels’ decisions to purchase a $590,000 house w ith 100% financ ing and to borrow an additional $50,000 throug h a subseque nt refina ncing . The ba

nkrupt cy co u rt analy

zed the

ec o n o m i c e f

fe ct s o f M r
. W

ei x el ’s p o k e r h o b b y

, b u tem p h as i z edt h at t h e c o u rt wa s n o tm ak i n g a
va lue jud g me nt a s to po ke r a s a ho bb y . In p art ic ula

r, th e c ourt

a sse sse d th e e x pen ses a tte nd ant t o the hobby and how wi n n i n gs we re used whe n the W eixels’ finance s were in distress. The cour t found that betwe en 2008 and 2010 Mr . W eixel won about $20,000, but used some of t h ose funds for a dditional poker entra nce f ees instea d of nec essities. The cour t was also con ce rn ed about the11

trave l expenses involved in attending poke r tourname nts. The court re fer ence d other unne cessa ry tr ave l and din inge xpe ns e s r e fl e c te d o n th e ba nk state me nts and c on c lud e d g e ne ra lly that th e W

e ixel s appea red to have made no adjustment to the ir lifestyle despite their e conomic distress. The court lef t open the possibility

that a subsequent Chapter 7 case could work if the W eixels’ financial situation had cha ng ed.

C. Analysis of the Bankruptcy Court’s Decision

The recor d supports the bankruptcy court’s decision. The W eixels, despite being in f

inancial dif ficulty since 2007, made no attempt to chang e their upsc ale life sty le.

Th e mo s t v is ib le e xamp le o f th e ir li f e s ty le w a s th e ir

r e s id e n c e
. Rath e r

th anv a c a te the

re sid e nc e , mo ve to a

mor e a f fo rd a ble re sid e nc e , a

nd a dju st t o a

ne w l if e sty le , the W eix e ls c ho se instead to c ease paying upon the mortg ag e loan, reside in the residenc e at the le nder’ s expense, and wait for a fore closure. The W eixels ce ased making pay ments on the house by

November

2009 and filed their bankruptcy petition on Fe bruar y 26, 2012, the day befor e the r esche duled fore closure sa le.

Th e W e ixel s’ avo ida

nc e of be lt- tig hte nin gis a lso e xhibi te d th ro ug h th e ir re c re a tio na l ha bit s. Rather than e liminate his poker trave ls or use his poke r winnings to pa y some of his delinquent taxes

or oth e r n e c e ssi tie s, Mr

. W e ixel c ho se to u se so me of tho se wi nn ing s f

or e xpe ns e s to c on tin

ue his poker hobby

. The W eixels have continued to expend funds by eatingat re staurants, a

nd Mr. W eixel tr ave le d unn e c e ssa

ri ly to pla y po ke r
. Th e e vid e nc e su

pp or ts the tr ia l c ourt ’s fi nd ing that the W e ixel s fa ile d to a dju st the ir

up sc a le lif

e sty le de sp ite the ir

fi na nc ia l c ir c ums tanc e s.

The a ccumulation of sig nificant c onsumer debt, includingthe purc hase of a $590,000 residenc e with 100% of it financ ed, followed by the borrowing of an additional $50,000, the f ailure to file their tax re turns and pay income taxes for multiple y ear s, and the lac k of any unfore seen or cata strophic eve nt leadingto the bankruptc y are al l fa ctors that support the “dishonest” debtor element of Kr

ohn . Even a ssuming that the downtur n in the rea l estate market was not forese eable , th e d o w n tu

r n d o e s n o t e xp la in o r ju s ti f y th e e xte n t o f th e r is k in w h ic h th e W e ixe ls eng ag ed by lever ag ing the ir reside nce or their fa ilure to a djust their lifesty le by finding more a f

forda ble housing12

and re du c ingoth e r e xpe ns e s o nc e the ho us ingc oll a ps e oc c ur re d. Th e y we re a ble to m a int a in t

he ir upscale lifestyle b y re m ai ning in their house and not pa

ying the ir mortg ag e pay

ments and tax ob lig a tio ns
.

Th e W e ixel s arg ue that the ba

nk ru ptc y c ourt fa ile d to c on sid e r t he ir futur e ho us inge xpe ns e and the pa y ments that they will have to make to the t axing authoriti es i n deter mining that their f

iling

c o n s t i tu t e d

ana b u s e u n d e r

C h a p t e r 7

. T h e f a l l a c y o f t h i s arg u m e n t i s t h a ti tf

o c u s e s o nt h e “ n e e dy” element of

the § 707(b)( 3) analy sis, while s ide-stepping the “honesty ” element of t he tot ality of the circ umstances test. Kr

ohn teac hes that nee d is not the s ole consider ation in determining whether a debtor see ks to abuse Chapter 7 – but rather

that the nee d for ba

nkruptcy relief based upon unprincipled a ccumulation of consumer de bt may also constitute abuse. Mor eover , in considering the W eixels’ housing expense, th e b an k ru p t cy court did not err

in its “needs” a

naly sis. The court specific ally

found the W

eixels’ curre nt housing wa s to o ex p ensi ve and the W eixels presented no

ev id e n c e to s u

p p o rt th e $ 3 , 5 0 0 f

igu r e f o r h o u s in g
. T h e b an kr

u p tc y c o u rt f

o u n d that afte r the

re sid e nc e wa s so ld a

nd oth e r c ha ng e s w e re ma de , it

wa s p os sib le that th e W

e ixel s c ou ld b e e lig ibl e fo r Cha pte r 7 re lie f. Th e W

e ixel s nev e r expl a ine d why the y sh ou ld be e nti tle d to a ho us inge xpe ns e almost three times the standard means test allowanc e. The bankruptc y court was entitled to consider the me ans te st f

igur e us e d b y

the UST a s th e mor e reas on abl e fi g ur e . In a ny e ve nt, the W

e ixel s ef fec tively waived this par

ticular position. At the closing ar g ument, afte r never disputing the UST’s ho us ingfi g ur e duri ngthe he ari ng, W e ixel s’ c ouns e l st a te d th a t, w iththe e xce pti on of the pr ior ity taxe s , th e W

e ixe ls “ a d o p te d

th e U

. S. T

r u s te e ’ s an a ly s is o f

o u r e xp e n s e s
. ” [H r ’ g T

r
. , p
. 7 5 ].

Th e ba nk ru ptc y c ourt a lso did no t e rr in f a ili ngto c on sid e r t

he $2 40 ,0 00 in s c he du le d p ri or ity ta xes a s th e W

e ixel s arg ue . T he re are a numbe r of fl aws in the W e ixel s’ po sit ion

. F ir st, the W e ixel s
never proposed how the y would pay the t ax debt or budg et it as an e x pense. The UST used a $1,000 monthly fig ure f or the repa

y ment of these obligations in assessing the W eixels’ disposable income. Th e W e ixel s arg ue d at th e he ari ngthat th e fi g ur e sh ou ld b e $4 ,0 00 ba se d u po n th e me ans te st fo rm ula . B ut a

§ 7 07 (b )( 3) ana ly sis is n ot l imi te d to us ingsp e c if ic fi g ur e s f

ro m th e means te st calc ulation of § 707(b)( 2), i ncluding the s chedule d priority tax debt, but is an overall analy sis of the totality of the W eixels’ financial c ondition. In r e Book er , 399 B.R. 662, 666-67 ( Ba nkr. W .D. Mo. 2009). Second, it is not clear how much the W

eixels owe in ba ck taxes or how their tax li abilitiesM r
. W ei xel t es t i f i ed t hat s om e u ns peci f

i ed po r t i on of

t he ent er t ai nment ex pens es cons t i t ut ed 10 bu s i n es s e x pen s es , bu t he prov i ded n o doc u men t at i on a n d i n di ca t ed h e f ai l ed t o de du ct t h es e ex pen s es on t he W eixe l s’ t ax returns.

O n the ir O ff

ic ia l F o rm B 2 2 A , t h e W e ixe ls li ste d the a p p lica b le m e d ia n fa m ily inc o m e fo r th e ir 11 h ou s eh ol d s i ze a s $93, 099.

13 might be c ompromised in the future. Mr . W eixel concede d that the W eixels di d not file all their pre

pe tit ion ta x re tur ns no r d id t

he y pr ov ide a ll the ir

fi le d re tur

ns to t he UST . H avin g no t e ve n f ile d a ll the re quired re turns and having made no e f fort to compromise these schedule d debts, the bankr uptcy court wa s entitled to conclude that the W eixels cannot rely on the $240,000 fig ure to asser t that they la c k d i s p o s a

b l e i n c o m e b e c a

u s e t h o s e s am e t a xe s n e e d t o b e r e p a i d

. D i s p o s a b l e inc ome is independe ntly

deter mined by the cour t a nd is not depende nt on the financ ial fig ures pr ovided by the W eixels. In r

e Br ennem an , 3 9 7 B. R

. 8 6 6 , 8 7 1 (B an kr
. N. D. Oh i o 2 0 0 8 ) (c i t i n g In r e Gonzalez , 378 B .R. 16 8, 17 3 ( B ank

r. N .D . O hio 20 07 )) . T hir d, a lth ou g h th e ba nk ru ptc y c ourt did no t sp e c if

ic a lly ref er to the tax es in her or al ruling , the record demonstrates she was well awar e of the issue and eve n questioned Mr

. W eave r about it duringthe hea ring . Under

the circ umstances, the bankruptc y court
wa s e nti tle d to de c ide wh at w e ig ht t o g ive the lim ite d e vid e nc e ava ila ble c on c e rn ingthe ta x de bt.

Over all, the re cord shows that the W eixels m ade no at t em p t t o adjust their lifestyle over

se ve ra l y e ars to a dd

re ss a ho us e the y

c ou ld n ot a f

fo rd and inc ome ta xes the y

we re no t pa

ying . M r
. W eixel continued his poke r playing, a nd the evidenc e supported the bankruptc y judge ’s conc lusion that this pursuit di d not pay for itself. The W

eixels continued to spend an inappropriate amount of funds on enter

tainment in the midst of their financ ial crisis. The W eixels have not completed a nd 10 filed a l l t h ei r t ax returns in order to explore with the fe dera l, state, and loca l tax ag encie s to what extent their tax debt could be c ompromised. The W eixels’ financ ial history

shows that these taxing ag encie s were convenie ntly used as “ the lender

of last re sort.”
Finally , despite financ ial hardships, the W eixels’ income is significa ntly hi gh er than the

me dia n in c ome fo r t

he ir househ old

size

. Th is p ote nti a l f

utu re inc ome ava ila

ble to t he W e ixel s 11 weig hs in favor of

dismiss al. Br

ennem an , 3 97 B .R. a t 87 1; In r e Pe terlin, 457 B.R. 630, 634 (B ankr

. N.D. Ohio 201 1) (“ A substantial level of inc ome weig hs in favor of abuse.” ).14 V . C ON CL USI ON

This Pane l ha s no scale to me asure the dif fer ence betwee n “substantial abuse” and “a buse” of Chapter 7. Howeve r, BA PCP A’s relax ing of that standard and elimination of t h e p resumption in favor of

relief beingg rante d to the debtor e x presse d Congr ess’s intent that bankr uptcy courts be g iven more latitude to deny Chapter 7 relief based upon the totality of a de btor’s financ ial situation. The ba nkruptcy court c oncluded that the totality of the W eixels’ financial c ondition warra nted a dis mis sa l of

thi s c a se . H avin g re vie we d th e re c or d in its e nti re ty

, th is c ourt

do e s n ot h ave a

de fi nit e
and fi rm c on vic tio n th a t the ba

nk ru ptc y c ourt e rr e d in det e rm ini ng that the UST me t hi s b ur de n to show that the totality

of the W eixels’ financial situation demonstrates a buse of Chapte r 7.

F or the fo re g oin g re a so ns , th e Pane l AF F I RMS the ba nk ru ptc y c ourt ’s or de r d ism iss ingthi s
case pursuant to 1 1 U.S.C. § 707(b)(1) a nd (3).