Court Opinion

ID: 9478667
Source: CourtListenerOpinion
Date Created: 2023-08-05 06:54:29.40532+00
Date Added: 2024-06-11T17:46:32.841067
License: Public Domain

McMILLIAN, Circuit Judge,
dissenting.
I respectfully dissent. I agree with the majority that debtors, after the enactment of the Bankruptcy Amendments and the Federal Judgeship Act of 1984, no longer have unfettered access to voluntary Chapter 7 relief because Section 707 of the Bankruptcy Code, providing for 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. § 707(b). However, I disagree with the majority that dismissal was appropriate in this case.
The bankruptcy court appears to have found appellant within the “substantial abuse” provisions of § 707(b) because:
(a) he was $12,000 in arrears in house payments; (b) he had $218 left over every month, which could fund a Chapter 13 plan; and (c) he wasted his money probably by gambling.
In re Walton, No. 85-0129(1), slip op. at 4-7 (Bankr.E.D.Mo. April 4, 1986).
While “substantial abuse” is not defined in the act, the district court found the essential factor of “substantial abuse” to be “the feasibility of a payment plan under Chapter 13, U.S.C. § 1301 et seq.” In re Walton, 69 B.R. 150, 154 (E.D.Mo.1986). Indeed, the district court commented favorably upon the approach taken by several bankruptcy courts concerning a definition of “substantial abuse” and noted that the most important factor appears to be the ability of the debtor to pay a substantial portion of his or her debts in the future.
Here the bankruptcy court seemed to define “substantial abuse” two ways. The district court agreed only with the latter. First, the bankruptcy court seemed to be saying that if someone is a “spendthrift,” i.e., does not manage money wisely prior to *986bankruptcy, he or she is substantially abusing the Chapter 7 liquidation bankruptcy provision of the Bankruptcy Code. I reject this notion out of hand because nearly every person who files a Chapter 7 bankruptcy proceeding at some point in time could fairly be said to have managed his or her money unwisely. Second, the bankruptcy court appears to be saying that if after bankruptcy a debtor has any “discretionary” income, that is, income not earmarked for the ordinary expenditures of life, then the debtor could pay from future income some of his present debts, and that not doing so is “substantial abuse” of the Code. Therefore, the court reasons, the debtor must accept a Chapter 13 wage earner’s plan or be denied relief. The district court agreed with the second definition.
Although Congress was under some pressure in 1984 by the consumer credit industry to adopt just such a provision, Congress did not. Instead, Congress maintained the position it has always had on Chapter 13 wage earner plans — that no one can or should be forced to utilize them (see 11 U.S.C. § 1301 et seq.). Indeed, after this case had been briefed in the district court, an article was written explaining the legislative history of 11 U.S.C. § 707(b), precisely because the term “substantial abuse” was not defined. The author explained and concluded therein:
In [In re] Bryant [47 B.R. 21 (B.C.W.D.N.C., 1984)], [In re] White [70,677 BL Rep. (B.C.W.D.N.C., 1985)], [In re] Grant [51 B.R. 385 (B.C.N.D.Ohio, 1985)], and [In re] Edwards [50 B.R. 933 (B.C.S.D.N.Y., 1985) ], Bankruptcy Courts interpreted the 1984 Amendments to § 707(b) that permit a court to dismiss a Chapter 7 case filed by an individual debtor 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.’ Although § 707 does not define ‘substantial abuse’, the White Court presumed that Congress intended to accord the term its common meaning and it concluded that, while other factors may indicate abuse, ‘[a] large excess income amount or the ability to pay a significant amount of such debts is, of course, considered indicative of substantial abuse.’ The courts in the Bryant, Grant and Edwards decisions reached similar conclusions.
Reference to the circumstances surrounding the enactment of this provision would have made clear to these courts that Congress did not intend to limit Chapter 7 relief to individuals who cannot pay their debts out of future income when it amended § 707(b).
The language of new § 707(b) originated in S 1013 and S 445 as passed by the Senate. It, in part, was the result of negotiations between the proponents of that legislation and Senator Metzen-baum. Senator Metzenbaum vehemently opposed a provision in S 1013 and S 445, as introduced, that would have made Chapter 7 relief unavailable to consumers that are able to pay their debts out of future income. As a result of these negotiations, the future income requirement was deleted from the provisions of S 1013 and S 445 and replaced with language (similar to the language in § 707(b) as enacted) permitting a court to dismiss a Chapter 7 petition upon a showing of substantial abuse. See Rep No. 65 2-4, 90-91; 130 Cong Rec S5358 (daily ed. April 27, 1983) (remarks of Sen. Dole). S5359 (remarks of Sen. Thurmond), S5359-S5361 (remarks of Sen. Metzenbaum). As the Senate passed S 1013 and S 445, as thus revised, Senator Metzenbaum made clear his understanding that he had ‘successfully worked out with the author of this amendment the total elimination of the future income language ... [T]he future income matter is no longer in the legislation.’ 130 Cong Rec S5361, S5387-S5388 (daily ed. April 27, 1983) (remarks of Sen. Metzenbaum). Similar remarks were made by Senators Thurmond and Dole at this time. Id. at S5359 (daily ed. April 27, 1983) (remarks of Sens. Thurmond and Dole).
The House-passed version of HR 5174 contained an amendment to § 707(b) that resembled the substantial-abuse lan*987guage in S 1013 and S 445. Compare HR 5174, § 212, 98th Cong, 2d Sess with S 1013, § 530 and S 445, § 230, 98th Cong, 1st Sess. In the debate that preceded enactment of HR 5174 by the House, neither Rep. Rodino nor Rep. Synar, the proponents of the consumer credit industry provisions of that bill, remarked as to Congress’ intent in the meaning of the amendments made to § 707(b), except to restate the language of this provision. Apparently to correct comments inserted to the record of the debate on HR 5174 by individual congressmen after consideration and passage of the bill, see, e.g., 130 Cong Rec H1811 (daily ed. March 21, 1984) (remarks of Rep. Brooks); id. at H1812 (remarks of Rep. Montgomery); id. at H1823 (remarks of Rep. Daub); id. at H1831 (remarks of Rep. Anthony); id. at H1832 (remarks of Rep. Brown), Chairman Rodino later stated in the Congressional Record that the proposed amendment to § 707(b) ‘would not create a future income test.’ 130 Cong Rec H1941 (daily ed. March 26, 1984).
The amendment to § 707(b) contained in the Senate-passed version of HR 5174 was identical to the language passed by the House. As the Conference Report on HR 5174 was adopted by the Senate, Senator Metzenbaum noted that ‘both the House and Senate have agreed to the total elimination of the future income language. Under HR 5174, the availability of bankruptcy relief would not be limited by future earnings standard.’ 130 Cong Rec S7624 (daily ed. June 19, 1984). Moreover, Chairman Rodino remarked during consideration in the House of the result of the conference on HR 5174 that ‘the conferees did not alter the consumer credit amendments. These amendments are fair to both debtors and creditors, and contain no threshold or future income test.’ 130 Cong Rec H7489 (daily ed., June 29, 1984).
Block-Lieb, Using Legislative History to Interpret 1984 Amendments to §§ 548 and 707, Norton Bankruptcy Law Advisor, October, 1986, No. 10.
Therefore the express intent of Congress with the enactment of § 707(b) was not to impose a future income test. To rule that Chapter 13 is the only way out where there is some disposable income after bankruptcy is to thwart and circumvent the express will of Congress that no one can be forced into Chapter 13 and that 11 U.S.C. § 707(b) is not meant to establish a “future income” test for “substantial abuse.”
Finally, both the bankruptcy court and the district court ignored the fact that the final sentence of 11 U.S.C. § 707(b) reads:
There shall be a presumption in favor of granting the relief requested by the debt- or.
This sentence means that there is a presumption that appellant should be allowed to complete his Chapter 7 case. This presumption would appear to give weight to the debtor’s own evaluation of his finances and his need to go through a Chapter 7 liquidation bankruptcy. After all, no one really wants to be bankrupt and it is only after financial disaster strikes that anyone would seek to give up and be branded with the stigma of bankruptcy. Here neither court gave any credence, or so much as discussed the presumption to be afforded appellant that his case is not a “substantial abuse.”
Moreover, the bankruptcy court indicated that factors other than a “future income” test which may be relevant to “substantial abuse ... do not militate strongly either for or against dismissal of the debtor’s petition.” Therefore, the presumption should stand and the debtor be allowed to complete his case.
The appellant herein has had more than his share of mishaps: he has been ill; his wife has been ill; he and his wife have separated and then been reunited; his home has been vandalized; his paycheck has sometimes been little more than $100 per week because of garnishments and offsets. Yet, the majority opinion of this panel, despite appellant’s wretched financial conditions, would deny him a fresh start through a Chapter 7 liquidation bankruptcy. Such a conclusion is so result-oriented as to do violence to the spirit of the entire Bankruptcy Code.
*988Consequently, I would reverse the judgment and decision of the district court.