450 B.R. 88
Bankr. E.D. Pa.2011Background
- Falch filed a voluntary Chapter 7 petition on November 17, 2010; meeting of creditors held January 5, 2011; trustee filed no-asset report; Youngs moved to dismiss under §707(a) claiming bad faith; boat ownership and related expenses raised questions about good faith; court granted motion, authorizing conversion or dismissal deadline of June 2, 2011.
- ECI, Falch’s former contracting business, faced collapse; Youngs dispute arose from a 1999-2008 project, an arbitration award, and a state-court judgment of $295,008 plus interest; Debtor’s personal finances show income about $7,809/month and expenses about $7,742/month, leaving $67.21 net, with a valuable Boat encumbered by a lien exceeding its value.
- Debtor lived rent-free on a 52-acre Blue Bell estate while earning $150,000/year; he owns a 2002 Cruisers Express 4050 Boat valued at $170,000 with a $178,000 Bank of America lien; Boat-related costs exceed $2,700/month; Debtor also purchased a 2007 Lexus in 2010 with a $419.79/month loan.” ,
- Debtor listed unsecured debts to Youngs, Wells Fargo, LEMA, and Benner & Wild; prepetition loan from LA Corp. principal (via LEMA) of $60,000 paid off with funds, with ongoing $1,100/month repayment deducted from paycheck; Debtor plans to continue repaying the LEMA loan post-discharge.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether petition was filed in good faith under §707(a). | Youngs contend Debtor filed to preserve his lifestyle and avoid debt repayment. | Falch argues good faith given pre-petition dispute resolution efforts and need for fresh start. | Yes; dismissal granted for lack of good faith. |
| Whether the Boat represents an inappropriate luxury expenditure indicating bad faith. | Boat shows extravagant lifestyle impairing creditors. | Boat is a reasonable recreational expense given housing-optional status and emotional attachment. | Yes; Boat expenses demonstrate lack of good faith supporting dismissal. |
| Whether totality of circumstances supports use of §707(a) dismissal rather than means-test/other relief. | Multiple factors indicate abuse and misalignment with bankruptcy purpose. | Debtor’s circumstances and disputes explain filing; not solely for discharge avoidance. | Yes; totality supports dismissal under §707(a). |
Key Cases Cited
- In re Perlin, 497 F.3d 364 (3d Cir. 2007) (establishes totality of circumstances approach for good faith under §707(a))
- In re Tamecki, 229 F.3d 205 (3d Cir. 2000) (burden-shifting when good faith is questioned; debtor bears burden to show good faith)
- In re Glunk, 342 B.R. 717 (Bankr.E.D.Pa. 2006) (totality of circumstances and factors including extravagant lifestyle and impact on creditors)
- In re Boyle, 412 B.R. 108 (Bankr.W.D.N.Y. 2009) (means to assess potential abuse via discretionary expenses in a Chapter 7 filing)
- In re Deutscher, 419 B.R. 42 (Bankr.N.D. Ill. 2009) (retention of recreational assets can indicate abuse under §707(b))