521 B.R. 520
Bankr. D. Md.2014Background
- Edward and Jacqueline Fox filed a Chapter 7 petition on February 15, 2013; schedules listed primarily consumer debts and unsecured debt of about $105,898 (≈ $93,211 credit cards).
- The Foxes report high wages (≈ $220k–$255k) and omitted ≈ $30,000/year rental income from schedules; they own four properties (primary residence + three rentals) that together lose about $8,000/month.
- UST moved to dismiss under 11 U.S.C. § 707(b)(3) for abuse (bad faith and totality-of-the-circumstances), and obtained summary judgment that the debts are primarily consumer debts.
- Using debtors’ schedules, surrendering the rental properties would produce a monthly surplus (~$5,881) sufficient to fund a substantial Chapter 13 plan over 60 months; additional disposable income identified from tax over‑withholding, voluntary 401(k) contributions, and a likely unsecured second mortgage.
- The court found material omissions/misstatements (failure to disclose rental income, omission of a vehicle, and an improper change in debt classification) and concluded the petition was filed in bad faith and abused Chapter 7.
Issues
| Issue | Plaintiff's Argument (UST) | Defendant's Argument (Fox) | Held |
|---|---|---|---|
| Whether debts are "primarily consumer debts" under § 707(b) | Debts are primarily consumer and § 707(b) dismissal available | Argued debts were primarily business debts (amended petition) | Court granted UST summary judgment: debts are primarily consumer debts |
| Whether granting Chapter 7 relief is "abuse" under § 707(b)(3)(B) (totality of financial circumstances) | Foxes can repay a significant portion by abandoning/renting decisions; ability to pay is central and supports dismissal | Ability to pay alone insufficient; Green requires broader multi-factor balancing | Court emphasized ability to pay as primary financial factor, found totality supports dismissal unless converted |
| Whether filing was in "bad faith" under § 707(b)(3)(A) | Bad faith shown by omissions/misrepresentations and intent to retain loss-making rentals while discharging unsecured debt | Foxes denied bad faith—claim to preserve property value and market recovery | Court found bad faith (material omissions and strategic retention of loss-making assets) |
| Remedy | Dismissal (or conversion) appropriate to prevent abuse | Proposed to remain in Chapter 7 and retain properties | Case to be dismissed in 10 days unless Foxes voluntarily convert to another chapter |
Key Cases Cited
- In re Green, 934 F.2d 568 (4th Cir. 1991) (pre-BAPCPA multi-factor "totality" test and presumption favoring debtors)
- Ransom v. FIA Card Servs., N.A., 562 U.S. 61 (U.S. 2011) (BAPCPA purpose to maximize debtor repayment)
- In re Lorenca, 422 B.R. 665 (Bankr. N.D. Ill. 2010) (dismissing where debtors retained loss-making property instead of paying creditors)
- In re Calhoun, 396 B.R. 270 (Bankr. D.S.C. 2008) (ability to pay can alone support dismissal under § 707(b) post-BAPCPA)
- Anes v. Dehart (In re Anes), 195 F.3d 177 (3d Cir. 1999) (voluntary retirement contributions are not reasonably necessary and are treated as disposable income)