490 B.R. 437
Bankr. S.D. Ga.2013Background
- Debtor filed Chapter 7 in 2012; Sun-Trust Bank and the UST moved to convert or dismiss.
- Underlying assets include Debtor’s residence (Bluff Drive), a Colorado investment property, and a large guaranty exposure to STB.
- Debtor’s means and expenses were disputed; a Chapter 7 Trustee would pay approximately 6.6% to unsecured creditors in Chapter 7.
- Debtor surrendered the Bluff Drive property; assisted efforts to settle disputed renovations with K.A.P.; litigation ongoing regarding nondischargeability of K.A.P.’s claim.
- Debtor’s income derives from Savannah Cardiology, with 2011–2012 net income around $196,000–$201,000; a prior Meadows Regional contract ended in 2012.
- The court held Debtor passed the means test; issues focused on abuse under 707(b) and potential conversion under 706.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Bad faith under § 707(b)(3)(A) | UST asserts bad faith via concealment and lifestyle; Debtor filed to avoid large debts. | Debtor contends no bad faith; complex finances and honest surrender show good faith. | No bad faith found; case not dismissed or converted. |
| Discretionary conversion under § 706(b) | Movants argue conversion would benefit creditors; Debtor’s income supports Chapter 11 viability. | Debtor lacks business to reorganize; Chapter 11 would burden and hurt Debtor more than Chapter 7. | Insufficient grounds to discretionary convert; no Chapter 11 conversion. |
| Abuse under § 707(b)(3)(B) totality of circumstances | Movants rely on ability to pay and lifestyle to show abuse; Debtor could provide meaningful Chapter 11 payout. | Debtor acted in good faith; ability to pay alone not dispositive; no substantial abuse. | No abuse proven; denial of conversion/dismissal is appropriate. |
Key Cases Cited
- In re McKay, 463 B.R. 915 (Bankr.S.D.Ga.2010) (abuse focus; holistic totality analysis)
- In re Cribbs, 387 B.R. 324 (Bankr.S.D.Ga.2008) (totality of circumstances not a checklist)
- In re Attanasio, 218 B.R. 180 (Bankr.N.D.Ala.1998) (objective criteria; fresh start philosophy)
- RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065 (2012) (specific governs general in statutory scheme)
- In re Gordon, 465 B.R. 683 (Bankr.N.D.Ga.2012) (contextual grounds for § 706; distinguishable from consumer abuse)
- In re Witcher, 702 F.3d 619 (11th Cir.2012) (ability to pay may be considered under totality)
- Toibb v. Radloff, 501 U.S. 157 (1991) (Chapter 11 eligibility for individual debtors not in business)