526 B.R. 404
Bankr. D.N.M.2015Background
- Debtor Stuart Jaramillo filed Chapter 7; UST seeks dismissal under 707(b)(3) based on totality of circumstances and presumption under 707(b)(2).
- Debtor is life insurance salesman; Guardian Life loans funded office setup; Guardian filed suit for ~$650,000; debtor eventually returned to New York Life in 2011.
- Debtor’s income exceeds $200,000 annually; expenses include large house mortgage (~$6,925/month) and substantial life insurance premiums (~$5,897/month).
- Debtor’s assets include a 5,000 sq ft home with over-secured debt and ongoing term/whole life policies used as retirement/backup funding.
- Court weighs totality of circumstances, including ability to pay, potential Chapter 11 plan, and suggested reductions in housing and life insurance costs; concludes Chapter 7 discharge would be abuse unless converted.
- Court indicates debtor is an honest but unfortunate debtor and would consider reconversion to Chapter 7 if Chapter 11 plan fails to satisfy absolute priority rule.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether totality of circumstances supports dismissal under §707(b)(3). | UST argues abuse due to high housing and life-insurance costs. | Jaramillo argues assets and costs do not yield meaningful dividend; he remains honest. | Yes; totality supports abuse; dismissal appropriate absent conversion to Chapter 11. |
| Whether the house payment or life-insurance premium alone demonstrates abuse. | Court should consider excessive housing and premiums as abuse indicators. | Debtor contends costs are reasonable given income and family needs. | Both housing and life-insurance costs are excessive and contribute to abuse finding. |
| Whether conversion to Chapter 11 is appropriate given Chapter 7 abuse finding. | UST favors conversion if plan achievable and feasible. | Debtor would benefit from Chapter 11; private negotiations failed. | Court endorses Chapter 11 as appropriate path; reconversion possible if plan aligns with absolute priority. |
Key Cases Cited
- In re Stewart, 175 F.3d 796 (10th Cir. 1999) (establishes Stewart factors for totality of circumstances)
- In re Witcher, 702 F.3d 619 (11th Cir. 2012) (codifies totality of the circumstances approach under BAPCPA)
- In re Rudler, 576 F.3d 37 (1st Cir. 2009) (explains totality of circumstances under 707(b)(3) post-BAPCPA)
- In re Hilmes, 438 B.R. 897 (N.D. Tex. 2010) (retirement contributions and premium forgiveness considerations under totality)
- In re Colgate, 370 B.R. 50 (E.D.N.Y. 2007) (pre-BAPCPA factors informing 707(b)(3) analysis)