In Re Lobera
454 B.R. 824
Bankr. D.N.M.2011Background
- Debtor Alex Lobera filed a voluntary Chapter 7 on June 25, 2010; debts were not primarily consumer debts.
- GRMC and Barton moved to dismiss under 11 U.S.C. §707(a) or convert under §706(b); Debtor objected.
- GRMC alleged bad faith, inflated expenses, excess income, and incomplete disclosures to show cause for dismissal.
- Debtor’s Schedules showed $18,579 monthly excess income and unsecured debts over $1.3 million; he is a physician living with a companion and seven children.
- Amended SFA/Schedules (Sept. 2010) disclosed additional assets and transfers (Mary Stewart Street property, Lobera Imaging, etc.), and the debtor’s relationship with his companion.
- The court held there is no good faith filing requirement for non-consumer Chapter 7 debtors, denied both dismissal and conversion, and concluded remedies less drastic than dismissal are appropriate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether§707(a) requires good faith in non-consumer cases. | GRMC argues bad faith/means to pay constitutes cause. | Lobera argues §707(a) requires actual cause; no good faith requirement for non-consumer debtors. | No good faith requirement; dismissal not warranted. |
| Whether excess disposable income constitutes cause for dismissal under §707(a). | GRMC asserts excess income shows cause to dismiss. | Lobera contends excess income is not listed as a §707(a) cause for non-consumer debtors. | Excess income alone is not 'cause' for dismissal. |
| Whether §707(b) (abuse) should apply to non-consumer debtors. | GRMC/Barton imply abuse standard should govern non-consumer cases. | §707(b) applies only to consumer debtors; non-consumer cases use §707(a). | §707(b) does not apply to non-consumer debtors. |
| Whether bad faith can be 'cause' for dismissal in non-consumer Chapter 7 cases. | Bad faith notions appear to taint filing. | Bad faith is not listed as a §707(a) cause and historical precedent is limited. | Bad faith is not 'cause' under §707(a) for non-consumer debtors. |
| Whether conversion to Chapter 11 should be ordered under §706(b). | Conversion would maximize estate value for creditors. | No business to reorganize; conversion would deprive Debtor of a fresh start. | Conversion denied; keep case in Chapter 7. |
Key Cases Cited
- Local Loan Co. v. Hunt, 304 U.S. 234 (1938) (famous purpose of bankruptcy; honest debtor start anew; not about eligibility for filing)
- Toibb v. Radloff, 501 U.S. 157 (1991) (no ongoing business requirement for Chapter 11; filing need not allege insolvency or good faith)
- In re Green, 934 F.2d 568 (4th Cir. 1991) (no insolvency or good faith requirement to file a non-consumer case)
- In re Khan, 172 B.R. 613 (Bankr.D. Minn. 1994) (considered bad faith factors; non-consumer context; deemed factors may be considered but not required)
- In re Zick, 931 F.2d 1124 (6th Cir. 1991) (good faith as a basis for dismissal; emphasizes specific-code guidance)
- Huckfeldt v. Huckfeldt (In re Huckfeldt), 39 F.3d 829 (8th Cir. 1994) (limits notion of 'cause' to egregious conduct; favors narrow reading)
- Ransom v. FIA Card Services, U.S. (2011) (discusses 707(b) as consumer debt abuse provision; confirms consumer focus)