561 B.R. 688
Bankr. N.D. Ill.2016Background
- Debtor Monica L. Lowe, a City of Chicago attorney earning about $115,000/year, filed chapter 7 on July 21, 2016 and lists one dependent (an 8‑year‑old son).
- At filing she owned a single‑family home and a condominium; she elected to surrender the condominium (mortgage underwater).
- Amended Schedule J shows about $5,460 in monthly expenses, including $500/month student loan payments and $180/month tutoring for her son; amended figures show $2,312.77 monthly disposable income.
- Means test (Form 122A‑2) was passed; U.S. Trustee did not dispute the means test but moved to dismiss under 11 U.S.C. § 707(b)(3) for abuse based on the totality of the circumstances.
- U.S. Trustee argued tutoring and student loan payments are luxury/excessive and that Lowe can pay creditors (thus chapter 7 is abusive); Lowe conceded ability to pay but argued ability alone is insufficient for dismissal under § 707(b)(3)(B).
- Court found Lowe has the ability to repay unsecured creditors (could fund a Chapter 13 plan), and granted the U.S. Trustee’s motion unless Lowe files to convert to chapter 13 within 14 days.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether dismissal under § 707(b)(3)(B) is warranted despite passing the means test | Lowe’s high income and post‑petition disposable income show abuse; ability to pay creditors supports dismissal | Ability to pay creditors alone does not satisfy the totality‑of‑circumstances test; U.S. Trustee must show more than payment ability | Court: Ability to pay creditors can be sufficient under § 707(b)(3)(B); case is abusive and dismissal ordered absent conversion to chapter 13 within 14 days |
| Whether specific expenses (tutoring, student loan) must be deemed luxuries to find abuse | These expenses are excessive/luxury and support finding abuse | Debtor maintained these are necessary; contested luxury characterization | Court did not decide whether those expenses are luxuries; unnecessary to resolve because overall ability to pay sufficed to find abuse |
| Whether surrendering property affects ability to pay analysis | Surrender increases disposable income and is relevant to ability to repay creditors | Debtor’s surrender does not change that she passed means test originally | Court: Intent to surrender and resulting reduced expenses are relevant to the totality of circumstances and can support dismissal |
| Appropriate remedy when abuse found | Dismissal of Chapter 7 under § 707(b)(3) | Debtor requested conversion option | Court gave debtor 14 days to move to convert to Chapter 13; otherwise dismissal will be granted |
Key Cases Cited
- Smith v. (In re Smith), 286 F.3d 461 (7th Cir.) (discusses pre‑BAPCPA totality factors)
- Ross‑Tousey v. Neary (In re Ross‑Tousey), 549 F.3d 1148 (7th Cir.) (explains § 707(b)(3) dismissal standards)
- Rimgale (In re Rimgale), 669 F.2d 426 (7th Cir.) (pre‑BAPCPA multi‑factor totality analysis referenced for guidance)
- Krohn (In re Krohn), 886 F.2d 123 (6th Cir.) (totality‑of‑circumstances is fact intensive)
- Stewart (In re Stewart), 175 F.3d 796 (10th Cir.) (ability to repay as relevant factor in totality analysis)
- Green (In re Green), 934 F.2d 568 (4th Cir.) (noting circuit variation on emphasis of ability to repay)