In re McKay, 557 B.R. 810

Background

Debtors filed a joint Chapter 7 petition on Sept. 30, 2015; their six-month average income made them above Oklahoma median, triggering the § 707(b) “means test.”
Original Official Form 22A‑2 (Means Test) showed monthly disposable income $1,321.10 → $79,266 over 60 months, producing a presumption of abuse; Debtors converted to Chapter 13 instead of dismissal.
Debtors later proposed a Chapter 13 plan and filed an amended Means Test showing monthly disposable income $550.19; creditor/trustee objections followed and Debtors moved to reconvert to Chapter 7, citing increased medical expenses.
After reconversion to Chapter 7, Debtors filed amended Schedules I/J and an amended Means Test showing net monthly disposable income of $98.83 (medical/dental increases claimed), but U.S. Trustee challenged and moved to dismiss under § 707(b)(2) and (b)(3).
The court held evidentiary hearings and found the Means Test is a petition‑date “snapshot”; Debtors produced no itemized, documented special‑circumstances expenses as of the petition date beyond ~$500/month medical previously claimed.
Court concluded UST met its burden that, using petition‑date figures and bank records, a presumption of abuse existed under § 707(b)(2); Debtors failed to rebut under § 707(b)(2)(B). Case dismissed without prejudice.

Issues

Issue	UST's Argument	Debtors' Argument	Held
Whether a presumption of abuse arises under § 707(b)(2) (Means Test)	Debtors’ petition‑date CMI minus allowed expenses (per Means Test/bank records) produces disposable income > statutory thresholds → presumption of abuse	Post‑petition increase in medical expenses and amended Schedules show limited or no ability to pay; therefore no abuse	Held: Presumption of abuse exists based on petition‑date Means Test and records; UST proved by preponderance
Whether Debtors rebutted presumption by showing “special circumstances” under § 707(b)(2)(B)	N/A (UST need not prove once presumption arises)	Medical conditions and increased medical/dental expenses justify additional expenses and adjustments; Debtors had no reasonable alternative	Held: Debtors failed procedural/substantive requirements—no itemized, petition‑date documentation; special circumstances not established
Whether court should consider post‑petition changes under § 707(b)(3) (totality of circumstances)	Gambling history and available insurance argue against allowing conversion; post‑petition facts show abuse under totality	Debtors: gambling netted approx. break‑even; stopped gambling; post‑petition medical expenses justify relief	Held: Court need not reach § 707(b)(3) because presumption under § 707(b)(2) was not rebutted; § 707(b)(2) dispositive
Applicability of § 707(b) to cases converted from Chapter 13 to Chapter 7	§ 707(b) applies to converted cases to prevent abuse consistent with BAPCPA	Debtors argued post‑conversion facts should control	Held: Applying § 707(b) to converted cases is consistent with precedent; petition‑date Means Test controls presumption analysis

Key Cases Cited

In re Palmer, 542 B.R. 289 (Bankr. D. Colo.) (moving party must prove § 707(b) dismissal by preponderance)
In re Nockerts, 357 B.R. 497 (Bankr. E.D. Wis.) (Means Test is a petition‑date snapshot)
In re Rudler, 388 B.R. 433 (1st Cir. B.A.P.) (post‑petition changes not considered in § 707(b)(2) Means Test)
In re Haar, 360 B.R. 759 (Bankr. N.D. Ohio) (same: Means Test uses petition‑date data)
In re Polinghorn, 436 B.R. 484 (Bankr. N.D. Ohio) (post‑petition events relevant only under § 707(b)(3), not § 707(b)(2))
In re Jensen, 407 B.R. 378 (Bankr. C.D. Cal.) (§ 707(b)(3) allows broad, flexible totality‑of‑circumstances inquiry)
In re Parada, 391 B.R. 492 (Bankr. S.D. Fla.) (same: § 707(b)(3) can consider post‑petition facts)
In re Burgher, 539 B.R. 868 (Bankr. D. Colo.) (applying § 707(b) to cases converted to Chapter 7 aligns with BAPCPA goals)
Fokkena v. Chapman (In re Chapman), 447 B.R. 250 (8th Cir. B.A.P.) (same: § 707(b) applies to converted cases)