In re Thompson
513 B.R. 715
Bankr. S.D. Ohio2014Background
- Debtor Patricia A. Thompson filed Chapter 7 on Dec. 24, 2012, listing large unsecured debts (~$202,890) and two minor dependents; she had two prior Chapter 13 cases dismissed.
- Debtor initially reported unemployment income, later amended Schedule I to show contract employment producing substantial income (net monthly ~$6,857), and Schedule J expenses were adjusted upward by Debtor.
- The U.S. Trustee (UST) moved to dismiss under 11 U.S.C. § 707(b)(3), arguing Debtor has sufficient net income to fund a Chapter 13 plan and that the filing constitutes abuse.
- UST’s witness recalculated income/expenses to show roughly $2,000–$2,068 net monthly disposable income when Debtor is employed; Debtor’s own bank records showed high year-to-date income.
- The UST identified multiple nondisclosures/omissions in Schedules and the Statement of Financial Affairs (undisclosed AmEx debt, prepaid rent with prior Chapter 13 refund, sale of a lawn tractor, previously undisclosed 529 accounts).
- Court found Debtor has recurring, significant earning capacity as an IT contract worker and was not fully candid in asset disclosures; UST met its burden by a preponderance of the evidence and the case is subject to dismissal (Debtor may convert to Chapter 13 within 30 days).
Issues
| Issue | Plaintiff's Argument (UST) | Defendant's Argument (Debtor) | Held |
|---|---|---|---|
| Whether Chapter 7 constitutes abuse under §707(b)(3) based on totality of circumstances | Debtor has sufficient net monthly income when employed to fund a Chapter 13 plan; totality of circumstances shows ability to repay | Income fluctuates; current employment is contractual and not guaranteed; significant child support arrears reduce available funds | Court: Abuse exists; Debtor can fund a modest Chapter 13 plan when employed; UST met burden |
| Proper calculation of disposable income (treatment of child support and expenses) | Use actual earned contract income and adjusted, documented expenses to show ~$2,000+/mo available | Debtor says child support obligation is higher and arrearage exists; unemployment/garnishments reduce available income | Court credited UST’s income calculations when Debtor is employed; Debtor did not rebut evidence of available disposable income; unemployment periods are addressable by Chapter 13 plan modifications |
| Debtor’s candor in disclosures | Multiple omissions and misstatements in Schedules/SOFA indicate lack of candor and undermine honesty to creditors/court | Omissions were not intentional; no pattern of deceptive dealings with creditors asserted | Court found lack of candor (undisclosed AmEx debt, prepaid rent, tractor sale, 529 accounts) and considered this in favor of dismissal and potential prejudice on refiling |
| Appropriate remedy (dismissal vs. conversion) | Dismiss under §707(b)(3) because of abuse and nondisclosure; dismissal possibly with prejudice | Debtor sought to remain in Chapter 7 or convert; offered hypothetical Chapter 13 plan based on unemployment income (no payments) | Court ordered dismissal within 30 days but allowed Debtor to convert to Chapter 13 before dismissal; dismissal may be with prejudice given disclosure failures |
Key Cases Cited
- In re Phillips, 417 B.R. 30 (Bankr. S.D. Ohio 2009) (projected income essential to evaluate debtor’s ability to pay)
- In re Tucker, 389 B.R. 535 (Bankr. N.D. Ohio 2008) (UST bears preponderance burden to prove abuse)
- In re Pittman, 506 B.R. 496 (Bankr. S.D. Ohio 2014) (totality of circumstances inquiry for §707(b)(3) considers pre- and post-petition factors)
- In re Goble, 401 B.R. 261 (Bankr. S.D. Ohio 2009) (wide-ranging view of debtor’s finances required in abuse analysis)
- In re Weixel, 494 B.R. 895 (6th Cir. BAP 2013) (court must assess whether debtor’s dealings with creditors were honest and without deception)