Fokkena v. Chapman (In Re Chapman)Fokkena v. Chapman (In Re Chapman)
The United States Trustee (the “U.S. Trustee”) appeals from orders of the United States Bankruptcy Court for the District of Minnesota and the United States Bankruptcy Court for the Southern District of Iowa, denying the U.S. Trustee’s motions to dismiss the Chapter 7 bankruptcy cases of Damian Gerald Chapman and Melissa Ann Chapman (the “Chap-mans”) and Maria Christina Cruse (Ms. Cruse and together with the Chapmans, the “Debtors”) pursuant to § 707(b) of Title 11 of the United States Code (the “Bankruptcy Code”). We have jurisdiction over these appeals from the final orders of the bankruptcy courts. See 28 U.S.C. § 158(b). For the reasons set forth below, we reverse and remand these cases to the bankruptcy courts for determinations of dismissal under § 707(b)(2) and (3).
ISSUE
The issue on appeal is whether 11 U.S.C. § 707(b)(1) applies in these cases that have been converted from Chapter 13 tо Chapter 7 of the Bankruptcy Code. We also consider the threshold issue of whether the bankruptcy courts’ orders denying the U.S. Trustee’s motions to dismiss under 11 U.S.C. § 707(b) are final оrders for the purposes of these appeals. We conclude that: (1) the orders denying the U.S. Trustee’s 11 U.S.C. § 707(b) motions to dismiss were final orders; and (2) in light of the Eighth Circuit’s decision in
Resendez v. Lindquist,
BACKGROUND
The relevant facts are not in dispute in either of these consolidatеd appeals.
Chapman
The Chapmans filed a petition for relief under Chapter 13 of the Bankruptcy Code. When creditors obtained relief from the automatiс stay several months after confirmation of the Chapmans’ Chapter 13 plan, the Chapmans converted their Chapter 13 case to a case under Chapter 7. The Chapmans had not contested the creditors’ requests for relief from the automatic stay. They stated that their inability to pay was due to a reduction in Mrs. Chapman’s overtime income and unanticipated but necessary changes in their personal living expenses. The U.S. Trustee filed a motion to dismiss the Chapmans’ bankruptcy case under 11 U.S.C. § 707(b) for abuse, relying on both § 707(b)(2) and (3). The bankruptcy court for the District of Minnesota denied the U.S. Trustee’s motion to dismiss on the basis that § 707(b)(1) did not aрply to a case that was commenced by the filing of a petition under Chapter 13 and converted to a case under Chapter 7 post-petition.
Cruse
Mаria Christina Cruse filed her petition for relief under Chapter 13 of the Bankruptcy Code. Less than a year after confirmation of her Chapter 13 plan and due tо complications from surgery, Ms. Cruse quit working and began to receive short-term disability benefits. When the Chapter 13 trustee moved to dismiss Ms. Cruse’s case because of her failure to make plan payments, Ms. Cruse converted her Chapter 13 case to a case under Chapter 7. After filing her Chapter 13 petition but before сonverting her case to one under Chapter 7, Ms. Cruse married a surgeon who earned a high income. The U.S. Trustee moved to dismiss Ms. Cruse’s case
STANDARD OF REVIEW
We review findings of fact for clear error and conclusions of law
de novo. Fokkena v. Draisey (In re Draisey),
DISCUSSION
Jurisdiction
As a threshold matter, we consider the Debtors’ argument that we laсk jurisdiction over these appeals because the bankruptcy courts’ orders denying motions to dismiss under § 707(b)(1) are not final orders. In
Stuart v. Koch (In re Koch),
Applicability of § 707(b)(1) In Converted Cases
As a part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), Congress amended the methods by which abusive bankruptсy filings are determined. Section 707(b)(1) sets forth the general rule that the court may dismiss or convert (with the debtor’s consent) certain cases if it determines that the granting оf relief would be abusive.
The court’s determination of abuse may be made under either of the standards set forth under § 707(b)(2) and (3). Under § 707(b)(2), a presumption of abuse may arise “if the debtor’s current monthly income reduced by a certain formula contained in § 707(b)(2)(A) is greater than an amount specified in that statutory section.”
Draisey,
This appeal concerns whether § 707(b)(1) applies in cases converted from Chаpter 13 to Chapter 7. To make this determination, we review the language in § 707(b)(1) as it was written by Congress. Section 707(b)(1) provides, in pertinent part, that:
the court, ... may dismiss a case filed by an individual debtor under this chapter [Chapter 7] whose debts are primarily consumer debts, or, with the debtor’s consent, convert such a case toa case under chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions of this chapter [Chapter 7].
11 U.S.C. § 707(b)(1) (emphasis added).
The question of whether § 707(b)(1) applies to cases converted from Chapter 13 to Chapter 7 has caused disagreement among the courts.
Compare In re Guarin,
No. 09-42294-JBR,
Each interpretation of the рhrase “filed by an individual debtor under this chapter” in § 707(b)(1) requires a different type of reasoning. One such interpretation is that a case must be
filed
under Chapter 7, not cоnverted to Chapter 7 after it was previously
filed
under Chapter 13, before that section and, thus, § 707(b)(2) and (3), apply. Section 707(b)(1) makes no reference to a cаse converted to Chapter 7. If Congress had wanted to refer to conversion in § 707(b)(1), it could have done so.
See Fox,
Under a second interpretation, the word “filed” in § 707(b)(1) seems to be used to identify the type of debtor (“filed by an individual debtor”), rather than as a limitation of how the case arrived in Chaрter 7. Further, limiting the abuse analysis only to individual debtors who originally “filed under” Chapter 7 would create a potential loophole for debtors to “abuse” the systеm by filing and failing under Chapter 13 in order to avoid the § 707(b) analysis upon conversion. Courts would be left with using “equitable powers” to curb such abuses.
In any event, based on the Eighth Circuit’s decision in
Resendez v. Lindquist,
In light of the fact that we find Resen-dez to be controlling on this issue, we do not need to address the other arguments put forth by the U.S. Trustee.
CONCLUSION
Because we feеl bound by the language used by the Eighth Circuit in Resendez, we REVERSE-the decisions of the bankruptcy courts and remand the cases to the bankruptcy courts for determinations of dismissal under § 707(b)(2) and (3).