Lead Opinion
We again consider the relationship between two provisions added to the Bankruptcy Code in 1984 — the power to dismiss a Chapter 7 proceeding if debtor’s discharge would result in “substantial abuse,” 11 U.S.C. § 707(b), and the requirement that Chapter 13 debtors repay unsecured creditors with post-petition “disposable income,” § 1325(b)(1)(B). We have previously held that a Chapter 7 debtor’s ability to fund a Chapter 13 plan “is the primary factor to be considered in determining whether granting relief would be substantial abuse.” In re Walton,
Eugene and Debra Koch (“Debtors”) filed a joint Chapter 7 petition listing $30,175 in unsecured debts, primarily consumer credit card debts and medical bills. Debtors have monthly expenses of $1,841 and monthly revenues of $3,284, including Mr. Koch’s lifetime worker’s compensation benefits of $1,343 per month, awarded in lieu of a lump-sum payment in 1985. Those benefits are “exempt from all claims of creditors” under South Dakota law and therefore are exempt from the claims of Chapter 7 creditors. See 11 U.S.C. § 522(b)(2)(A); S.D.C.L. § 62-4-42.
This appeal concerns the Trustee’s motion to dismiss Debtors’ petition as a substantial abuse of Chapter 7. The Trustee reasons that, if Debtors petitioned for Chapter 13 relief, them disposable income, including Mr. Koch’s worker’s compensation benefits, would be $1,443 per month. That would permit them to repay 167% of their unsecured debt within three years under a Chapter 13 plan, an ability to repay creditors that makes this petition a “substantial abuse” of Chapter 7. See Fonder v. U.S.,
Debtors respond that Mr. Koch’s worker’s compensation payments may not be included in calculating their hypothetical Chapter 13 disposable income. Excluding those payments leaves Debtors less than $100 of Chapter 13 disposable income each month, an amount inadequate to repay a substantial portion of their unsecured debts over the three-year life of a Chapter 13 plan. Thus, this petition is not a substantial abuse of Chapter 7. The bankruptcy court agreed, concluding that exempt income, such as Mr. Koch’s worker’s compensation benefits, is not disposable income for purposes of Chapter 13. The district court affirmed on the ground that our decision in In re Berger,
II.
Although the parties ignored this jurisdictional issue, we must first decide whether the district court’s order is final for purposes of 28 U.S.C. § 158(d). We have traditionally considered three factors in determining when an order in a bankruptcy case is final: “the extent to which (1) the order leaves the bankruptcy court nothing to do but execute the order; (2) the extent to which delay in obtaining review would prevent the aggrieved party from obtaining effective relief; (3) the extent to which a later reversal on that issue would require recommencement of the entire proceeding.” In re Olson,
Admittedly, a district court order remanding the case to the bankruptcy court for further proceedings is not normally ap-pealable. See, e.g., In re Riggsby,
Orders granting or denying dismissal for substantial abuse have an even more profound effect on the process. If they cannot be appealed, bankruptcy proceedings must “be completed before it can be determined whether they were proper in the first place.” Christian,
ill.
Congress did not define “substantial abuse” in § 707(b). The legislative history is meager and contradictory.
Chapter 13 gives “an individual with regular income” the opportunity to preserve pre-petition assets through a three- to five-year plan funded primarily with that income. See 11 U.S.C. § 109(e). Prior to the 1984 amendments, a Chapter 13 plan could be confirmed if it paid unsecured creditors “not less than the amount” they would be paid in a Chapter 7 liquidation. § 1325(a)(4). Under that version of § 1325, courts consistently held that revenues from exempt sources, such as disability and social security benefits, are “income” that may be used to fund a Chapter 13 plan. That ruling ensures that “social welfare recipients [are not] denied the benefits of Chapter 13 plans.” Regan v. Ross,
In the 1984 amendments, Congress imposed a new limitation on Chapter 13 relief— if an unsecured creditor or trustee objects to confirmation, the Chapter 13 plan must “provide! ] that all of the debtor’s projected disposable income to be received [during the three-year plan] will be applied to make payments under the plan.” § 1325(b)(1)(B). The statute defines “disposable income” as income received by the debtor that is not reasonably necessary to support the debtor, the debtor’s dependents, or the debtor’s business. § 1325(b)(2).
Under the amended statute, the exempt income question becomes something of a two-edged sword for prospective Chapter 13 debtors. They may need to include exempt income to qualify as “an individual with regular income.” But exempt income not reasonably needed for support then becomes “disposable income” that must be paid to creditors. Despite this additional implication, courts since 1984 have continued to hold that revenues received from exempt sources during the life of a Chapter 13 plan are “income,” the disposable portion of which must be paid to unsecured creditors if the plan is to be confirmed (or if a Chapter 13 discharge is to be awarded, the issue that arises when unexpected disposable income is received after confirmation). See In re Freeman,
We agree with these decisions. Chapter 13 contains no language suggesting that exempt post-petition revenues are not Chapter 13 “income,” and § 1325(b)(2) expressly defines “disposable income” to mean income not needed for debtor’s support. Exemptions are less significant in protecting Chapter 13 debtors. In a Chapter 7 liquidation, exemptions ensure “that even if his creditors levy on all of his nonexempt property, the debtor will not be left destitute and a public charge.” Schnabel,
The district court rejected these cases as contrary to our decision in In re Berger. In Berger, the bankruptcy court held that life insurance proceeds received during the life of a Chapter 12 plan were not “income” under Chapter 12. Based upon that conclusion, which was not challenged on appeal,
A recent decision not cited by the parties also rejected this line of authority, but on the ground that treating exempt income as Chapter 13 disposable income violates the mandate in § 522(c) that exempt property “is not liable” for any pre-petition debt. In re Ferretti,
III.
Having determined that Debtors’ worker’s compensation benefits would be included in “disposable income” if they sought Chapter 13 relief, the only remaining question is whether such benefits should nonetheless be excluded from the hypothetical Chapter 13 analysis that underlies a substantial abuse determination under Walton. Debtors suggest two policy considerations that give us pause. First, they argue that, even if Mr. Koch could include his worker’s compensation benefits in a voluntary Chapter 13 plan, it violates the South Dakota exemption to forcibly include these benefits in a hypothetical Chapter 13 analysis under § 707(b). Second, on a more practical level, Debtors suggest that § 707(b) dismissals in cases such as this will leave debtors no avenue of bankruptcy relief, because they have no non-exempt assets worth protecting in a Chapter 13 proceeding.
On balance, we conclude these arguments are unpersuasive. Chapter 13 relief remains wholly voluntary, and debtors whose Chapter 7 petitions are dismissed for substantial abuse are not compelled to file for Chapter 13 relief. Congress is free to limit Chapter 7 protection to truly needy debtors who cannot fund a Chapter 13 plan with exempt and non-exempt income. We conclude that Congress did just that when it enacted § 707(b) and § 1325(b) in the 1984 amendments. As the comb said in In re Morse,
[Section] 1325(b) balances the interests of debtors and creditors by independently limiting a debtor’s ability to shelter income from exempt sources away from his creditors when he otherwise has sufficient income to meet his basic needs. Section 707(b), by incorporating a disposable income test, similarly balances the interests of debtors and creditors by empowering courts to dismiss cases filed by non-needy debtors for substantial abuse “if a debtor can meet his debts without difficulty as they come due.” S.Rep. No. 65, 98th Cong., 1st Sess. 53, 54 (1983)---- While the court does not dispute that debtors are entitled to any exemption which they may validly claim, the ability to claim an exemption is an independent issue from whether debtors have the ability to repay their debts.
IV.
The final decision on a § 707(b) motion to dismiss should be made initially by the bankruptcy court. Accordingly, the judgment of the district court is reversed and the case is remanded with instructions to remand to the bankruptcy court for further consideration of the Trustee’s motion consistent with this opinion.
Notes
. However, this exempt property is part of Debtors' bankruptcy estate. See In re Yonikus,
. Good discussions of the legislative history may be found in In re Grant,
. The Trustee urges us to divorce the substantial abuse analysis from Chapter 13 and focus on Debtors' absolute "ability to pay.” That would put all exemptions otherwise allowed in Chapter 7 at issue under § 707(b). For example, under this approach, if a debtor's exempt homestead exceeded her unsecured debts, the court could dismiss her Chapter 7 petition as a substantial abuse because she has the ability to sell the house and pay creditors with its proceeds. In a Chapter 13 proceeding, on the other hand, debt- or’s pre-petition assets retain whatever exempt status they may have, so the issue is limited to whether income received from exempt sources during the three-year life of a hypothetical Chapter 13 plan is "disposable income” and therefore evidence of substantial abuse. The Trustee cites no authority for her contrary approach, and we reject it. This conclusion is not at odds with our decision in Fonder,
. Other decisions in this circuit conflict with the bankruptcy court’s unappealed ruling in Berger. See In re Martin,
Dissenting Opinion
dissenting.
I respectfully dissent. Because there is no final order of the district court we lack jurisdiction to address the merits of this appeal.
The district court affirmed the bankruptcy court’s denial of the trustee’s motion to dismiss and remanded the ease for further proceedings. The order is interlocutory and not appealable under 28 U.S.C. § 158(d). The parties did not seek certification from the district court under 28 U.S.C. § 1292. It should also be clear that the order is not appealable under the collateral order doctrine. If necessary, the issue involved here will remain reviewable at the conclusion of the case.
The majority justifies an exception to the final order doctrine because the parties may expend resources in what might later become a “futile” effort. If this were the proper test, every interlocutory ruling by a district court that an appellate court might regard as erroneous could be immediately appealed. Thus,
By relying on In re Christian,
The Christian court expressly relied on In re Marin Motor Oil, Inc.,
However, in In re Riggsby, the Seventh Circuit analyzed the risk and harm of piecemeal appeals, and rejected Marin, adopting the contrary “very sensible]” holding of other circuits “that remands by the district court to the bankruptcy judge are not ap-pealable ... where the bankruptcy judge [is the decision-maker].”
The Fifth Circuit considered the question of a remand order’s appealability in In re Greene County Hosp.,
Other circuits have also rejected the Third Circuit approach that the majority adopts today. Compare In re St. Charles Preservation Investors, Ltd.,
We should ádhere to the reasoned approach of most of our sister circuits and recognize that a district court’s order remanding a case to the bankruptcy court for further proceedings beyond mere ministerial duties does not constitute a final order.
Until today, that we may deem it feasible or practical to review a district court order has not granted us appellate jurisdiction. By embracing the Third Circuit’s oft criticized approach, albeit with good intentions of convenience and economy, we now inevitably invite the inconvenient and costly piecemeal appeals our insistence on finality has heretofore proscribed.
Certainly in some cases appellate judges may feel it better to review the matter and get it over with. See e.g., In re Kelly,
. The majority today quite correctly declines to rely on In re Bestmann,
. In this regard the present case is distinguished from In re Huebner,