In Re Higginbotham
- Reporters:
- , ,
- Before:
- Wilson
ORDER DISMISSING CASE UPON CONDITIONS
MICKEY DAN WILSON, Bankruptcy Judge.
On April 9, 1985, this Court issued its “Order and Notice” to show cause why the above-styled case should not be dismissed pursuant to
FINDINGS OF FACT
1. Tony Ray Higginbotham and Darla Ann Higginbotham (“Mr. Higginbotham,” “Mrs. Higginbotham,” “debtors”) filed their voluntary petition for relief under 11 U.S.C. Chapter 7 on December 21, 1984.
2. Pursuant to
3. No lawsuits, executions or attachments were pending, nor had any been pending during the preceding year, Statement of Affairs ¶ 12.
4. Debtors reported owing no taxes or other priority obligations, Official Form No. 6, Schedule A-l.
5. Debtors reported owing $72,219.70 to creditors holding security, as follows: $25,-736.70 owing to First National Bank of Oblong, Illinois, secured by fifteen (15) acres of land in Illinois valued at $18,000; $483.00 owed to Avco Financial Services of Oklahoma, Inc., secured by dining room furniture valued at $400.00; and $46,000.00 owed to Home Savings and Loan Association, F.A. of Collinsville, Oklahoma, secured by debtors’ homestead valued at $50,000.00, Schedule A-2.
6. Debtors proposed to surrender the acreage in Illinois, leaving a deficiency of approximately $8,000.00; and “[r]etain . . . [w]ithout reaffirming the furniture and home in Oklahoma,” Statement of Intention.
7. Debtors reported owing $14,363.00 to creditors having unsecured claims without priority, as follows: $12,000.00 owed to First National Bank of Oblong, Illinois for “[d]own payment of fifteen (15) acres in Oblong, Illinois not loan” incurred 1/2/82; $863.00 owed to Home Savings and Loan Association, F.A. of Collinsville, Oklahoma, for “[n]ote loan” incurred 6/12/84; $600.00 owed to Kaw Valley State Bank of Eudora, Kansas for “[n]ote loan” incurred 8/1/79; and $900.00 owed to United States Fidelity & Guaranty Co. for “[e]mployees insurance for job coverage” incurred in “1981,” Schedule A-3. (The cryptic notation “not loan” presumably should read “note loan”.)
8. Debtors’ reported assets include the fifteen (15) acres in Illinois; the homestead in Oklahoma, including equity of about $4,000.00; three (3) guns worth $500.00; three (3) trucks valued at $2,550.00; a calf valued at $250.00; household goods valued at $1,200.00 and moneys of $375.00 in cash or on deposit, Schedule B-l, B-2, B-3, B-4.
9. Debtors report possession but not ownership of “demo car from employer,” Statement of Affairs 11 8.
10. The Trustee has filed no reports in this case.
11. Debtors’ initial “Schedule of Current Income and Anticipated Expenditures” filed with their petition reported Mr. Higginbotham’s “net monthly income” as $1,400.00 and Ms. Higginbotham’s “net monthly income” as $638.00 for a total “net” income of $2,038.00 per month; and expenses of $1,511.00 per month; for a net excess of income over expenses of $527.00 per month.
12. The schedule referenced immediately above reports expenses of only $300.00 per month for food for two adults and at least one child; only $70.00 per month for “[transportation (including auto payments);” no tax payments; “Avco Furniture $80.00 monthly & $400.00 total;” “Home Savings unsecured $60.00 monthly $800.00 total” and “Calf feed $40.00.”
14. The increased total of expenses was due in part to a reported increase in almost every living expense item on debtors’ list.
15. The balance of the total increase was due to an additional $512.00 per month in new expenses, as follows: “Two visits per year to Illinois” at “$200.00 per visit;” $1,500.00 for “root canal work” which has not previously been done “because we can’t afford it;” “school lunches” and Mr. Higginbotham’s lunch “which total [$]70.00” (in addition to a general increase in expenses for food of $100.00 per month); “$200.00 monthly for purchase of auto” to “replace our truck with a good car since all of our current vehicles have over 100,000 miles on them;” “repair transmission in 1976 pickup will cost $400.00;” and “maint[en]ance on our house which would average [$]50.00 per month,” Amended Schedule of Current Income and Expenditures, Exhibit “A”.
16. Addressing their attorney, debtors state that “We also didn’t realize you wanted anticipated expenses,” Amended Schedule of Current Income, Exhibit “A”.
17. Any recitations elsewhere in this opinion which should be included among “Findings of Fact” are incorporated herein by reference.
CONCLUSIONS OF LAW
Debtors argue that the facts in this case do not show a substantial abuse under
Given that
“Substantial abuse” is not defined by any part of the Bankruptcy Code. Formal legislative history of
Under the former Bankruptcy Act, it was well established that, with or without specific statutory authorization, bankruptcy courts could dismiss or convert cases filed under inappropriate chapters, i.e., where relief under the chapter chosen by the debtor would be unnecessarily prejudicial to the rights and interest of creditors, Act §§ 114-174; Collier on Bankruptcy (14th ed. 1976) Vol. 6 (Part 2) ¶ 6.02[1], Vol. 8 ¶ 4.12, Vol. 9 ¶ 4.12, Vol. 10 ¶ 24.12; Securities & Exchange Comm. v. United States Realty & Improvement Co., 310 U.S. 434, 455-459, 60 S.Ct. 1044, 1053-1054, 84 L.Ed. 1293 (1940). All courts have inherent power to protect their jurisdiction from abuse, id.; 1 Moore’s Federal Practice (2nd ed. 1989) ¶ 0.6-[6]; 20 AM.JUR.2D “Courts” §§ 78-79. Equity courts in particular are guided in their exercise of jurisdiction by maxims such as Equity Aids the Diligent (“Where the result complained of is induced by the plaintiffs own conduct, equity will generally refuse relief. Equity insists upon the conscientious obligations of suitors . . . the maxim has been employed broadly to deny relief to those who neglect to take care of themselves, and who thereby suffer loses which ordinary care would have prevented . . . relief will be denied to one whose prejudicial situation is attributable to his own ‘negligence,’ ‘carelessness,’ ‘want of diligence,’ ‘folly,’ or ‘inattention,’ ” 27 AM.JUR.2d “Equity” §§ 129, 130) and He Who Seeks Equity Must Do Equity (“Courts of equity have for a long time granted relief upon such conditions as are just and proper and demanded by the exigencies of the circumstances . . . undoubtedly, a court of equity has power to make its granting of relief dependent upon the performance of conditions by a party litigant, if the conditions are such as are imposed in the exercise of a sound discretion and of a character calculated to satisfy the dictates of conscience. The Court may thus protect and give effect to the rights of one party while awarding relief to the other, and in doing so, the court is not restrained by strict legal rights . . . In some situations, however, the court’s power in this respect should be exercised with caution,” Id. § 134). These maxims are, or should be, operative in bankruptcy, since “[a] bankruptcy court is a court of equity . . . and is guided by equitable doctrines and principles except insofar as they are inconsistent with the [Bjankrupty Act . . . Good sense and legal tradition alike enjoin that an enactment of Congress dealing with bankruptcy should be read in harmony with the existing system of equity jurisprudence of which it is a part,” Securities & Exchange Comm. v. United States Realty & Improvement Co., supra, 310 U.S. at 455, 457, 60 S.Ct. at 1053, 1054.
Legislative history of the original 1978 Bankruptcy Code indicates that Chapter 7 was supposed to be a “last resort,” H.Rep. No. 95-595, 95th Cong., 1st Sess., Pgs. 118, 125, U.S.Code Cong. & Admin.News 1978, p. 5787. Yet Congress refused to specify by statute that Chapter 7 cases might be dismissed when filed by debtors who could afford to repay their debts, explaining itself in legislative history to
The section does not contemplate, however, that the ability of the debtor to repay his debts in whole or in part constitutes adequate cause for dismissal. To permit dismissal on that ground would be to enact a non-uniform mandatory chapter 13, in lieu of the remedy of bankruptcy. The Committee has rejected that alternative in the past, and there has notbeen presented any convincing reason for its enactment in this bill,
H.Rep. No. 95-595, p. 380; and see S.Rep. No. 95-989, p. 94, U.S.Code Cong. & Admin.News 1978, pp. 5880, 6336. The cryptic final sentence is explicated elsewhere as follows:
As under current law, chapter 13 is completely voluntary. This Committee firmly rejected the idea of mandatory or involuntary chapter XIII in the 90th Congress. The thirteenth amendment prohibits involuntary servitude. Though it has never been tested in the wage earner plan context, it has been suggested that a mandatory chapter 13, by forcing an individual to work for creditors, would violate this prohibition. On policy grounds, it would be unwise to allow creditors to force a debtor into a repayment plan. An unwilling debtor is less likely to retain his job or to cooperate in the repayment plan, and more often than not, the plan would be preordained to fail. Therefore, the bill prohibits involuntary cases under chapter 13, and forbids the conversion of a case from chapter 7, liquidation, to chapter 13, unless the debtor requests.
The Bankruptcy Commission also considered proposals that would permit an individual to file straight bankruptcy only if he were unable to obtain adequate relief under chapter XIII. The commission rejected the proposal, and stated their reasons as follows:
The arguments against the proposal included objections made to the difficulties of achieving any nationally uniform standard of application by referees throughout the country, as evidenced by the divergence of their viewpoints regarding the virtues of Chapter XIII. Another view expressed by opponents was that fulfillment of a debtor’s commitment made pursuant to a Chapter XIII plan requires not merely a debtor‘s consent but a positive determination by him and his family to live within the constraints -imposed by the plan during its entire term and a will to persevere with the plan to the end. Imposition of a Chapter XIII plan on an unwilling debtor, it was said, would be almost bound to encourage the debtor to change employment and, if necessary, to move to another area to escape the importuning calls and correspondence of his creditors. Likewise, those petitioning debtors turned away by the court on the ground that they failed to show that relief would not be obtainable under Chapter XIII would be motivated to change jobs and locations to get away from creditors who would threaten garnishment and other means of collecting debts. In states where wage garnishment is an unavailable remedy of creditors, the impact of the proposed legislation would have been minimal. A final argument made in opposition to the proposed legislation was that business debtors are not subject to any limitation on the availability of straight bankruptcy relief, including discharge from debts, and it was pointed out that, quite apart from bankruptcy, business debtors are able to incorporate and to limit their liability to their investments in corporate assets. To force unwilling wage earners to devote their future earnings to payment of past debts smacked to some of debt peonage, particularly when business debtors could not be subjected to the same kind of regimen under the Bankruptcy Act.
The Commission has considered the arguments made for conditioning the availability of bankruptcy relief, including discharge, on a showing by the debtor that he cannot obtain adequate relief from his condition of financial distress by proposing a plan for payment of his debts out of his future earnings. The Commission has concluded that forced participation by a debtor in a plan requiring contributions out of future income has so little prospect for success that it should not be adopted as a feature of the bankruptcy system.
H.Rep. No. 95-595, pp. 120-121, U.S.Code Cong. & Admin.News 1978, pp. 6080-6082.
Thus, the Bankruptcy Code appears schizophrenic, meaning Chapter 7 to be reserved for use as a desperation measure yet treating it as the standard form of bankruptcy relief even under circumstances not at all desperate. This legislative schizophrenia seems based on apprehensions of involuntary servitude in violation of the 13th Amendment, and supposed practical difficulties in “forcing” debtors to go through Chapter 13 unwillingly. With all due respect for Congressional Committees and the Bankruptcy Commission, their apprehensions are difficult to fathom or to credit. As discussed below in this opinion (see p. 967 infra), fears of involuntary servitude are absolutely unfounded so long as the bankruptcy petition itself, under whatever chapter, is filed by debtor and not by his creditors. The Committee appears to confuse
involuntary
Chapter 13 (in which creditors could force debtors into Chapter 13 by filing an involuntary petition, thereby seizing debtors’ income) with exclusive but
voluntary
Chapter 13 (in which debtor will get no discharge without a plan, yet debtor can choose whether or not to enter bankruptcy at all), and rejects both as violative of the Constitution. Yet only the former could possibly be called an involuntary servitude; the latter involves only “the price of discharge” in voluntary bankruptcies, a matter well within the discretion of Congress and the Courts. If judges are to do nothing unless they will all do it in a perfectly uniform manner, then judges must do nothing, everywhere and always. The fear that an unwilling Chapter 13 debtor would quit his job and leave the State “to escape the importuning calls and correspondence of his creditors” is unfounded, for if debtor is in Chapter 13, creditor harassment will be stayed by
In short, are all considerations of equity and judicial power and responsibility to be overturned by an ill-considered Committee report? The answer must surely be, “No.” No portion of the Bankruptcy Code, nor even its legislative history, purports to abolish equity, or strip it from bankruptcy operations. With due regard for Congressional concerns expressed by refusal to enact statutes and in Committee reports, the Courts nevertheless retain both power and duty to see that bankruptcy, so long as it remains an equitable remedy, meets minimal equitable standards. Congress wants the propriety of relief under Chapter 7 “presumed;” so be it. But where the presumption’s own underpinnings collapse — where there is a clear abuse of Congress’ own intentions as to the use of Chapter 7, and a clear violation of those fundamental equities on which any
These things considered, a “substantial abuse” would seem to include that situation wherein relief under Chapter 7 is unnecessarily prejudicial to creditors, in that there is no apparent emergency, disaster or untenable situation to be remedied— relief under Chapter 13 is available, is not unduly burdensome to debtors, and would result in repayment of all or most of debtors’ outstanding debt within the term of a Chapter 13 plan — while Chapter 7 relief would result in little or no dividend to creditors and would amount to a reward for debtors’ own lack of diligence or judicial blessing of an unconscionably one-sided, opportunistic adjustment of the debtor-creditor relationship.
Debtors propose to retain certain property subject to security interests without reaffirming the secured debt. This implies that debtors will continue making payments even without formal reaffirmation, else the secured creditors would be provoked to repossess or foreclose on their collateral. Payments to Avco Financial and to debtors’ home mortgagee are listed on debtors’ “Schedule of Current Income and Anticipated Expenditures.” Excluding these debts, the debts to be effectively discharged total approximately $23,000, almost all of it owing to Oblong Bank of Illinois on the Illinois realty.
Debtors’ initial “Schedule of Current Income and Anticipated Expenditures” reported disposable income of at least $527.00 per month. After being threatened with dismissal under
The Trustee has apparently taken no action in this case, probably because of the pendency of this inquiry under
There is no emergency or disaster — the debts to be discharged are mostly several years old; debtors are not being sued or threatened with execution, attachment or garnishment. Debtors are not in an untenable situation — they have jobs, substantial excess income and significant liquid value tied up in superfluous vehicles and expensive toys. The main effect and presumable object of this bankruptcy is the discharge of debt owing to a single creditor, Oblong Bank of Illinois, which debtors seemingly find inconvenient to pay now that they no longer have any use for the land in Illinois that Oblong Bank helped them buy. Chapter 7 would result in little or no distribution to creditors; Chapter 13 would enable debtors to repay more than half their debts in three years or their entire debt in just under five years. Debtors do have a relatively low income and significant debts; they may well be entitled to some sort of bankruptcy relief — but the question is whether Chapter 7 is the right sort. The Court concludes that the granting of relief in Chapter 7 under the circumstances would indeed be a substantial abuse of the provisions of 11 U.S.C. Chapter 7, and that, therefore, pursuant to
Debtors argue that
Debtors assert that the lack of definition of the term “substantial abuse” subjects them to arbitrary, capricious deprivation of right or liability to penalty, and cite Connally v. General Construction Co., 269 U.S. 385, 46 S.Ct. 126, 70 L.Ed. 322 (1926); Winters v. New York, 333 U.S. 507, 68 S.Ct. 665, 92 L.Ed. 840 (1948); Giaccio v. Pennsylvania, 382 U.S. 399, 86 S.Ct. 518, 15 L.Ed.2d 447 (1966); Grayned v. City of Rockford, 408 U.S. 104, 92 S.Ct. 2294, 33 L.Ed.2d 222 (1972); and Garner v. White, 726 F.2d 1274 (8th Circ.1984). These cases deal with statutes creating criminal or quasi-criminal penalties and/or with threatened infringement of 1st Amendment rights. Where 1st Amendment freedoms are not concerned, the rule is that a statute is unconstitutionally vague “not in the sense that it requires a person to conform his conduct to an imprecise but comprehensible normative standard, but rather in the sense that no standard of conduct is specified at all,” Coates v. City of Cincinnati, 402 U.S. 611, 614, 91 S.Ct. 1686, 29 L.Ed.2d 214 (1971); and see Village of Hoffmann Estates v. The Flipside, Hoffmann Estates, Inc., 455 U.S. 489, 495, 102 S.Ct. 1186, 71 L.Ed.2d 362 (1982). Debtors also cite Yick Wo v. Hopkins, 118 U.S. 356, 6 S.Ct. 1064, 30 L.Ed. 220 (1886), which appears to declare a similar rule; that case proscribes criminal statutes which are “intended to confer, and actually do confer, not a discretion to be exercised upon a consideration of the circumstances of each case, but a naked and arbitrary power to give or withhold consent” and which are “purely arbitrary, and acknowledge . . . neither guidance nor constraint,” id. 118 U.S. at 366, 367, 6 S.Ct. at 1068, 1069. Civil statutes are subject to less rigorous review than criminal statutes, Village of Hoffmann Estates v. The Flipside, Hoffmann Estates, Inc., supra, 455 U.S. at 499, 102 S.Ct. at 1193.
Debtors further argue that
Debtors further argue that § 707(b) is unconstitutional as a violation of the 13th Amendment in that the statute “could force persons into a state of involuntary servitude,” debtors’ brief p. 9.
The 13th Amendment proscribes slavery or its functional equivalents, e.g. peonage,
U.S. v. Kozminski,
487 U.S. 931, 941-42, 108 S.Ct. 2751, 2759, 101 L.Ed.2d 788, 804ff. (1988). As noted above, § 707(b) is intended to prevent debtors who are capable of paying their just debts from discharging them by misuse of an extraordinary privilege to which they are not properly entitled. If this violates the 13th Amendment, then it would seem that having to pay one’s just debts is “slavery” or “peonage” — put another way, debtors would read the 13th Amendment as if it provided a
Constitutional right
to a Chapter 7 discharge! The great majority of Americans who work hard to pay off their voluntarily-incurred debts might be a bit surprised to hear the Protestant Ethic described as “slavery.”
Debtors further argue that § 707(b) is unconstitutional in violation of due process because of its requirement of sua sponte action by the Court.
Debtors cite no authority for the proposition that the adversary system is a Constitutional
sine qua non.
If such authority existed, it would implicate
sua sponte
action by all courts everywhere, not just by Bankruptcy Courts under
Debtors have not shown that the United States Constitution prevents operation of
The effect of the rulings above is to determine that debtors’ objection to the Court’s original “Order and Notice” to show cause dated April 9, 1985, is legally insufficient to show that there is no substantial abuse in this case or to show any Constitutional impediment to dismissal as a consequence of the appearance of substantial abuse. Nevertheless, the Court recognizes that the present Order, and not .the original “Order and Notice” to show cause, is the first detailed statement in the record of the Court’s own reasons for concluding that this case presents a substantial abuse of the provisions of 11 U.S.C. Chapter 7. Moreover, debtors in their objection dated April 12, 1985, requested a hearing. The submission of detailed briefs by debtors and by the intervenor U.S.A., and their consideration by the Court, may suffice as the requested “hearing.” But the Court prefers to give debtors the benefit of any doubt in this regard. The present Order establishes at least a prima facie determination of substantial abuse, sufficient to provide a basis for determination of the Constitutional issues raised. But the Court will provide debtors one further opportunity to rebut the prima facie determination that this case is a substantial abuse of the provisions of Chapter 7. 1
Notes
. This Court has since developed a procedure whereby a detailed statement of facts appearing and inferences arising from the record is made in the Court’s initial order to show cause; debt ors are directed to respond in writing by a date certain or be dismissed; any response by debtors which satisfies the Court that Chapter 7 relief is proper results in withdrawal of the order to show cause without formal hearing; any response by debtors which does not satisfy the Court that Chapter 7 relief is proper is set for hearing, and only thereafter may dismissal ensue. The Court hopes that motions by the Assistant United States Trustee will largely replace the Court’s own orders to show cause.