In re Schwartz
MEMORANDUM OPINION IN SUPPORT OF ORDER GRANTING MOTION TO DISMISS
This matter came before the court on September 16, 2014.
The parties eventually filed a joint request for certification of direct appeal to the Court of Appeals for the Seventh Circuit, and appeared before the court on January 15, 2015, to present this request. At that time, the court determined that a written opinion in support of the order granting the motion to dismiss would be appropriate in order to provide clarity to the record.
■ Barclays’ motion to dismiss was granted for cause pursuant to
BACKGROUND
When Michael Schwartz joined Barclays Capital, Inc. in November 2010, he re- ' ceived a $2.8 million employment package. Of that amount, $400,000 was paid to him shortly after he began work, in the form of a loan that would be forgiven in equal installments on the first through seventh anniversaries of his start date.
On October 28, 2013, FINRA notified Michael that within three weeks he would be suspended from association for failure to pay the award, unless one of four defenses was applicable. Michael attempted to reach a negotiated settlement with Bar-clays, which would have been a satisfactory defense, but was unsuccessful. He then chose to file for relief under Chapter 7 of the Bankruptcy Code, which was another of the four defenses.
According to Schedule I, Michael earns monthly gross wages of $11,008.94. After deductions for payroll taxes, Social Security, insurance and a contribution of $20 to United Way, he takes home $7,349.52 in earned income. He also receives $2,200 in rental income from real property, for a total average monthly income of $9,549.52.
The Schwartzes’ monthly budget on Schedule J includes the following items:
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The Schwartzes’ budgeted expenses exceed their income by $1,560.48.
In 2013, the year that they filed for relief under Chapter 7, the Schwartzes took one or two trips to Disney World in Orlando, Florida. In 2014, they went snowboarding a couple of times at a local ski resort. They also made regular monthly payments on their Range Rover and Michael voluntarily contributed 5% of his paycheck to a retirement plan. Although Aseneta does not work outside the home, their older child attends private kindergarten full time at a cost of $18,000/ year and started swimming lessons in the spring of 2014. Their younger child attends a drop-in program once or twice a week at a cost of $50 or $60 per session.
(a) The court may dismiss a case under this chapter only after notice and a hearing and only for cause, including—
(1) unreasonable delay by the debtor that is prejudicial to creditors;
(2) nonpayment of any fees or charges required under chapter 123 of title 28; and
(3) failure of the debtor in a voluntary case to file, within fifteen days or such additional time as the court may allow after the filing of the petition commencing such case, the information required by paragraph (1) of section 521(a), but only on a motion by the United States trustee.
(b)(1) After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor’s consent, convert such a case to a 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. In making a determination whether to dismiss a case under this section, the court may not take into consideration whether a debtor has made, or continues to make, charitable contributions (that meet the definition of “charitable contribution” under section 548(d)(3)) to any qualified religious or charitable entity or organization (as that term is defined in section 548(d)(4)).
Although Barclays requested dismissal under both
The Seventh Circuit has not ruled on the meaning of “cause.”
The primary question addressed by these cases has been whether cause for dismissal under
Putting aside the issue of bad faith, some of the published decisions found that
This court finds that
The cases that limit “cause” also focus on the canon of statutory construction that provides that “[w]here both a specific and a general statute address the same subject matter, the specific one takes precedence regardless of the sequence of the enactment, and must be applied first.” Padilla at 1192, (quotation omitted). Since “the Code specifically addresses the misconduct of debtors elsewhere,” Adolph,
But these other remedies, such as objecting to the dischargeability of a particular debt under § 523, or to the discharge of the debtor under § 727, are not always available. Some debtors will not receive a discharge. See §§ 727(a)(1) (discharges only available to individual debtors), (a)(8) and (a)(9) (discharge not available if a pri- or discharge received in the recent past). If there is no discharge to which a creditor may object, and dismissal for cause is not available, an undeserving debtor will receive the benefits of Chapter 7. Or what if a debtor’s actions with regard to a particular creditor would support an action under § 523 as well as a motion to dismiss for cause, but for some reason that creditor
Moreover, this focus on general versus specific statutes ignores the Supreme Court’s instruction that “in interpreting a statute a court should always turn first to one, cardinal canon before all others. We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there.” Connecticut Nat’l Bank v. Germain,
What is the cause for dismissal in this case? The Schwartzes’ extravagant lifestyle, which continued post-petition without any hint of belt-tightening. “[T]he cause is that your income level is so high that you shouldn’t be in a Chapter 7. You should be making some effort.” Tr. at 9, lines 9-11. “The ability to repay debts, living an expansive lifestyle beyond one’s means, and singling out a major creditor for nonpayment are the primary' factors that merit dismissal for abuse under
The court has avoided passing judgment on the debtors’ specific financial choices. However, the court must look at the particular facts of this ease in order to determine whether, under the totality of the circumstances, it has been filed in good faith. No one expense or decision of the debtors has driven -the court’s decision, but a combination of these factors has led the court to find that this filing was not in good faith. The debtors’ lifestyle is lavish and rather than attempting to pay off their creditors, they have done everything they can to not only preserve this lifestyle but make it more comfortable. Given their financial situation, such comforts and indulgences without any belt tightening or efforts to pay off their creditors is an improper utilization of the bankruptcy process.
Gilman,
This court is not making a finding that for the Schwartzes to maintain their lifestyle would be an abuse of the provisions of Chapter 7. Such a finding would be an improper overlap with
Considering all of the circumstances here, cause exists to dismiss the Schwartzes’ Chapter 7 case. Although the court is not adopting a particular list of factors that might be reviewed in a totality of the circumstances analysis, it is clear that the Schwartzes’ lifestyle far exceeds the standard of living that this court would allow for debtors in Chapter 13. “I would not let a Chapter 13 debtor do the things that you’re doing with private school, the nature of your lifestyle, which there’s nothing wrong with it.... What I’m saying is you have a high income level where you'
There is no indication that the Schwartzes stepped up their spending in anticipation of bankruptcy or took other actions that might call their integrity into question. However, their “substantial income” and “comfortable lifestyle” are cause for dismissal under
The Schwartzes’ monthly income is $9,549.52. Their monthly expenses include $850 payments on a Range Rover, $1,000 monthly charitable contributions, and private school tuition for a kindergarten-aged child. As one court noted, “bankruptcy protection is a privilege and not a right and Chapter 7 is for the honest but unfortunate debtor who is seeking a fresh start, not a head start.” In re Lombardo,
The court makes no finding that the Schwartzes were acting in bad faith, only that allowing them to remain in Chapter 7 while maintaining this lifestyle would result in a misuse of the protections granted by the Bankruptcy Code. This is cause to dismiss their bankruptcy case pursuant to
CONCLUSION
For all of the. reasons stated above, the court finds that cause exists to dismiss this bankruptcy case pursuant to
Notes
. References herein to “Tr. at_” are to the transcript from the court hearing on September 16, 2014. This can be found on the court docket at EOD 103, Ex. B.
. The remaining $2.4 million would only be paid if Michael generated a certain amount of revenue for Barclays.
. In 2005, a panel of the Seventh Circuit found an appeal to be premature where the district court remanded a case to the bankruptcy court with instructions "to include 'bad faith' as an element of
. An alternative and interesting argument is provided in In re Piazza,
While the examples listed in§ 707(a) could be characterized as mere post-petition procedural issues, they may also be characterized as requirements placed upon debtors to show they have filed their case in good faith and are moving it forward in good faith, if a debtor were to create an unreasonable delay prejudicing creditors, it could be said that he is using the powers of the bankruptcy code and the bankruptcy court in bad faith such that dismissal is appropriate under§ 707(a)(1) . If a debtor were to fail to pay fees as required under28 U.S.C. § 1930 , it may be an indication that the debtor did not file the case with a good faith purpose such that dismissal is appropriate under§ 707(a)(2) . The numerous disclosures required by § 521 provide insight as to any debtor misconduct or bad faith purpose for filing a case, and failure to comply with § 521 disclosure requirements may indicate that the Debtor is not proceeding in good faith such that dismissal is appropriate under§ 707(a)(3) .
. A bankruptcy court cannot require conversion to Chapters 11 or 13, because to do so would be a form of involuntary servitude. Conversion to Chapter 13 is not possible because the Schwartzes' debt levels are too high to qualify. See