DECISION AND ORDER
The matter before the Court is the Motion for Summary Judgment filed by David V. Dudley and Anne M. Dudley (the “Debtors”) in response to the United States Trustee’s Motion to Dismiss their Chapter 7 case pursuant to 11 U.S.C. § 707(b)(1). The U.S. Trustee seeks dismissal of the Debtors’ Chapter 7 case for abuse and alleges that the presumption of abuse arises under 11 U.S.C. § 707(b)(2). The Debtors argue that 11 U.S.C. § 707(b) does not apply to cases converted to Chapter 7 from another chapter of the Bankruptcy Code and move for summary judgment on that ground.
JURISDICTION
This Court has subject matter jurisdiction to consider this matter pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b). Venue is proper before this Court pursuant to 28 U.S.C. §§ 1408 and 1409.
BACKGROUND
The facts in this matter are not in dispute. The Debtors filed a voluntary Chapter 13 petition with this Court on August 18, 2008. On Official Form 22C, the Debtors calculated their monthly disposable income to be ($1,862.99). Their net monthly income is $9,715.53, but their deductions from income total $11,578.42. The Debtors included in their deductions the average monthly payment of $5,221.93 for debts secured by their home. To reach this figure, the Debtors added the $1,530.67 payment on a note secured by their residence located at 410 Saddlewood Drive, Wirtz, Virginia and two payments of $2,747.08 and $944.18 for notes secured by the Debtors’ second home located at 469 Woods Edge Drive, Rocky Mount, Virginia
The Chapter 13 Trustee moved to dismiss or convert the Debtor’s case pursuant to 11 U.S.C. § 1307 on September 18, 2008. The Trustee asserted that the Debtors scheduled unreasonably high, unnecessary expenses on their Schedule J and incorrectly deducted payments on the Woods Edge Secured Debt from their net disposable income on Form 22C. In response, the Debtors filed a motion to convert their case to Chapter 7 on October 8, 2008. The 11 U.S.C. § 341(a) meeting of creditors in the Chapter 7 case was held on November 14, 2008.
On December 15, 2008, the U.S. Trustee filed a motion to dismiss the case pursuant to 11 U.S.C. § 707(b)(1) as an abuse of Chapter 7. The U.S. Trustee alleged that the presumption of abuse arises pursuant to § 707(b)(2) because, had the Debtors properly calculated their monthly disposable income, their Form 22A would reflect that they have $2,113.01 in monthly disposable income to pay creditors $126,780.60 over the course of a sixty-month Chapter 13 plan. On January 9, 2009, the Debtors objected to the U.S. Trustee’s motion on the grounds that § 707(b) does not apply to cases converted from Chapter 13 to Chapter 7. This Court heard the U.S. Trustee’s Motion to Dismiss on March 10, 2009 and took the matter under advisement.
ISSUE
This Court must determine whether 11 U.S.C. § 707(b) applies to cases converted to Chapter 7 from another chapter of the Bankruptcy Code.
DISCUSSION ON APPLICABILITY OF § 707(b)
In general, 11 U.S.C. § 707(b) allows a bankruptcy court to dismiss or convert a Chapter 7 case because the individual debtor has sufficient disposable income to fund a plan of reorganization in either Chapter 11 or 13. Section 707(b)(1) provides that the court may dismiss “a case filed by an individual debtor under this chapter whose debts are primarily consumer debts” for abuse. 11 U.S.C.A § 707(b)(1) (West 2009). 1 The presumption of abuse arises if the debtor’s total disposable income, as calculated in § 707(b)(2)(A), is above the minimum threshold set forth in § 707(b)(2)(A)(i) (the “Means Test”). Id. § 707(b)(2)(A).
Resolution of the issue here turns on interpretation of the phrase “a case filed by an individual debtor under this chapter” in § 707(b)(1). Where the meaning of a statute is in dispute, the analysis begins with the language of the statute itself.
Lamie v. U.S. Trustee,
At the outset, this Court notes that there is no language in § 707(b)(1) that explicitly states that § 707(b) is applicable to cases converted by an individual debtor to Chapter 7. A persuasive argument can be made that the language as written is clearly confined to those cases “filed ... under this chapter,” i.e., originally filed in Chapter 7. Adoption of this argument would determine the issue in favor of the Debtors.
See In re Fox,
1. The Plain Meaning of Section 707(b)(1).
In determining the plain meaning of § 707(b)(1), primary canons of statutory interpretation aid this Court. First, “a limiting clause or phrase ... should ordinarily be read as modifying only the noun or phrase that it immediately follows.”
Branigan v. Bateman (In re Bateman),
The U.S. Trustee argues that proper application of the last antecedent doctrine to the phrase “a case filed by an individual debtor under this chapter” in § 707(b)(1) requires that “under this chapter” modify “debtor.” The U.S. Trustee cites
Justice v. Advanced Control Solutions, Inc. (In re Justice),
No. 07-5231,
This Court agrees that reading “under this chapter” to modify “debtor” would render the phrase “under this chapter” superfluous. If “a case filed by an individual debtor under this chapter” applies to every individual case whether initially filed in or converted to Chapter 7, then “under this chapter” adds nothing as 11 U.S.C. § 103(b) already limits application of § 707(b) to only Chapter 7 cases.
See
11 U.S.C.A. § 103(b) (West 2009).
4
Congress could have excluded the phrase “under this chapter” and achieved the same result.
5
Further, reading “under this chapter” to modify “filed” is consistent with the Fourth Circuit’s reasoning in
Branigan v. Bateman (In re Bateman),
This Court next considers the meaning of “filed.” The majority courts assert that a case is “filed” under the chapter in which the debtor is currently proceeding. The
Kerr
court illustrated the majority position in finding that “[w]hile ... cases [a]re initially
filed
under Chapter 13, [after conversion] they are ...
filed
under Chapter 7.”
In re Kerr,
Nos. 06-12302, 06-12881,
In analyzing the statutory language of § 1328(f)(2), the Fourth Circuit addressed the meaning of “filed under” and found that it means something more than “under.”
Bateman,
In the case at bar, if “a case filed by an individual debtor under this chapter” in § 707(b)(1) means any individual Chapter 7 case, the word “filed” is superfluous. Both cases initially filed in, and those converted to, Chapter 7 are cases “under” that chapter. This Court may not, however, interpret “filed ... under” to mean simply “under.” The term “filed” in § 707(b)(1) should be ascribed the same meaning that the Fourth Circuit gave it in § 1328(f)(2). The phrase “filed by an individual debtor under this chapter” in § 707(b)(1) therefore refers to an individual’s initial filing of a Chapter 7 petition and does not include conversion to Chapter 7 from another chapter of the Bankruptcy Code.
11. Literal Application of Section 707(b)(1) Does Not Produce an Absurd Result.
This Court next analyzes § 707(b)(1) within the overall framework of the Bankruptcy Code to determine whether literal application of the statute results in an
Conversion of a case from a case under one chapter of this title to a case under another chapter of this title constitutes an order for relief under the chapter to which the case is converted, but, except as provided in subsections (b) and (c) of this section, does not effect a change in the date of the filing of the petition, the commencement of the case, or the order for relief.
11 U.S.C.A. § 348(a) (West 2009). 14 Section 707 does not fall within the exceptions provided in § 348(b) and (c).
The majority courts read § 348(a) to say that it is “as if’ a debtor that converted to Chapter 7 filed a Chapter 7 petition on the date of the filing of the initial Chapter 13.
Kerr,
While § 348(a) is designed to address the effect of conversion on other Bank
The minority courts also point out the statutory conflicts that arise if § 707(b) was applied to cases converted to Chapter 7.
See Fox,
III. Literal Application of Section 707(b)(1) is Not at Odds with Congressional Intent and the Purpose of BAPCPA.
Lastly, this Court considers whether application of § 707(b) to only cases originally filed in Chapter 7 is demonstrably at odds with the intent behind the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) amendments to the Bankruptcy Code.
19
“In enacting BAPCPA, Congress ... expanded the bankruptcy courts’ authority to dismiss petitions for abuse of the bankruptcy system, which likewise reflects congressional intent to curb bankruptcy abuse through the new act.”
Hersh v. U.S. ex rel. Mukasey,
The majority courts find it “perversely inappropriate to deny abuse analysis of a debtor’s chapter 7 case based upon the mere fact that it was converted to, rather than originally filed in chapter 7.”
In re Kellett,
The majority courts also acknowledge, however, the “absurd result in cases, for example, that convert to Chapter 7 many months (or years) after the petition date.”
In re Perfetto,
The minority rejects both the majority’s conclusion that § 707(b) applies to all Chapter 7 cases and its concern over the abuse loophole.
23
The
Fox
court found no “support in the language of § 707(b)(1) to conclude that Congress intended to grant discretion to the bankruptcy courts, under a totality of the circumstances approach as promoted by the
Perfetto
court, to determine whether debtors converting to chapter 7 would be subject to the ‘abuse’ provisions under § 707(b)(1).”
In re Fox,
This Court agrees with
Fox
that a plain reading of § 707(b) does not provide courts discretion over whether to apply abuse scrutiny. The Court next addresses whether a court may dismiss a case converted to Chapter 7 in bad faith by means other than § 707(b). A Chapter 13 debtor may convert a case to Chapter 7 at any time.
See
11 U.S.C.A. § 1307(a) (West 2009).
25
This right to convert is
Section 707(a) authorizes bankruptcy courts to dismiss Chapter 7 cases for cause after notice and a hearing. 11 U.S.C.A. § 707(a) (West 2009).
26
Sections 707(a) and (b) are complementary, as “subsection (a) governs the dismissal of all bankruptcy filings, when adequate ‘cause’ has been shown, and subsection (b) governs the dismissal of only those bankruptcy filings involving primarily consumer debts, when granting relief would be an ‘abuse’ of Chapter 7.”
Perlin v. Hitachi Capital Am. Corp. (In re Perlin),
Holding that § 707(b) applies only to cases filed in Chapter 7 does not contravene expressed congressional intent and is
CONCLUSION
Based on the foregoing, this Court holds that the Plain Meaning Rule dictates that § 707(b) apply only to cases filed under Chapter 7 and that cases converted to Chapter 7 from another chapter of the Bankruptcy Code do not fall within the scope of § 707(b). Literal application of the language does not result in an outcome that can truly be characterized as absurd, and this statutory interpretation does not produce an outcome that is demonstrably at odds with clearly expressed congressional intent. Accordingly, it is
ORDERED:
That the Debtors’ Motion for Summary Judgment is hereby GRANTED.
Copies of this Decision and Order are directed to be sent to counsel for the Debtors, William J. Charboneau, Esq.; to Joseph A. Guzinski, Esq., Office of the United States Trustee; and to the Chapter 7 Trustee, Roy V. Creasy, Esq.
Notes
. Section 707(b)(1) provides in part:
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 the granting of relief would be an abuse of the provisions of this chapter.
11 U.S.C.A. 707(b)(1) (West 2009).
. A majority of courts having considered the question hold that § 707(b) applies to cases converted to Chapter 7.
See Justice v. Advanced Control Solutions, Inc. (In re Justice),
No. 07-5231,
. "The 'last antecedent’ is 'the last word, phrase, or clause that can be made an antecedent without impairing the meaning of the sentence.” 2A Sutherland Statutory Construction § 47:33 (7th ed.2008).
. Section 103(b) provides that "[s]ubchapters I and II of chapter 7 of this title apply only in a case under such chapter.” 11 U.S.C.A. § 103(b) (West 2009). Section 707 is in sub-chapter I of Chapter 7.
. If "under this chapter” was eliminated, the hypothetical § 707(b)(1) would read in part: "After notice and a hearing, the court ... may dismiss a case filed by an individual debtor whose debts are primarily consumer debts....” (Debtors’ Reply Mem. 4.)
. The
Kerr
court defined "filed” to mean "to enter (e.g., a legal document) on public official record.”
In re Kerr,
Nos. 06-12302, 0612881,
. Section 342(d) provides that, where the presumption of abuse arises under § 707(b) in an individual Chapter 7 case, "the clerk shall give written notice to all creditors not later than 10 days after the date of the filing of the petition that the presumption of abuse has arisen.” 11 U.S.C.A. § 342(d) (West 2009) (emphasis added).
. Section 707(b)(3) provides that, where the presumption of abuse in § 707(b) does not arise, the court should consider "whether the debtor filed the petition in bad faith” in determining whether to dismiss the debtor’s case for abuse. 11 U.S.C.A. § 707(b)(3) (West 2009) (emphasis added).
. Section 707(b)(4)(A) provides that the court may order debtor’s counsel to reimburse the trustee for costs in prosecuting a § 707(b) motion if the court grants the motion and "finds that the action of the attorney for the debtor in filing a case under this chapter violated [Bankruptcy R]ule 9011.” 11 U.S.C.A. § 707(b)(4)(A) (West 2009) (emphasis added).
. Section 707(c)(2) provides that the court may “dismiss a voluntary case filed under this chapter" upon the motion of a victim of a violent crime committed by the individual debtor. 11 U.S.C.A. § 707(c)(2) (West 2009) (emphasis added).
. Section 707(c)(3) provides that "[t]he court may not dismiss a case under paragraph (2) if the debtor establishes by a preponderance of the evidence that the filing of a case under this chapter is necessary to satisfy a claim for a domestic support obligation.” 11 U.S.C.A. § 707(c)(3) (West 2009) (emphasis added).
. The majority court in
Willis
was “particularly persuaded by the apparently unanimous agreement among courts that, for purposes of 11 U.S.C. § 1328(f), the phrase 'fil[ed] under [c]hapter 7' encompasses cases converted from Chapter 13 to Chapter 7.”
In re Willis,
No. 08-41820,
. The
Bateman
court referenced two bankruptcy court decisions in the Fourth Circuit that address the impact of § 348(a) in the context of 11 U.S.C. § 1328(f),
In re Sours,
. As discussed in Collier on Bankruptcy, § 348(a) provides that while conversion of a case from one chapter to another constitutes an order for relief, conversion does not effect the dates of the filing of the petition, the commencement of the case or the order for relief, except as provided in subsections (b) and (c). 3 Collier on Bankruptcy ¶ 348.02 (15th ed. rev.2009). This means that, aside from the exceptions listed in subsections (b) and (c), the sections of the Code that are keyed to the dates of the filing of the petition, the commencement of the case or the entry of the order for relief are unaffected by conversion. Id. Section 348(a) operates in conjunction with many other Code provisions, however, Collier on Bankruptcy never mentions § 707(b)(1) in discussing the operation of § 348(a). See generally id. at ¶¶ 348.02-348.07.
.The Kerr court read § 348 to show Congress’s
clear intent ... to retain the original filing date as the date of the "filing of the petition,” "commencement of the case” or "order for relief” except in the circumstances provided for in subsections (b) and (c), where these terms are instead deemed to refer to the conversion date. Because Section 707(b) is not mentioned in either subsection (b) or (c) of Section 348, it follows that the original filing date is retained upon conversion, but the case is otherwise treated as if the debtor had originally filed under the converted chapter.
In re Kerr,
Nos. 06-12302, 06-12881,
. See supra note 7.
. Abuse is presumed if sixty times the net of the debtor’s "current monthly income” reduced by his or her monthly expenses exceeds the lesser of twenty-five percent of the debt- or’s nonpriority unsecured claims (or $6,575.00, whichever is greater) or $10,950.00. 11 U.S.C.A. § 707(b)(2)(A)© (West 2009). A debtor’s “current monthly income” is "the average monthly income from all sources that the debtor receives ... during the 6-month period ending on ... the last day of the calendar month immediately preceding the date of the commencement of the case.” 11 U.S.C.A. § 101(10A)(A) (West 2009). As a conversion order does not change the commencement date of the case pursuant to § 348(a), the Means Test calculates the debtor’s current monthly income as of the petition date.
The debtor’s monthly expenses under the Means Test are determined “as in effect on the date of the order for relief.” 11 U.S.C.A. § 707(b)(2)(A)(ii)(I) (West 2009). Section 301 provides that the filing of a voluntary petition commences a case and constitutes an order for relief. 11 U.S.C.A. § 301 (West 2009). For purposes of § 707, the date of the order for relief does not change upon conversion. See 11 U.S.C.A. § 348(b) (West 2009). Expenses therefore also refer back to the petition date.
Section 707(b) thus "directs the disclosure of financial information for the six months before the filing, and not the date of conversion or the order for relief.”
In re Fox,
.Section 704(b)(1)(A) provides that the U.S. Trustee shall review all materials filed by an individual Chapter 7 debtor and “not later than 10 days after the date of the first meeting of creditors, file with the court a statement as to whether the debtor’s case would be presumed to be an abuse under section 707(b).” 11 U.S.C.A. § 704(b)(1) (West 2009). The
Kellett
court acknowledged the U.S. Trustee's argument that § 704(b)(1) does not "differen-tiat[e] between cases originally filed in chapter 7 and converted to chapter 7.”
In re Kellett,
. Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (2005).
. The House Judiciary Committee’s Report on BAPCPA provides:
Needs-based reforms would amend section 707(b) of the Bankruptcy Code to permit a court, on its own motion, or on motion of the United States trustee, private trustee, bankruptcy administrator, or other party in interest (including a creditor), to dismiss a chapter 7 case for abuse if it was filed by an individual debtor whose debts are primarily consumer debts.
H.R.Rep. No. 109-31(1), at 12-13 (2005), reprinted in 2005 U.S.C.C.A.N. 88, 99. This report does not indicate that finding § 707(b) does not apply to cases converted to Chapter 7 is demonstrably at odds with clearly expressed congressional intent.
. The
Ken
court cited
In re Morris,
. The
Perfetto
court determined that the propriety of applying the Means Test to converted cases may be "considered] ... on an ad hoc basis, if and when [the cases] are filed, and only upon careful consideration of the totality of the circumstances in each case.”
In re Perfetto,
. The
Ryder
court had “difficulty accepting the view that ‘common sense' dictates that a debtor who, in good faith, fails in chapter 13 must automatically be means tested upon a conversion to chapter 7 to see if the debtor should be presumed to be an abuser whose case belongs in chapter 13.”
In re Ryder,
No. 07-40192,
. The
Fox
court noted that "[t]here are separate provisions in the Code for 'catching' bad-faith filers and, as the [Supreme Court’s decision in
Manama
] instructed, there is ample authority for the dismissal of cases of debtors who convert their cases in bad faith.”
In re Fox,
. Section 1307(a) provides that a "debtor may convert a case under this chapter to a case under chapter 7 of this title at any time.” 11 U.S.C.A. § 1307(a) (West 2009). Similarly, a Chapter 11 debtor may convert its case to Chapter 7 at any time, subject to three enumerated exceptions. Id. § 1112(a).
. Section 707(a) provides:
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 and 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, but only on a motion by the United States trustee.
11 U.S.C.A. § 707(a) (West 2009).
. Pre-BAPCPA opinions differ as to whether bad faith is proper cause for dismissal pursuant to § 707(a).
Compare Indus. Ins. Servs., Inc. v. Zick (In re Zick),