Habbo Fokkena v. Geoff Draisey

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
No. 08-6016
In re: *
*
Geoff Paul Draisey and *
Kristin Denise Draisey, *
*
Debtors. *
*
* Appeal from the United States
Habbo Fokkena, * Bankruptcy Court for the
* District of Minnesota
Plaintiff-Appellant, *
*
v. *
*
Geoff Paul Draisey and *
Kristin Denise Draisey, *
*
Defendants-Appellees. *
*
Submitted: August 26, 2008
Filed: October 16, 2008
Before Federman, Mahoney and Venters, Bankruptcy Judges.
MAHONEY, Bankruptcy Judge.
The United States Trustee (“UST”) appeals the Bankruptcy Court’s order
denying the UST’s motion to dismiss pursuant to 11 U.S.C. § 707(b)(3)(B). For the
reasons set out below, we reverse.
JURISDICTION
The Bankruptcy Appellate Panel has jurisdiction over this appeal under 28
U.S.C. § 158(a), (b) and (c). The Bankruptcy Court’s order denying the UST’s
§ 707(b) motion is a final, appealable order. See Stuart v. Koch (In re Koch), 109 F.3d
1285, 1287 (8th Cir. 1997) (holding that order denying § 707(b) motion to dismiss is
final).
STANDARD OF REVIEW
This Court reviews findings of fact for clear error and conclusions of law de
novo. Green Tree Serv., L.L.C. v. Coleman (In re Coleman), 392 B.R. 767 (B.A.P. 8th
Cir. 2008). This case involves only an issue of statutory construction; no factual
matters are in dispute. Issues of statutory construction are reviewed de novo. Colsen
v. United States (In re Colsen), 446 F.3d 836, 839 (8th Cir. 2006); Coop v. Lasowski
(In re Lasowski), 384 B.R. 205, 207 (B.A.P. 8th Cir. 2008). Thus, our review is de
novo.
BACKGROUND
The statutory provisions involved in this case were added to the Bankruptcy
Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,
Pub. L. No. 109-8, 119 Stat. 23 (2005), commonly referred to as “BAPCPA.” Prior
to the adoption of BAPCPA, § 707(b) permitted the Court, on its own motion or on
motion by the UST, but not on a motion by any other party, to dismiss a case for
substantial abuse. BAPCPA eliminated the requirement that the abuse be “substantial”
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and now permits the Court, on its own motion or a motion by the UST or any party
in interest, to dismiss a case filed by an individual debtor whose debts are primarily
consumer debts if the Court finds that granting relief would be an abuse of the
provisions of Title 11. The Court may determine that such abuse exists under any one
of three standards set out in § 707(b).1 First, a presumption of abuse may be found 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. Second,
1
In pertinent part, 11U.S.C. § 707(b) provides:
(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. . . .
(2)(A)(i) In considering under paragraph (1) whether the granting
of relief would be an abuse of the provisions of this chapter, the court
shall presume abuse exists if the debtor’s current monthly income
reduced by the amounts determined under clauses (ii), (iii), and (iv), and
multiplied by 60 is not less than the lesser of –
(I) 25 percent of the debtor’s nonpriority unsecured claims
in the case, or $6,575, whichever is greater, or
(II) $10,950.
...
(3) In considering under paragraph (1) whether the granting of
relief would be an abuse of the provisions of this chapter in a case in
which the presumption in subparagraph (A)(i) of such paragraph does
not arise or is rebutted, the court shall consider –
(A) whether the debtor filed the petition in bad faith; or
(B) the totality of the circumstances (including whether the
debtor seeks to reject a personal services contract and the financial
need for such rejection as sought by the debtor) of the debtor’s
financial situation demonstrates abuse.
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the Court may determine that abuse exists if, under § 707(b)(3)(A), the presumption
referred to above does not arise or is rebutted, but the Court finds that the petition was
filed in bad faith. Finally, the Court may find abuse after considering the totality of
the circumstances of the debtors’ financial situation. § 707(b)(3)(B).
On April 10, 2007, the Draiseys filed a voluntary Chapter 7 petition. Their
§ 341(a) meeting of creditors was held on May 11, 2007. Ten days later, the UST filed
with the Bankruptcy Court a statement indicating that he was unable to determine
whether the presumption of abuse arose under § 707(b)(2) in the case. On June 19,
2007, after the UST had received additional documents from the debtors and
completed a means test review, the UST filed a supplemental statement under
§ 704(b)(1) indicating that the presumption of abuse did not arise.
Despite this determination, the UST concluded, from a review of the materials
provided by the debtors, that the debtors had sufficient disposable income to repay a
portion of their unsecured debts because, shortly before the bankruptcy filing, Mrs.
Draisey had found new employment that significantly increased the family’s annual
gross income. Accordingly, on July 9, 2007, the UST filed a motion to dismiss the
Chapter 7 case for abuse under § 707(b)(3) based upon the totality of the
circumstances of the debtors’ financial situation. The Draiseys responded to the
motion and asserted that the motion was untimely because the UST had not filed the
10-day statement and motion to dismiss within the time limits specified in § 704(b)(2).
The UST then filed a supplement to his motion, asserting that § 704(b) did not
apply because the UST had not determined that the debtors’ case should be presumed
to be an abuse under § 707(b)(2) or that the debtors’ current monthly income exceeded
the applicable state median. The supplemental motion argued that Interim Bankruptcy
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Rule 1017(e)(1)2, not § 704(b), governs the timeliness of a motion to dismiss for abuse
based upon § 707(b)(3)(B) because the shorter deadline for filing a motion to dismiss
is restricted only to § 707(b)(2) presumed abuse claims.
The Bankruptcy Court denied the UST’s motion to dismiss, concluding that the
motion was time-barred because the UST did not timely file a statement that the
debtors’ case would be presumed to be an abuse and did not file the motion to dismiss
within the time limit specified in § 704(b)(2). The Bankruptcy Court determined that
the language of § 704(b)(1) requires the UST to file a 10-day statement in every
individual Chapter 7 case, whether the presumption of abuse arises or not. In addition,
the Court interpreted § 704(b)(2) to mean that the UST must file all motions to dismiss
for abuse under any subparagraph of § 707(b) within 30 days after the filing of the 10-
day statement, regardless of whether the presumption of abuse arises in the case or
2
That section of Interim Bankruptcy Rule 1017, promulgated in the District of
Minnesota on September 27, 2005, to be effective on October 17, 2005, provides:
(e) Dismissal of an Individual Debtor's Chapter 7 Case or Conversion to
a Case under Chapter 11 or 13 for Abuse. The court may dismiss or, with
the debtor's consent, convert an individual debtor's case for abuse under
§ 707(b) only on motion and after a hearing on notice to the debtor, the
trustee, the United States trustee, and any other entities as the court
directs.
(1) Except as otherwise provided in § 704(b)(2), a motion to
dismiss a case for abuse under § 707(b) or (c) may be filed only within
60 days after the first date set for the meeting of creditors under § 341(a),
unless, on request filed before the time has expired, the court for cause
extends the time for filing the motion to dismiss. The party filing the
motion shall set forth in the motion all matters to be considered at the
hearing. A motion to dismiss under § 707(b)(1) and (3) shall state with
particularity the circumstances alleged to constitute abuse.
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whether the debtor’s annualized current monthly income exceeds the applicable state
median.3
DISCUSSION
It is the UST’s position that the only reason to file a statement required by
§ 704(b)(1) is if the UST determines from a review of the initial materials submitted
by the debtors that the presumption of abuse does arise. If the UST files a statement
which states that the presumption does arise and such statement is filed within 10 days
after the date of the first meeting of creditors, the UST acknowledges that he then has,
under § 704(b)(2), 30 days to file a motion to dismiss or convert or a statement setting
forth the reasons he does not consider such a motion to be appropriate. He argues that
§ 704(b)(2) only requires the filing of a motion to dismiss or the statement with
reasons if the UST determines that the presumption of abuse arises and the debtors are
above-median debtors. In this case, the UST determined that he had no basis to file
a motion to dismiss under § 707(b)(2), the “presumption” subsection, but did believe
he had sufficient evidence to support a motion to dismiss under the totality of the
circumstances provision of § 707(b)(3).
We agree with the UST’s argument. Filing the § 704(b)(1) statement is a
condition precedent to filing a motion to dismiss under § 707(b)(2), not to filing a
motion to dismiss under § 707(b)(3)(B). We reach this conclusion by reading the plain
language of the statute, as the Supreme Court has directed. See Hartford Underwriters
Ins. Co. v. Union Planters Bank, N.A., 520 U.S. 1, 6 (2000) (“[W]hen the statute’s
language is plain, the sole function of the courts – at least where the disposition is not
absurd – is to enforce it according to its terms”); United States v. Ron Pair Enter., Inc.,
489 U.S. 235, 241 (1989); Caminetti v. United States, 242 U.S. 470, 485 (1917). The
3
The courts have used the shorthand term “above-median debtor” for those
debtors whose income exceeds the applicable state median on the means test form
debtors are required to file.
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30-day requirement of § 704(b)(2) applies only – by its own terms – “if the United
States trustee . . . determines that the debtor’s case should be presumed to be an abuse
under section 707(b) . . . .” The words “presumed to be an abuse” occur only in
§ 707(b)(2), and are irrelevant to, and not included in, § 707(b)(3). It follows, then,
that the time limit for filing a motion to dismiss under § 707(b)(3)(B) is governed by
Interim Rule 1017(e) which refers to motions to dismiss other than in cases in which
the presumption arises under § 704(b)(2).
All of the published cases that deal with this subject, except the present case,
have determined that § 704(b)’s deadlines are inapplicable when the UST seeks relief
under § 707(b)(3). See Turner v. Close (In re Close), 384 B.R. 856, 871 (D. Kan.
2008) (holding that where no presumption of abuse arises, 30-day deadline imposed
by § 704(b)(2) does not apply, and § 704(b)(1)(A) statement is not prerequisite for
filing), aff'g 353 B.R. 915 (Bankr. D. Kan. 2006); In re Perrotta, 390 B.R.26, 31
(Bankr. D.N.H. 2008) (ruling that where UST is seeking dismissal under § 707(b)(1)
or (b)(3) without invoking presumption of abuse, the statement and time limitations
under § 704(b) do not apply); In re Ansar, 383 B.R. 344, 348 (Bankr. D. Minn. 2008)
(finding that nothing in § 704(b) prevents UST from filing a motion to dismiss under
§ 707(b)(3) when burden of proof will rest on UST); In re Byrne, 376 B.R. 700, 704
(Bankr. W.D. Ark. 2007) (ruling that § 704(b)(1) is not applicable to motion to
dismiss under § 707(b)(3)); In re Clark, 393 B.R. 578, 584-85 (Bankr. E.D. Tenn.
2008) (holding that the 30-day time limit does not apply to a motion by the UST under
§ 707(b)(3)).
In each of those cases, the debtors argued that filing the statement under
§ 704(b)(1)(A) was a prerequisite for bringing a motion to dismiss under any of the
provisions of § 707(b). The court in each of those cases rejected the argument and
interpreted the statutory language to mean that both the statement and the motion to
dismiss referred to in § 704(b)(2) relate only to the right of the UST to bring a motion
to dismiss under § 707(b)(2) in cases in which the presumption of abuse exists, not in
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cases where the UST is bringing a motion to dismiss under the totality of the
circumstances test of § 707(b)(3). We agree with the logic and the conclusion of those
cases.
CONCLUSION
The decision of the Bankruptcy Court denying the motion to dismiss filed by
the UST under § 707(b)(3)(B) is reversed and the case is remanded to the Bankruptcy
Court to consider the motion on the merits.
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