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Collection: High-Income, Good Faith, and the Dismissal of Non-Consumer Bankruptcy Cases under Chapter 7
With the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ('BAPCPA'), many creditors expected to have additional grounds to obtain dismissals of Chapter 7 petitions. BAPCPA incorporated an income/expense test ('Means Test') into '707(b) of the Bankruptcy Code, wherein a bankruptcy court can dismiss a Chapter 7 petition for 'abuse.' Under the Means Test laid out in '707(b), 'abuse' is presumed if the debtor's 'current monthly income,' after subtracting for certain specified monthly expenses and multiplying by 60, is either: 1) equal to or greater than 25% of the debtor's nonpriority unsecured claims in the case, or $6,000, whichever is greater; or 2) $10,000, unless special circumstances exist that rebut the presumption of abuse.
Among other provisions, '707(b) authorizes a bankruptcy court to dismiss a Chapter 7 petition filed by an individual debtor, whose debts are primarily consumer debts, for 'abuse,' while '707(a) allows bankruptcy courts to dismiss a Chapter 7 petition for 'cause' and provides three nonexclusive examples of 'cause' warranting dismissal.
Section 707(a) does not explicitly confer a Means Test or list 'bad faith' as grounds for dismissal. Prior to the enactment of BAPCPA, many courts had interpreted '707(a) to allow an inquiry into the good faith of non-consumer debtors, which often took into account the debtor's income and lavish lifestyle, if any, and his corresponding ability to repay his debts as consideration factors. See, e.g., In re Merritt, 211 F.3d 1269, 2000 WL 420681, at *2 (6th Cir. 2000); In re Tamecki, 229 F.3d 205, 207 (3d Cir. 2000); In re Zick, 931 F.2d 1124, 1126 (6th Cir. 1991); In re Sekendur, 334 B.R. 609, 618-19 (Bankr. N.D. Ill. 2005); In re Jones, 335 B.R. 203, 213-14 (Bankr. M.D. Fla. 2005); In re Keobapha, 279 B.R. 49, 51-52 (Bankr. D. Conn. 2002); but see, In re Padilla, 222 F.3d 1184, 1193 (9th Cir. 2000) (bad faith can constitute 'cause' for dismissal in Chapter 11 or Chapter 13 cases, but not in Chapter 7 case under '707(a)) and In re Huckfeldt, 39 F.3d 829, 832 (8th Cir. 1994) (a bankruptcy judge should not punish a bad faith litigant under '707(a)).
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