REBECCA B. CONNELLY, Bankruptcy Judge.
The question before this Court is whether the United States Trustee (UST) may proceed on her Motion to Dismiss pursuant to 11 U.S.C. §§ 707(b) and (a) when the case was not originally filed under chapter 7. The debtors seek dismissal of the UST's motion because, according to the debtors: (1) section 707(b) does not apply to cases converted to chapter 7; and (2) section 707(a) is inapplicable to dismiss a case for "bad faith." The Court disagrees with the debtors. For the reasons described below, the Court concludes a case originally filed under chapter 13 and subsequently converted to chapter 7 is subject to 11 U.S.C. § 707(b). The Court further concludes that cause to dismiss a case pursuant to 11 U.S.C. § 707(a) includes bad faith. The UST may proceed and be heard on her motion to dismiss under section 707.
Terrance Reece and Leslie Roher-Reece filed a chapter 13 petition on July 20, 2011. The following day, they filed a motion to quash a garnishment held by credit card servicer FIA Card Services for a debt of approximately $5,000. The Court entered an order quashing the garnishment on July 22, 2011. The debtors filed three chapter 13 plans. None was confirmed. The chapter 13 trustee objected to confirmation on grounds that the proposed plan was not filed in good faith pursuant to 11 U.S.C. § 1325(a)(3) and that the proposed plan did not provide all of the debtors' projected disposable income during the applicable commitment period to payments to unsecured creditors pursuant to 11 U.S.C. § 1325(b). Specifically, the trustee objected to deductions claimed on Form 22C lines 30, 31, 32, 43, 45, 55, and 60. In addition, the trustee protested that the female debtor's income was under-reported. The hearings on the objections were continued by consent, and the Court did not address the substance of the chapter 13 trustee's objections. The hearings were continued in part to permit the debtors to first address other concerns: namely the objection filed by Bank of America to the valuation of its collateral, the debtors' objections to certain proofs of claim, and an action to strip off a wholly unsecured second mortgage from the debtors' home. Although the debtors resolved these other objections and obtained an order avoiding the wholly unsecured second mortgage, the chapter 13 trustee's objections regarding disposable income and
The UST timely filed a notice as required by 11 U.S.C. § 704(b)(1)(A) that the chapter 7 case was presumed to be an abuse under section 707. Subsequently, the UST filed a motion, and an amended motion, to dismiss the case pursuant to sections 707(a) and 707(b). The debtors oppose the motion and seek dismissal of the UST's Motion.
The following facts are uncontested:
The question before the Court is whether the Court must dismiss the UST's motion
The UST has alleged that the case should be dismissed under section 707(b). The debtors have argued that the Court cannot, as a matter of law, dismiss this case pursuant to section 707(b) because the case was not originally filed under chapter 7.
Section 707(b) states in relevant part: "[a]fter notice and a hearing, the court, on its own motion or on a motion by the United States Trustee ... may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts...." 11 U.S.C. § 707(b)(1) (emphasis added). Courts are divided over whether a case that has been converted to chapter 7 can be dismissed under section 707(b). That split is adroitly summarized by the Bankruptcy Court for the Middle District of Florida in In re Layton
The "hybrid arguments," as coined by Judge Williamson, apply one of two analytical methods. The first method uses the grammatical rule of last antecedent
Four years ago, Judge Ross W. Krumm, now retired, of this Court adopted the "plain language" view described above. McDow v. Dudley (In re Dudley), 405 B.R. 790, 792-98 (Bankr.W.D.Va.2009). Since that time, no other judge of this Court appears to have addressed the issue. The Court in Dudley acknowledged that it was adopting the minority view. This Court has reconsidered its position. This Court concludes the "plain language approach"
The "plain language approach" previously adopted by this Court is based on the application of certain canons of statutory interpretation. Dudley, 405 B.R. at 794-95. One of the first canons mentioned by the Court in Dudley is "when the meaning of the statute is in dispute, the analysis begins with the statute itself." Id. at 792. This Court agrees. In a case requiring statutory construction, the Court must look at the language of the statute itself. McNeill v. United States, ___ U.S. ___, 131 S.Ct. 2218, 2221, 180 L.Ed.2d 35 (2011) (quoting Robinson v. Shell Oil Co., 519 U.S. 337, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997)). In doing so, however, a Court must look at the language of the statute itself in the specific context in which the language is used. Id. The inquiry into statutory construction ceases if the statutory language is unambiguous and the statutory scheme is coherent and consistent. Sebelius v. Cloer, ___ U.S. ___, 133 S.Ct. 1886, 1895, 185 L.Ed.2d 1003 (2013) (quoting Barnhart v. Sigmon Coal Co., 534 U.S. 438, 122 S.Ct. 941, 151 L.Ed.2d 908 (2002)).
The meaning of the phrase "filed by an individual debtor under this chapter" is the dispute; in particular, whether "filed" is modified by "by an individual debtor" or "under this chapter." In examining the language at issue — filed by an individual debtor under this chapter — the terms "individual" and "chapter" are fairly certain. Although "individual" is not defined by the Bankruptcy Code, generally the term has been applied to a natural person.
Dudley, in applying the "plain language approach" focused on the verb "filed" and held that "filed" must be modified by "under this chapter" for two particular reasons: 1) to hold otherwise would render the phrase "under this chapter" superfluous; and 2) interpreting "under this chapter" as modifying "filed" is consistent with the Fourth Circuit's ruling in Branigan v. Bateman.
The lynchpin of the Dudley decision rests on the canon of construction avoiding superfluity. Dudley, 405 B.R. at 794. According to Dudley, finding section 707(b) applicable to cases converted to chapter 7 is tantamount to reading the language of section 707(b) as applying to all individual debtors in chapter 7, and renders the words "under this chapter" superfluous. See Dudley, 405 B.R. at 794 (reasoning that if section 707(b) applies to all individuals currently before the court in chapter 7, then the phrase "under this chapter" is superfluous unless it is intended to modify "filed"). Along these lines, some courts have supported Dudley's conclusion that "under this chapter" is superfluous if it modifies "individual debtor" and not "filed" because section 103(b) of the Bankruptcy Code already limits section 707(b) to cases currently in chapter 7.
Simply because a portion of statutory text could have been worded more tersely does not mean that a statute does not mean what it says. Bruesewitz v. Wyeth LLC, ___ U.S. ___, 131 S.Ct. 1068, 1078, 179 L.Ed.2d 1 (2011). In this case, the mere fact that the words "under this chapter" appear as redundant or surplusage based on the existence of section 103(b) does not dictate that "filed" must, therefore, be modified by "under this chapter," rather than "by an individual debtor." The words "under this chapter" simply confirm that in order for the court to consider whether to dismiss a case pursuant to section 707(b), the case must be currently under chapter 7. The argument that "under this chapter" is surplusage could apply equally to sections 1112(b), 1208(b), 1307(b) and 707(a), each of which contains the exact phrase "under this chapter," even though section 103 simultaneously limits those sections to their respective chapters. The more persuasive argument, therefore, is that the phrase "filed by an individual debtor," which is contained in section 707(b) but not sections 1112, 1208, 1307 or 707(a), must intentionally
Dudley noted that its conclusion was consistent with the Fourth Circuit's use of the non-superfluity canon when examining the phrase "filed under" in the context of section 1328 of the Bankruptcy Code. Id. (citing Bateman, 515 F.3d at 277). Although Dudley may be consistent with Bateman, this does not mean that Bateman necessarily controls the issue at hand. In Bateman, the Fourth Circuit considered the impact of the phrase "filed under" contained in section 1328(f) for purposes of a discharge in a case filed under chapter 7 and converted to chapter 13. In this case and in Dudley, the question is not whether "filed under" means just "under." It is true that Bateman applied the same statutory construction rules as Dudley to the same words, "filed" and "under." Yet, the words "filed" and "under" in Bateman were dealt with as a phrase, "filed under," and with good reason, as the words are necessary to differentiate time restraints for discharge for certain repeat debtors. In this case, the question is not a computation contingent upon the bankruptcy chapters, but whether this Court's authority to dismiss a case "under this chapter" pursuant to section 707(b) is fictional unless the case was originally "filed under" chapter 7. The question arises solely because the statutory authority to "dismiss a case ... under this chapter" contains the intervening phrase "filed by an individual debtor."
As explained above, the limit of what the Court can note with certainty about section 707(b) based on the statutory language and defined terms is that section 707(b) only applies to natural persons who are currently in chapter 7 in a voluntary case. It remains unanswered whether the phrase "case filed" is modified by "by an individual debtor" or "under this chapter;" or for that matter whether the phrase "filed by an individual debtor" modifies the word "case" or is itself modified by the phrase "under this chapter." This debate over the meaning of the phrase "filed by an individual debtor" has led courts to: 1) consider the phrase within the context and statutory scheme, and 2) examine the intent of drafters of the statute in order to apply the statute consistently with the intention of the drafters and in a manner that would avoid absurd results. Thus, courts have, as Judge Williamson coined, applied hybrid arguments and a common sense approach.
In the Layton decision, Judge Williamson referred to the "doctrine of last antecedent" as a "hybrid argument." The Fourth Circuit applied the doctrine of last antecedent in Bateman. The doctrine is a grammatical rule, rather than a rule of statutory construction, to assist a court in determining the meaning of the words in a statute. See Bateman, 515 F.3d at 277-78. According to the rule, "a limiting phrase or clause ... should ordinarily be read as modifying only the noun or phrase that it immediately follows." Id. at 277. Yet, as the Court explained in In re Lassiter,
When faced with this impasse, the Court in Lassiter turned to the statutory context and scheme for consistency and coherence. Judge Huennekens examined identical phrases in other provisions of the Code. As he explained, the fact that "filed by an individual debtor" does not appear in sections 1112, 1208 and 1307 demonstrates that Congress intended for those words to a have a particular impact in section 707(b). Id. at *3. This Court agrees. This Court believes that impact is to limit section 707(b) to voluntary cases of individual debtors. Hence, the language is not superfluous when section 707(b) is applied to converted cases. The statutory text, context, and scheme subject only voluntary cases of individual debtors to section 707(b), as distinguished from cases of non-individuals or involuntary cases. Interpreting section 707(b) as applying to cases originally filed by individual debtors under a chapter other than chapter 7, but subsequently converted to chapter 7, is indeed consistent with Bateman.
Furthermore, the combination of sections 348 and 301 of the Bankruptcy Code provide support for finding that cases converted from a different chapter to chapter 7 are "deemed filed" under chapter 7. Section 348 provides that when a case converts from one chapter to another chapter of the Bankruptcy Code, the conversion constitutes an order for relief in the chapter into which the case is converted; the date for the filing of the petition, commencement of the case, and order for relief, however, all remain the same. 11 U.S.C. § 348. Under this section, the filing date is unchanged, but the case is deemed to be filed under the chapter to which the case is converted. Lassiter, 2011 WL 2039363 at *3 (citing McDow v. Capers (In re Capers), 347 B.R. 169, 171-72 (Bankr.D.S.C.2006)); see Fokkena v. Chapman (In re Chapman), 447 B.R. 250, 253 (8th Cir. BAP 2011), McDow v. Sours (In re Sours), 350 B.R. 261, 268 (Bankr. E.D.Va.2006). Thus, the language of section 707(b) may apply equally to cases originally filed under chapter 13 and converted to chapter 7. Lassiter, 2011 WL 2039363 at *3.
Legislative changes made to section 707(b) support the conclusion that section 707(b) is not limited to cases originally filed under chapter 7. The language "filed by an individual debtor" dates from the Bankruptcy Amendments and Federal Judgeship Act of 1984. Congress did not change this phrase when they altered other parts of 707(b) with the BAPCPA amendments in 2005.
Additionally the aim of BAPCPA supports the application of section 707(b) to all chapter 7 cases. Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. 229, 231-32, 130 S.Ct. 1324, 176 L.Ed.2d 79 (2010) (noting that the purpose of BAPCPA was to "to correct perceived abuses of the bankruptcy system"). The "heart" of BAPCPA is the "means test" which was "intended to ensure that debtors will repay creditors the maximum amount the debtor can afford." Johnson v. Zimmer, 686 F.3d 224, 236 (4th Cir.2012), cert. denied, ___ U.S. ___, 133 S.Ct. 846, 184 L.Ed.2d 655 (U.S.2013). Section 707(b) contains the means test as a threshold examination to establish a presumption that a chapter 7 discharge may be an abuse. Adopting an interpretation of section 707(b) that allows certain debtors to evade the means test would be antithetical to the purposes of BAPCPA.
For the reasons set forth above, this Court concludes section 707(b) applies to cases converted to chapter 7. The Court will permit the UST to advance its motion under section 707(b).
The UST has alleged in the alternative that Mr. and Mrs. Reece's case should be dismissed under section 707(a). The debtors have argued that the Court cannot, as a matter of law, dismiss this case pursuant to section 707(a) because "bad faith" is not "cause" to dismiss a chapter 7 case.
Section 707(a) of the Bankruptcy Code reads:
The list of three examples of cause contained in section 707(a) is non-exclusive. McDow v. Smith, 295 B.R. 69, 74 (E.D.Va. 2003). When the criteria for "cause" are not exclusive, the Court may exercise discretion to determine cause. The Court's exercise of discretion is informed by Bankruptcy Code Section 105(a). Section 105(a) provides the Court with authority to exercise discretion to prevent abuses of process and enforce compliance with Court orders. Section 105(a) provides that the Court may "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. § 105(a). The UST has alleged that the debtors incurred significant and unnecessary debt in contemplation of filing bankruptcy, filed with the Court inaccurate or incomplete schedules and statements, did not fully disclose all income, claimed unreasonable or unnecessary expenses, and filed chapter 13 plans that
The debtors urge this Court to follow the Ninth Circuit's holding in In re Padilla.
Based on the merits of the arguments, the Court finds that legal grounds exist for the UST to proceed on her motion to dismiss this case pursuant to sections 707(a) and 707(b) of the Bankruptcy Code. The fact that the case was converted is immaterial. The debtors' motion to dismiss is denied. A separate order will effectuate the findings of this opinion.