Section 707(b) Applies to Converted Cases

Posted by NCBRC - July 10, 2017

Section 707(b) applies to a case converted to chapter 7 from chapter 13. Pollitzer v. Gebhardt, No. 16-11506 (11th Cir. June 27, 2017).

Stratton Pollitzer contributed to his chapter 13 plan for two years before converting under section 1307 to chapter 7. Upon conversion, the trustee moved the court to dismiss the case as abusive under section 707(b) because Mr. Pollitzer’s income was sufficient to significantly repay his unsecured creditors. Conceding that his petition failed the means test, Mr. Pollitzer took the position that because his case was originally filed as a chapter 13, section 707(b) was inapplicable. Both the bankruptcy court and the district court concluded that section 707(b) applies to converted cases. The Eleventh Circuit agreed.

Section 707(b) provides: “After 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. . . if it finds that the granting of relief would be an abuse of the provisions of this chapter.” Mr. Pollitzer argued that “a case filed” is modified by “under this chapter” and, therefore, only cases originally filed under chapter 7 are subject to dismissal as abusive. The trustee, on the other hand, argued that “under this chapter” modified “an individual debtor” and, therefore, the dismissal provision applies to any chapter 7 debtor regardless of original filing.

Finding that both interpretations are defensible, the circuit court turned to the statutory scheme and indications of congressional intent noting that section 707(b) was enacted in 1984 to address “widespread and documented abuses of chapter 7” by debtors with “substantial debt repayment capacity.” In response to the perception that abuses had not been sufficiently curtailed by the 1984 Act, Congress, in 2005, created the means test to establish a presumption of abuse for debtors with certain income levels and lowered the standard for dismissal from “substantial abuse” to “abuse.”

Furthermore Congress specifically excluded other provisions of the Code from applying to converted cases, but did not do so with respect to section 707(b). Nor did Congress limit section 707(b)’s applicability to debtors who converted from chapter 13 as it did with other debtors such as disable veterans. Finally, Rule 1019(2)(A) specifically provides for a new deadline for filing a case under section 707(b) upon conversion.

Finding that these factors favored the trustee’s interpretation and concluding that Mr. Pollitzer’s interpretation of the statutory scheme would “eviscerate” Congress’s goal by building in a method of bypassing section 707(b), the Eleventh Circuit found that the fact that a chapter 7 was originally filed under chapter 13, does not render the abuse provision inapplicable.

Pollitzer 11th Cir. opinion June 2017

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