United States v. Sivaram (In re Sivaram)
United States v. Sivaram (In re Sivaram)
Opinion of the Court
MEMORANDUM OPINION
The United States Trustee (“UST”) moves for dismissal of this case pursuant to IT U.S.C. § 707(b)(3) alleging the Debtors’ Chapter 7 filing is an abuse of the bankruptcy system.
Findings of Fact
Following an evidentiary hearing, the Court finds as follows: Debtor, “breadwinner” of his family, Mr. Sivaram age 65, holds a Ph.D. in biochemistry from Kent State University.
The day before Mr. Sivaram began working at Oragenics, January 4, 2015, the Debtors filed their voluntary Chapter 7 Petition without any accompanying Schedules.
It was not until after independent inquiry by the UST that the UST learned of Mr. Sivaram’s employment with Oragen-ics
The UST’s unrefuted evidence establishes that the Debtors’ disposable income, as reflected in their amended Schedules, is sufficient to fully repay all their unsecured creditors.
Discussion
In a Chapter 7 case,, the Court, after notice and a hearing, “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.”
The Motion to Dismiss alleges the Debtors’ financial situation demonstrates
Neither the Supreme Court nor the Third Circuit has ruled as to the meaning of “abuse” for purposes of § 707(b). However, other Circuit Courts have developed three distinct approaches in determining whether the circumstances of a case are demonstrative of abuse under this particular Bankruptcy Code provision. These three approaches all consider a debtor’s ability to repay her dischargeable debts, however, the approaches differ in the importance they give to this factor in the overall analysis. Accordingly, these views can be described as the “Per Se View,” the “Broad View,” and the “Hybrid View.”
Under the Per Se View, a finding that a debtor is able to repay his debts in the future, without more, is per se abusive of the bankruptcy process and, therefore, sufficient to dismiss that debtor’s Chapter 7 case under § 707(b)(3).
Finally, the Hybrid View “carves out .a position somewhere between the extremes of the Eighth and Ninth Circuits [the Per Se View], on the one hand, and the Fourth Circuit [the Broad View], on the other.”
The Court declines to adopt a particular view at this time because the outcome in this case would not be affected by that determination—the Debtors’ case would be dismissed under the Per Se View, the Broad View, or the Hybrid View. Under both the Per Se View and the Hybrid View the fact that the Debtors’ have disposable income available to repay their unsecured creditors in full is dispositive or sufficient, respectively, in determining whether the Debtors’ filing is an abuse of the Bankruptcy Code pursuant to § 707(b)(3). Accordingly, to illustrate the facts of the instant case would require dismissal under any articulated standard, the Court will apply the most lenient of the judicial approaches, the Broad View, which provides the Court with the greatest latitude for determining whether the Debtors’ Chapter 7 case constitutes an abuse of the Bankruptcy Code.
Under the Broad View, the Debtors’ financial ability to repay all of their creditors, alone, would not be dispositive or sufficient to dismiss the Debtors’ case pursuant to § 707(b)(3). However, the Debtors’ ability to repay their creditors along with their lack of candor throughout this case—as illustrated by the numerous failures to disclose information in their Schedules—may constitute an abuse of the Bankruptcy Code warranting dismissal pursuant to § 707(b)(3). The Court considers each of the Broad View factors in turn.
First, the Debtors have the ability to repay their creditors. The UST’s undisputed evidence illustrates that the Debtors’ disposable monthly income is sufficient to pay the entirety of the Debtors’ unsecured creditors
Second, the Court cannot determine whether the Debtors’ filing was due to sudden, unforeseen circumstances. The record is silent as to the specific circumstances that precipitated the Debtors’ bankruptcy filing. Accordingly, this factor neither weighs in favor of a finding of abuse nor against such a finding.
Third, the Debtors incurred debts in excess of their ability to repay. The Debtors’ initial Schedules themselves provide for a negative net income. Yet, while unable to pay their own bills, Mr. Sivaram testified that he supports his adult son
Fourth, the UST does not argue nor does the Court conclude that the Debtors’ family budget is excessive.
Fifth, the Debtors’ Schedules did not initially reflect their true financial condition. The Debtors’ Schedules were not filed until February 3, 2015. Mr, Sivaram testified that, in December of 2014, he would be working for Oragenics in January of 2015. Thus, the Debtors knew at the time of filing their Schedules that Mr. Sivaram was, in fact, employed and that the Debtors would be experiencing an increase in monthly income within a year of filing their case. The Schedules do not disclose any of these facts and these facts were' only disclosed after the UST inquired about them. The Debtors defend their decision to file a Chapter 7 case despite Mr. Sivaram’s new employment citing the Debtors’ age along with their assertion that Mr. Sivaram’s employment with Ora-genics is precarious—making Chapter 7, rather than Chapter 13, the more appropriate bankruptcy chapter for the Debtors’ situation. Although Mr. Sivaram testified that his employment at Oragenics is tenuous because Oragenics operates month-to-month,
Lastly, the Debtors’ petition was not filed in good faith. “Good faith” is generally examined under § 707(a) of the Bankruptcy Code and this standard is informative. “Although the Code does not define ‘good faith,’ courts in this circuit have uniformly held that ‘[a]t the very least, good faith requires a showing of honest intention.’ ”
The majority of factors weighs in favor of dismissal due to the Debtors’ abuse of the Bankruptcy Code provisions pursuant to § 707(b)(3): the Debtors can fully repay their unsecured creditors without any diminution in their own expenses and, therefore, are not in need of a Chapter 7 discharge; the Debtors voluntarily provide support to adult children rather than pay their creditors; the Debtors significantly and intentionally misrepresented their financial circumstances on their Schedules; and the Debtors intentional misrepresentations in their Schedules are indicative of a bad faith fifing.
Conclusion
The Debtors unquestionably have the ability to repay their creditors. Although the Court declines, in this instance, to find that the ability to repay, absent other factors, is sufficient to dismiss or even requires dismissal under 11 U.S.C. § 707(b)(3), the totality of the circumstances surrounding this case amounts to a substantial abuse of the Bankruptcy Code and dismissal is appropriate. An Order will be entered contemporaneously with this Memorandum Opinion.
. Doc. No. 30, the "Motion to Dismiss.”
. Doc. No. 32, the "Response.”
. This is a core matter pursuant to 28 U.S.C. § 157 and the Court will enter final judgment in this matter. Jurisdiction is appropriate pursuant to 28 U.S.C. § 1334(a).
. UST’s Ex. No. 11.
. UST’s Ex. No. 12 at 22—24.
. UST’s Ex. No. 11; Transcript of the November 8, 2016 Evidentiary Hearing (Doc. No. 81, the "Transcript”) at 19—25.
. UST’s Ex. No. 11.
. Transcript at 24—25.
. UST’s Ex, No. 12 at 7.
. UST’s Ex. No. 12 at 12.
. The UST and the Debtors use different numbers representing Mr. Sivaram’s annual income throughout their various pleadings ranging between $109,000.00 and $112,000.00. The fact the asserted amount of income varies slightly does not change the Court's analysis in any way.
. UST’s Ex. Nos. 15 and 16;Doc. No. 86.
. UST’s Ex. No. 2.
. UST's Ex. No. 3.
. UST’s Ex. No. 3 at 20—21.
. UST's Ex. No. 3 at 24.
. UST’s Ex. No. 3 at 21. Question No. 13 of Schedule "I” provides “Do you expect an increase or decrease within the year after you file this form?” The Debtors responded "No” by checking the corresponding box.
. UST’s Ex. No. 3 at 25.
. UST’s Ex. No. 4.
. UST’s Ex. No. 12 at 30.
. See Doc, Nos. 30 and 32, respectively,
. Doc. No. 34.
. UST’s Ex. No. 1.
. UST's Ex. No. 18.
. The UST’s accounting includes an additional indebtedness owed for Social Security overpayments in the amount of $22,488.00. See UST’s Ex. No. 18.
. The Trustee's calculations takes into consideration the Debtors’ opposition to the inclusion of any Social Security income in calculating their gross monthly income. See Doc. No. 92.
. UST's Ex. No. 16.
. 11 U.S.C. § 707(b)(1).
. 11 U.S.C. § 707(b)(3).
. See e.g., In re Jaramillo, 526 B.R. 404, 411 (Bankr. D.N.M. 2015); In re Mathis, 2012 WL 909517 at *3 (Bankr. N.D. Ohio March 16, 2012); In re Henebury, 361 B.R. 595, 607 (Bankr. S.D. Fla. 2007); In re Harshaw, 345 B.R. 518, 522 (Bankr. W.D. Pa. 2006); In re Belanger, 524 B.R. 634, 641 (Bankr. E.D. Pa. 2015); In re Richie, 353 B.R. 569, 575—576 (Bankr. E.D. Wis. 2006).
. Doc. No. 85.
. See In re Lamanna, 153 F.3d 1 (1st Cir. 1998); In re Kelly, 841 F.2d 908, 913 (9th Cir. 1988); In re Walton, 866 F.2d 981, 985 (8th Cir. 1989). '
. In re Green, 934 F.2d 568, 572 (4th Cir. 1991).
. Id.
. In re Harshaw, 345 B.R. 518, 523 (Bankr. W.D. Pa. 2006)(citing In re Krohn, 886 F.2d 123 (6th Cir. 1989)).
. In re Krohn, 886 F.2d at 126-127.
. Id.
. Id.
. The total amount owing to creditors includes an unliquidated and contingent unsecured claim that may be owed to the Social Security Administration for overpayment in the amount of $22,488,00, See UST’s Ex. No. 18.
. UST’s Ex. No. 18.
. See In re Green, 934 F.2d 568, 572 (4th Cir. 1991).
. Transcript at 30.
. Transcript at 52.
. Transcript at 55—56.
. Transcript at 47.
. In re Tamecki, 229 F.3d 205, 207 (3d Cir. 2000)(internal citations omitted)(explaining the standard for a showing of "good faith” under 11 U.S.C. § 707(a)).
.Schedule I specifically instructs debtors to ‘‘[e]stimate monthly income as of the date you file this form" (emphasis supplied). The Debtors’ income, as of the date they filed Schedule I, was not accurately reflected in Schedule I.
. In re Bacon, 212 B.R. 66, 76 (Bankr. E.D. Pa. 1997).
Reference
- Full Case Name
- IN RE: Mathoor SIVARAM and June Sivaram, Debtors. United States Trustee, Movant v. Mathoor Sivaram and June Sivaram
- Status
- Published