UNITED STATES BANKRUPTCY JUDGE

____________________________________________________________

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS

MEMORANDUM OF DECISION

This matter is before the Court on the United States Trustee's motion to dismiss

the case under 11 U.S.C.A. § 707(b) because granting the debtor relief would be a

substantial abuse of Chapter 7 of the Bankruptcy Code. United States Trustee Mary E.

May appears by counsel Richard A. Wieland. Debtor Wolfgang Lee Willis appears by

counsel Christopher T. Fletcher. The Court has reviewed the relevant materials and is

now ready to rule.

The parties have submitted this matter to the Court for decision based on stipulated

facts. To gain a fuller understanding of the facts, the Court has also taken judicial notice

of the contents of the Schedules the Debtor signed under penalty of perjury and filed

along with his Chapter 7 bankruptcy petition.1 After considering the totality of the

circumstances of this case, the Court concludes that allowing the Debtor to obtain a

discharge of his debts in Chapter 7 would constitute a substantial abuse of the provisions

of that chapter, so his case must be dismissed.

FACTS

The Debtor filed a Chapter 7 bankruptcy petition on August 1, 2002. After the

meeting of creditors was held, the U.S. Trustee filed a timely motion to dismiss the case

as a substantial abuse of Chapter 7. At a pretrial conference in March 2003, the parties

indicated they would submit a pretrial order and then file summary judgment motions.

The pretrial order was submitted, and the Court signed and filed it in June 2003. That

order included various stipulations, but neither party filed a summary judgment motion.

The judge who had been presiding over the case later retired, and it was reassigned. At a

hearing in March 2004, the parties agreed to submit the matter for decision based on

stipulated facts. The stipulated facts they filed a short time later were practically identical

to those contained in the earlier pretrial order.

1See Fed. R. Evidence 201(b), (c), & (f); see also In re Applin, 108 B.R. 253, 257-58 (Bankr. E.D. Cal. 1989) (judicial notice of basic filings in bankruptcy case is permissible to fill gaps in evidentiary record of specific adversary proceeding or contested matter).

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The Debtor admits that the debts he reported on the Schedules he filed with his

Chapter 7 petition are primarily consumer debts, thus conceding that one of the

requirements for dismissal under § 707(b) is met. He listed two secured debts in his

Schedules, both involving liens on automobiles. But he also noted that one of the cars

was in his ex-wife's possession, presumably having been awarded to her in their divorce.

So far as the Debtor's interest is concerned, then, the $18,896.29 debt secured by that car

is effectively unsecured. He reported the amount owed on his own car was $6,000. The

Debtor listed $21,395.41 in liquidated unsecured debts; all but about $80 of these debts

were incurred through credit card charges and a personal loan. He also listed the amounts

of two debts as unknown. Both of these had been secured debts but the vehicles securing

them had been repossessed, and so far as he knew, the Debtor might owe deficiencies on

them. He reported that the vehicles had been worth $8,000 and $5,000 when they were

repossessed.

On Schedule I, the Debtor reported that he was divorced, had one nine-year-old

dependent, and had net monthly income of $2,816.95. The Court notes that he reported

$141.01 per month in child support on this Schedule as a deduction from his gross pay.

The Debtor had been in the same job for six years when he filed his bankruptcy petition,

and his annual income was between $45,000 and $50,000 in 2000 and 2001. His income

for the first seven months of 2002 was averaging about $1,000 less per month than his

2001 monthly average, but he has not suggested this decrease caused him to file for

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bankruptcy, or even that he expected his 2002 income to be less than his 2001 income had

been. Perhaps he has received substantial bonuses in the second half of the year in the

past and expected to again in 2002. In any event, absent some assertion by the Debtor

that his income has in fact decreased, the Court must assume he expects his income to

remain stable.

On Schedule J, the Debtor reported the following expenses:

Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 600.00 
Utilities:

Electricity and heating fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 140.00 
Water and sewer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30.00 
Telephone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35.00

Home maintenance (repairs and upkeep) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30.00 
Food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 230.00 
Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100.00 
Laundry and dry cleaning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40.00 
Medical and dental expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100.00 
Transportation (not including car payments) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 140.00 
Recreation, clubs and entertainment, newspapers, magazines, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40.00 
Insurance (not deducted from wages or included in home mortgage payments)

Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 74.00 
Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100.00

Taxes (not deducted from wages or included in home mortgage payments)

(Specify) Personal Property Tax . . . . . . . . . . . . . $ 25.00 
Installment payments: (In chapter 12 and 13 cases, do not list payments to be included in the plan)

Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 285.00 
Other Auto Loan . . . . . . . . . . . . $ 435.00 
Other Auto Loan . . . . . . . . . . . . $ 144.00 
Other Personal Loan . . . . . . . . . . . . $ 190.00

Other Grooming and Cigarettes___ . . . . . . . . . . . . . $ 140.00
          TOTAL MONTHLY EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $ 2,878.00

None of these expenses appear to be unusually small. The Debtor reported no expenses

for renter's or life insurance, or for charitable contributions, but many people choose not

to spend their money on such items. Nothing else about the Debtor's budget suggests that

his expenses might have been understated. So Schedules I and J indicated the Debtor had

a monthly budget deficit of $61.05.

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In the motion to dismiss filed in October 2002, the U.S. Trustee indicated concern

about the three car payments the Debtor had listed among his expenses. Although this

was not made explicit in the motion, presumably the U.S. Trustee meant to suggest that a

single person with a nine-year-old child should need only one car, so the Debtor could

easily reduce his expenses by giving up two of the car payments. In fact, at least by June

2003, the Debtor stipulated that he was making payments on only one of the three auto

loans he had listed, the one for $285, so his monthly expenses were reduced by $579, the

sum of the other two. In addition, the U.S. Trustee expressed concern about the personal

loan. Nothing in the file indicates the Debtor has made any effort to reaffirm his

obligation on the unsecured personal loan on which he reported he was making monthly

payments of $190. There is seldom any good reason for a debtor to reaffirm such a debt.

If he were allowed to obtain a Chapter 7 discharge, then, the Debtor would no longer be

obliged to make that payment, reducing his expenses by another $190. When the extra

car payments and the personal loan payment are eliminated, the Debtor's budget shows a

surplus of $707.95, rather than a deficit.

If the Debtor were to devote $650 of this surplus to a Chapter 13 plan for the

minimum permitted term, 36 months, he could pay $23,400 toward his debts. Because

the Debtor stopped paying the car loans other than the one on his own car and nothing in

the file indicates that his ex-wife or the creditor secured by the car in her possession has

complained about his failure to make payments on that car loan, the Court assumes the

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Debtor would have no need to treat his ex-wife or that creditor as a secured creditor under

a Chapter 13 plan. The trustee's fee is currently 8%, which would consume $1,872 of the

Debtor's payments of $23,400. The Debtor reported that he owed $6,000 on his car, and

he would undoubtedly choose to repay that debt in any plan he might propose. This

would leave $15,528 to be distributed to his unsecured creditors, enough to pay about

72.5% of the total owed on the unsecured claims for which he reported an amount due.

Even if he somehow could be required to add the full amount of the debt secured by his

ex-wife's car to the other unsecured debts to receive distributions under his plan, the

hypothetical $650 per month would pay about 38.5% of those debts in three years.

Without authentication or explanation, the parties attached to their stipulation a

copy of a letter that the Debtor's attorney apparently sent to the U.S. Trustee three weeks

before the Trustee filed her motion to dismiss. The main thrust of the letter seems to be

an effort to explain why the Debtor included the three car loans in the monthly expenses

he reported in his Schedules. In essence, it says that before he filed his bankruptcy

petition, the Debtor allowed a creditor to repossess more than one vehicle (the letter refers

to them in the plural but does not otherwise indicate how many were involved), but left

the monthly payments for those vehicles in his reported expenses because he thought he

should until he heard from the creditor about the sale of the vehicles. The letter appears

to be referring to the two repossessed vehicles the Debtor had reported in his Schedules.

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In short, the Debtor has stipulated that he had over $700 per month more in net

income than expenses, apparently even as of the day he filed for bankruptcy. The Debtor

never filed a response to the Trustee's motion to dismiss. The only defense the Debtor

stated in the pretrial order is nothing more than the bare assertion that, under the totality

of the circumstances, his filing did not constitute a substantial abuse of the provisions of

Chapter 7. He has not suggested that his bankruptcy filing was precipitated by any

emergency, such as unemployment or a sudden illness. He has submitted nothing to

explain why he did not file a Chapter 13 reorganization instead of a Chapter 7 liquidation.

DISCUSSION

The U.S. Trustee asks for dismissal of this case pursuant to § 707(b), which

authorizes the Court to dismiss a Chapter 7 bankruptcy case “if it finds that the granting

of relief would be a substantial abuse of the provisions of this chapter.”2 However, the

Court must keep in mind that “[t]here shall be a presumption in favor of granting the

relief requested by the debtor.”3 Congress provided no definition of “substantial abuse,”

but the Tenth Circuit addressed its meaning a few years ago in In re Stewart.4 The Circuit

reviewed decisions by other circuit courts, and ultimately said:

After careful consideration, we adopt the “totality of the circumstances”

standard. While we agree ability to pay is a primary factor in determining whether “substantial abuse” occurred, we believe other relevant or contributing factors,

such as unique hardships, must also be examined before dismissing a Chapter 7 petition. Conversely, where an inability to pay exists, we believe other factors may nevertheless establish substantial abuse. We recognize the factors articulated by other courts as instructive, but conclude they are not inclusive of all factors considered. A substantial-abuse analysis must be made on a case-by-case basis.5

The Circuit also referred to a variety of factors identified by other courts that can affect

the substantial abuse analysis, indicating that they could be helpful, though not exclusive

or determinative. In addition to ability to pay, these include: (1) sudden illness, calamity,

disability, or unemployment; (2) cash advances and consumer purchases far in excess of

ability to pay; (3) excessive or unreasonable family budget; (4) accurate reflection of

financial condition in the debtor's Schedules; (5) the debtor's good faith; (6) the stability

of the debtor's income; (7) the debtor's eligibility for Chapter 13 relief; (8) the

availability of state remedies to ease the debtor's financial predicament; (9) the degree of

relief the debtor could obtain through private negotiation; and (10) the possibility of

significantly reducing the debtor's expenses without depriving him or her of necessities

such as adequate food, clothing, and shelter.6

The Debtor's employment and income appear to be stable and, with the

elimination of the extra car payments and the personal loan payment, expense reductions

that would not deprive him of any necessities, his income is clearly sufficient to pay his

living expenses as well as a substantial portion of his unsecured prepetition debts over the

5Id. at 809.

6Id. at 809.

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minimum three-year term of a Chapter 13 plan. The Debtor has not suggested that any

kind of emergency forced him to file for bankruptcy. He appears to satisfy the eligibility

requirements for Chapter 13 because he lives in the United States, his income is regular,

his reported debts are well within the Chapter 13 debt limits, and there is no indication

that a prior bankruptcy filing made him ineligible at the time he filed his bankruptcy

petition.7 The Debtor has not argued that any specific facet of his circumstances might be

construed to suggest that granting him a discharge would not be a substantial abuse of the

provisions of Chapter 7, and the Court is not willing to construct an argument for him.

CONCLUSION

After carefully considering all the circumstances that have been presented, the

Court is forced to conclude that granting relief in this case would be a substantial abuse of

Chapter 7, so the case must be dismissed as required by § 707(b).

The foregoing constitutes Findings of Fact and Conclusions of Law under Rules

7052 and 9014(c) of the Federal Rules of Bankruptcy Procedure and Rule 52(a) of the

Federal Rules of Civil Procedure. A judgment based on this ruling will be entered on a

separate document as required by FRBP 9021 and FRCP 58.

# # #

\

7See 11 U.S.C.A. § 109(a), (e), & (g).

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CERTIFICATE OF SERVICE

The undersigned hereby certifies that true and correct copies of the above

MEMORANDUM OF DECISION were mailed via regular U.S. mail, postage prepaid, on 
the _____ day of November, 2004 to the following:

Richard A. Wieland

Assistant U.S. Trustee

301 N. Main, Ste. 500

Wichita, KS 67202

Attorney for US Trustee, Mary E. May

Christopher T. Fletcher

Attorney at Law

8650 W. 95th St., Ste. 1

Overland Park, KS 66212

Attorney for Debtor

Carl R. Clark

Lentz & Clark

PO Box 12167

Overland Park, KS 66282

Chapter 7 Trustee

/s/ Vicki Jacobsen Vicki Jacobsen

Judicial Assistant

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