11th Circuit: Abuse Test under §707(b) Applies where Debtor Initially filed under Chapter 13 but later Converted to Chapter 7

11th Circuit: Abuse Test under §707(b) Applies where Debtor Initially filed under Chapter 13 but later Converted to Chapter 7

Section 707(b) of the Bankruptcy Code allows a bankruptcy court to dismiss
a petition filed under Chapter 7 if it determines that relief would be an “abuse”
within the meaning of that section. 11 U.S.C. § 707(b). In this appeal from a
judgment of the United States District Court for the Southern District of Florida
(Martinez, J.), we consider whether § 707(b) applies to a petition that was initially
filed under Chapter 13 but later converted to a petition under Chapter 7.

In March 2011, the Debtor filed for bankruptcy relief under Chapter
13 of the Code. Under Chapter 13, a debtor such as this Debtor who aims to
restructure his debts may retain his assets but must submit a plan to repay his debts
over a three- to five-year period. The payments are generally made from the
debtor’s future earnings or income. See Harris v. Viegelahn, 135 S. Ct. 1829, 1835
(2015). The Debtor submitted a Chapter 13 repayment plan and made the required
payments for more than two years but then exercised his right under § 1307 of the
Code to convert his case to Chapter 7. 11 U.S.C. § 1307.

After the Debtor converted his petition, the U.S. Trustee moved to dismiss it as
abusive under § 707(b). The Trustee contended that the Debtor’s disposable income,
which far exceeded the means-test, would allow for a significant dividend to
unsecured creditors. The Debtor opposed the motion on the sole ground that § 707(b)
does not apply to petitions initially filed under Chapter 13 and later converted to
Chapter 7. He concedes that his petition fails to satisfy the means-test and
that his petition would be subject to dismissal as an abusive petition if § 707(b)
applied.

The bankruptcy court concluded that § 707(b) applied to converted cases
and dismissed the petition. The district court affirmed and this appeal followed.
Interpretations of the Code are questions of law that we review de novo.

The Debtor’s argument is textual. He points to the language of § 707(b) limiting it to “a case filed by an individual debtor under this chapter” and reads the phrase “under this chapter” as modifying the phrase “a case filed.” Because, he argues, his was not a “case filed . . . under this chapter [Chapter 7],” but rather was filed under Chapter 13, § 707(b) does not apply. The U.S. Trustee also makes a textual argument. He contends that “under this chapter” modifies the phrase to which it is immediately adjacent, “an individual debtor.” And, the argument goes, because the Debtor is an “individual debtor under [Chapter 7],” § 707(b) applies

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