Document Type

Research Memorandum

Publication Date

2015

Abstract

(Excerpt)

Section 707 of the Bankruptcy Code governs when a court may dismiss a chapter 7 bankruptcy case. Under section 707(a), a court may dismiss a chapter 7 case “for cause.” In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) and amended section 707(b) to include the so-called “means test,” which provides a formula for determining whether “cause” exists to dismiss (or convert with the debtor’s consent) the debtor’s case. Courts split as to whether this amendment to section 707(b) permits a court to consider the debtor’s income when deciding whether to dismiss the debtor’s chapter 7 bankruptcy case under section 707(a). On one hand, the minority view, relying on Congressional intent, has held that a debtor’s ability to discharge debts with future income is irrelevant when determining a motion to dismiss under section 707(a). On the other hand, the majority of courts have that held that courts may consider a debtor’s income level and ability to repay creditors when determining a motion to dismiss under section 707(a), but those factors are not dispositive.

Practically, this split may not be meaningful for a high-income debtor, who will likely file under chapter 7 if such debtor can pass the means test, because the debtor’s income and ability to repay will, at most, be one of many factors a court considers. Therefore, this split may not be very significant for high-income debtors.

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