Chapter 7 Liquidations. In 1987, Bank South repossessed and sold Jamie Lee Busbin's 1979 Ford LTD automobile. The price that the automobile brought at the sale was $1,450 short of the amount Busbin owed Bank South. Bank South obtained a deficiency

Question

judgment for the $1,450 and garnished Busbin's wages, collecting $896.46. Busbin filed a voluntary petition for a Chapter 7 bankruptcy discharge, listing Bank South's claim for $1,450 as his sole debt. Busbin told the court that he intended to file a complaint to recover the $896.46 Bank South had already collected on the ground that the sale had not been conducted so as to obtain the highest price for the car, but he offered no evidence to support his contention. Busbin showed that he had a monthly net income of $1,150, expenses of $970, and disposable income of $130 and that he expected an income tax refund of $500. A motion to dismiss Busbin's petition was filed, alleging that he had a present ability to pay his outstanding debts and that granting a discharge would be a substantial abuse of the provisions of Chapter 7. Will the court dismiss Busbin's petition? Explain.

Answer 1

Chapter 7 liquidations
The court dismissed Busbin's petition. The court concluded that the primary purpose for the "substantial abuse" provision of Chapter 7 was to provide for the dismissal of cases of debtors who can pay their debts from their excess disposable income. The court discussed "a long line of cases which uniformly hold that a debtor's ability to pay his debts defines substantial abuse." The court noted that Busbin's "excess disposable income would allow him to pay off the entire remaining balance due to Bank South in less than five months. [He] could pay the entire debt of $1,450 in less than twelve months." The court pointed out, however, that "while courts have focused on the debtor's ability to pay as the principal factor in determining substantial abuse, the courts have by no means focused on ability to pay as the sole factor." As in nonbankruptcy cases, a court can "dismiss a petition . . . that is filed with a lack of good faith or as an abuse of process." The court explained that "[w]hile it does not appear [Busbin's] statement of his monthly expenses is excessive, it likewise does not appear to be understated. [He] has offered no evidence of any recent calamity which would affect his ability to pay. . . . Thus, it does not appear that [he] is inflicted with ‘crushing debt burdens and severe financial problems' or even with debts he cannot pay. It is apparent [he] filed his Chapter 7 petition for the sole purpose of discharging a single debt which he does not wish to pay." This case was decided before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which provided a "means test" and other specific grounds to determine whether a petition constitutes substantial abuse. Under that act, however, the result in this case would likely have been the same.