Much attention has focused on the "means testing" (1) provisions of Bankruptcy Code [section] 707(b)(2) (2) aimed at preventing consumer abuse of chapter 7 by debtors who could make a meaningful repayment of their debts in a chapter 13 case. (3) But less attention has focused on the particular provisions that granted expanded standing to bring a [section] 707(b) motion to dismiss. For the first time, the 2005 amendments gave all parties in interest (as opposed to only the court and the United States trustee) the ability to move for dismissal based on abuse. (4) This article examines how those amendments came about, and whether expanded standing has resulted in a meaningful new check on chapter 7 abuse. In Part I, I trace the legislative history of these amendments. In Part II, I look at how many creditors have brought motions to dismiss, the grounds asserted for dismissal, the types of creditors bringing the motions, and how the courts have ruled on their motions. In Part III, I set forth my views on why creditors do and do not seek dismissal and make further observations about the types of creditors who file motions to dismiss and where they file them. In the conclusion, I discuss the overall impact of the expanded standing provisions.
THE LEGISLATIVE PATH TO EXPANDED STANDING
The Bankruptcy Code has always permitted the bankruptcy judge to dismiss chapter 7 cases under certain circumstances. In the original Bankruptcy Code of 1978, Congress provided that any party in interest could bring a motion to dismiss a chapter 7 case and the bankruptcy court could grant it but "only for cause, including--(1) unreasonable delay by the debtor that is prejudicial to creditors; and (2) nonpayment of any fees and charges required under chapter 123 of title 28." (5) According to the legislative history of the provision, the debtor's ability to repay creditors did not constitute "cause" for dismissal. (6) As a result, in the early years of its existence, [section] 707 was rarely used in consumer cases, and when it was, it was almost always invoked by the debtor seeking to dismiss his or her own case. (7) When creditors or the trustee brought a motion to dismiss under [section] 707 in consumer cases, they invariably were unsuccessful. (8)
In the following sections, I discuss the legislative history of [section] 707(b) from its enactment in the Bankruptcy Amendments and Federal Judgeship Act of 1984, (9) its initial amendment in 1986 to expand standing to bring a motion to dismiss, and its subsequent amendment by the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 which expanded standing and changed the standard for dismissal.
The 1984 Amendments
Creditors had long hoped for the inclusion in the Bankruptcy Code of a provision that would force a consumer debtor out of chapter 7 and into a repayment plan under chapter 13 if the debtor had the ability to pay his or her debts. (10) For several years, bills were introduced in both the House and the Senate to amend the Bankruptcy Code to deny access to chapter 7 to debtors who had the means to pay their creditors in chapter 13. (11) These efforts were unsuccessful until Representative Rodino submitted H.R. 5174 in March 1984. (12) His bill proposed to amend [section] 707 to insert a new clause (b) that would read as follows:
(b) After notice and a hearing, the court, on its own motion and not at the request or suggestion of any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts if it finds that the granting of relief would be a substantial abuse of the provisions of this chapter. There shall be a presumption in favor of granting the relief requested by the debtor. (13) Although originally referred to the House Judiciary Committee, the Committee was later discharged and the bill came back to the floor for debate. It passed by voice vote on March 21, 1984. (14) The Senate made amendments to the bill and then passed it as amended. (15) Senator Metzenbaum made the only recorded comment in the Senate. He praised the elimination of any eligibility language for chapter 7 based on future income:
I also am extremely pleased that this bill prohibits creditors from filing motions attempting to deny bankruptcy relief to individuals because of substantial abuse. If a creditor asks a court to dismiss a case claiming that there has been substantial abuse of the [bankruptcy laws by the debtor,] the court would not be ... allowed to do so. Only a bankruptcy court, acting on its own initiative, could dismiss a case involving substantial abuse. This will preclude creditors from making bankruptcy too expensive for the debtor by filing harassing motions alleging substantial abuse. (16) A conference was held on the bill, and the conferees produced a report (17) that was later approved by both the House and Senate. (18) The conference suggested no further changes to the new [section] 707(b). (19) The bill, known as the Bankruptcy Amendments and Federal Judgeship Act of 1984, became law on July 10, 1984. (20)
First Expansion of Standing in 1986
Unsurprisingly, following the enactment of [section] 707(b) there were only a handful of instances in which the court on its own motion challenged the debtor's ability to remain in chapter 7 based on substantial abuse. Between October 8, 1984 (the effective date of the new law adding [section] 707(b)) (21) and November 27, 1986 (the effective date of the 1986 amendments to [section] 707(b) described below), (22) the court ordered the debtor to show cause why his or her chapter case should not be dismissed under the new [section] 707(b) in only twenty-eight reported decisions, nine of which were entered in the District of North Dakota. (23) In only thirteen of those decisions (four in the District of North Dakota) did the bankruptcy judge dismiss the case. (24) Two of those dismissals were reversed on appeal, both on the basis that the debtor did not have primarily consumer debts. (25)
Despite the low volume of challenges, Congress did not revisit [section] 707(b) until it was considering a more extensive revision of the Code in 1985 and 1986. At that time, three different constituencies were proposing amendments to the Code. First, some bill sponsors wished to provide for additional bankruptcy judges to address an increased volume of bankruptcy cases. (26) A second group sought to create a new chapter in the Bankruptcy Code to deal with the financial problems of family farmers. (27) And a third group sought to expand the appointment of United States trustees to serve in bankruptcy cases in districts throughout the United States. (28)
H.R. 5316, introduced by Representative Rodino, included both increased bankruptcy judgeships and an expanded United States trustee program. (29) The bill also proposed an amendment to [section] 707(b) to permit the United States trustee to bring a motion to dismiss a consumer debtor chapter 7 case for substantial abuse. (30) The bill was reported out of the House Judiciary Committee with no changes to the [section] 707(b) amendment. (31) The bill passed the House by voice vote and, after amendment in the Senate to add provisions relating to family farmers, went to conference where no further changes were made to the amendment. (32)
Several members of Congress spoke in favor of the conference report, and three specifically addressed the revisions to [section] 707(b). Representative Fish stated:
[Section 707(b)] was never intended to prevent a panel trustee or a U.S. trustee from bringing evidence or information pertaining to "substantial abuse" to the attention of the court. These individuals, after all, are the most likely persons to be familiar with those types of facts in these cases. The "party in interest" phrase in section 707(b) was intended to mean creditors--not panel trustees or U.S. trustees. ... That is why the conferees agreed to include language in section 707(b) making it clear that the U.S. trustee may move to dismiss based on substantial abuse. Although the U.S. trustee brings the motion under this new provision, the conferees recognize that panel trustees are in a unique position to become aware of abuses in the course of performing statutory duties. Consequently, the conferees anticipate that frequently panel trustees will appear in support of motions filed by the U.S. trustees under section 707(b) as amended. It is also my hope that the Executive Office for U.S. trustees will issue uniform guidelines to U.S. trustees and panel trustees for identifying cases of substantial abuse and making section 707(b) motions--and for panel trustees to bring evidence of fraud or abuse to the attention of the U.S. trustees. (33) Senator Hatch spoke in favor of the conference report on the floor of the Senate, saying with respect to the proposed amendment to [section] 707(b):
I have already indicated my concern over the precise wording of section 707(b) of the Bankruptcy Code. Several courts, primarily in Ohio, have taken the position that the bankruptcy trustee is technically "a party in interest" and may not bring evidence of abuse to the attention of the court. This was not the result we intended to achieve in the 1984 Bankruptcy Act. As a result of this conference bill, the U.S. trustee will have the opportunity to inform the court of fraud or abuse. This explicit authority will go a long way toward improving the current confusion and clarifying the real intent of the 1984 legislation. (34) He later added that he expected "that the Executive Office for U.S. Trustees will take all appropriate steps to facilitate close cooperation between the U.S. trustee and the panel trustees in these matters" to "ensure the ability of the U.S. trustee to carry out his statutory responsibilities under section 707(b)." (35)
Even though the proposed amendment only granted additional standing to the U.S...