                                                                                                                           Opinions of the United
2007 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


8-3-2007

In re: Steven Perlin
Precedential or Non-Precedential: Precedential

Docket No. 06-3199




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                                        PRECEDENTIAL

          UNITED STATES COURT OF APPEALS
               FOR THE THIRD CIRCUIT


                         No. 06-3199


             IN RE: STEVEN JEFFREY PERLIN;
                 CRISTINE ANN PERLIN,

                                               Debtors
                              v.

           HITACHI CAPITAL AMERICA CORP.,

                                               Appellant


      On Appeal from the United States Bankruptcy Court
           for the Middle District of Pennsylvania
            (D.C. Bankruptcy No. 06-bk-50033)
          Bankruptcy Judge: Hon. John J. Thomas


                    Argued April 12, 2007

       BEFORE: SMITH and COWEN, Circuit Judges
              and YOHN*, District Judge

                    (Filed August 3, 2007)




*Honorable William H. Yohn Jr., Senior United States District
Judge for the Eastern District of Pennsylvania, sitting by
designation.


                               1
Simon Kimmelman, Esq. (Argued)
Sterns & Weinroth
50 West State Street, Suite 1400
P.O. Box 1298
Trenton, NJ 08607-1298

Counsel for Appellant Hitachi Capital
  America Corp.

Isaac J. Lidsky, Esq. (Argued)
United States Department of Justice
Civil Division
950 Pennsylvania Avenue, N.W.
Washington, DC 20530

Counsel for Amicus-Appellant
 United States Trustee

Paul J. Winterhalter, Esq. (Argued)
1818 Market Street, Suite 3520
Philadelphia, PA 19103

Counsel for Appellees Steven Jeffrey Perlin
 and Cristine Ann Perlin



                           OPINION


COWEN, Circuit Judge.

        Hitachi Capital America Corporation (“Hitachi”) appeals
from the Bankruptcy Court’s order denying its motion to dismiss
the voluntary joint bankruptcy petition filed by Steven J. Perlin
and Cristine A. Perlin under Chapter 7 of the Bankruptcy Code.
Hitachi sought dismissal of the petition under 11 U.S.C. §
707(a), on the ground that the Perlins had filed the petition in
bad faith. The Bankruptcy Court denied Hitachi’s motion,
reasoning that the Perlins had been truthful with the court and
their creditors and had not engaged in the kind of manipulative

                                2
conduct at issue in In re Tamecki, 229 F.3d 205 (3d Cir. 2000).
In considering the motion to dismiss, however, the Bankruptcy
Court refused to consider the Perlins’s substantial income and
expenses as evidence of bad faith. The Bankruptcy Court
reasoned that the negative implication of the substantial
modifications made to section 707(b) by the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005 (“BAPCPA”
or “the 2005 Act”), Pub. L. No. 109-8, § 102, 119 Stat. 23
(2005), which created a presumption of abuse against debtors
having primarily consumer debts who have sufficient income to
repay their debts, is that a bankruptcy court may not consider a
debtor’s income and expenses in deciding a motion to dismiss
brought under section 707(a).

       In this appeal, which the Bankruptcy Court certified
directly to us pursuant to 28 U.S.C. § 158(d)(2)(B), Hitachi
challenges the Bankruptcy Court’s refusal to consider the
Perlins’s high income and expenses in assessing good faith. As
explained more fully below, we hold that in adjudicating a
motion to dismiss asserting bad faith under 11 U.S.C. § 707(a), it
is within the sound discretion of the bankruptcy court to consider
a debtor’s monthly income and expenses together with any other
factors relevant to a debtor’s good faith in filing for bankruptcy.
Nevertheless, because we conclude that the facts and
circumstances of this case do not support a finding of bad faith,
we will affirm the Bankruptcy Court’s order denying Hitachi’s
motion to dismiss.

                                I.

        Dr. Steven J. Perlin is a licensed radiologist. In recent
years, working only part-time, he has earned an annual income
of approximately $370,000. At all relevant times, Dr. Perlin’s
wife, Cristine A. Perlin, owned and operated Centre Medical
Imaging, LLC (“CMI”), the medical imaging company where
Dr. Perlin practiced. Together, the Perlins expended a
considerable amount of money on certain luxury items, such as
two Lexus automobiles and private school tuition totaling $5,000
per month. In addition, they have saved more than $430,000 for
their retirement.


                                3
       In July of 2004, three months before CMI’s opening, CMI
entered into a lease agreement (“Lease”) with Hitachi, whereby
Hitachi leased to CMI medical diagnostic equipment and other
property in exchange for the payment of rent. Dr. and Mrs.
Perlin executed a personal guaranty (“Guaranty”) in favor of
Hitachi, whereby they agreed to guarantee CMI’s obligations
under the Lease subject to a limit of $1,271,588.00.

       Under the Lease, CMI’s payments were due on a
graduated payment schedule. Under that schedule, CMI’s
monthly payments ranged from $2,000 in the first few months of
the schedule to $70,000 beginning with the seventh month and
continuing through the end of the Lease.

        For the first six months of the schedule, CMI met its
payment obligations in accordance with the terms of the Lease.
During that time, however, CMI began experiencing financial
difficulties. It failed to meet its own income projections and
failed to pay Dr. Perlin a salary. Beginning with the seventh
month and forward, CMI failed to generate sufficient cash flow
to make the payments due under the Lease.

       In February of 2005, CMI engaged a medical imaging
consultant to reevaluate the income potential of the business.
The consultant determined that the original income projections
were flawed. Around the same time, CMI asked Hitachi to
renegotiate the payment terms of the Lease on two separate
occasions. Hitachi refused to do so.

       In June of 2005, Hitachi advised CMI by letter that it had
defaulted under the terms of the Lease by failing to make the
payments due. After an agreed-upon period of forbearance,
Hitachi demanded that CMI pay the full amount of the
indebtedness under the Lease and that the Perlins pay the full
amount of the Guaranty limit. CMI and the Perlins failed to pay
the amounts owed.

       On or about August 2, 2005, Hitachi filed suit against the
Perlins and other defendants seeking repossession of the leased
equipment and damages. Soon thereafter, the Perlins filed an
answer to the complaint. On or about January 13, 2006, Hitachi

                                4
filed a motion for default judgment against CMI. Days later, this
bankruptcy case ensued.

                                II.

        On January 19, 2006, the Perlins filed a voluntary joint
petition under Chapter 7 of the Bankruptcy Code, seeking
discharge of their obligation under the Guaranty, which stayed
the litigation against them. In response to the petition, Hitachi
filed a motion to dismiss under 11 U.S.C. § 707(a), alleging that
the Perlins had filed the petition in bad faith. Hitachi claimed
that the following factors supported a finding of bad faith: (1)
the Perlins had submitted allegedly misleading schedules to the
court; (2) they had timed the filing of their bankruptcy petition
around Hitachi’s exercise of its legal rights against them; (3)
they had artificially inflated their expenses in order to insulate
their substantial income; (4) they enjoyed a substantial annual
income and a lavish lifestyle, which included two luxury
automobiles, private school tuition, and substantial retirement
savings; and (5) they failed to make a good faith effort to repay
Hitachi as an alternative to seeking discharge.

        The Bankruptcy Court heard evidence and argument of
counsel on Hitachi’s motion to dismiss. Applying the Tamecki
framework, the Bankruptcy Court found that Hitachi had
presented sufficient information to shift the burden to the Perlins
to prove that their petition was brought in good faith. Upon
hearing testimony from the Perlins, the Bankruptcy Court
concluded that the Perlins had met their burden of proving good
faith and, therefore, denied the motion to dismiss.

        In reaching its conclusion, the Bankruptcy Court reasoned
that the Perlins had been “straightforward in their schedules,”
App. at 104, and “forthcoming with the Court and their
creditors,” id. at 107. The Bankruptcy Court found that the
Perlins’s substantial expenses were “[a]ctual, but inflated.” Id.
In addition, the Bankruptcy Court found that this case was
distinguishable from Tamecki, where the debtor had manipulated
the timing of his filing of his petition. The Bankruptcy Court
observed that it “d[id]n’t see Tamecki factors here,” id. at 108,
and “d[id]n’t see a manipulation,” id.

                                 5
        With regard to the Perlins’s substantial income and
expenses, the Bankruptcy Court opined that based upon the
legislative history to section 707(a) and our comments in
Tamecki, a debtor’s ability to repay is not, in and of itself,
sufficient to support a bad faith finding. Moreover, going one
step further, the Bankruptcy Court suggested that as a result of
the recent amendments to section 707(b) made by BAPCPA, a
bankruptcy court is now precluded from giving any
consideration to a debtor’s income and expenses in deciding a
motion to dismiss brought under subsection (a) of section 707.
Relying upon a theory of negative implication, the Bankruptcy
Court opined that the newly-created presumption of abuse under
section 707(b), which arises when a consumer debtor meets a
specified income/expense test, excludes the possibility that a
debtor’s ability to repay may be considered under section 707(a).
In assessing good faith, therefore, the Bankruptcy Court did not
consider the Perlins’s substantial income and high expenses.

        Upon certification of the Bankruptcy Court, this Court
granted Hitachi’s petition, pursuant to 28 U.S.C. § 158(d)(2)(A),
to appeal the Bankruptcy Court’s order denying Hitachi’s motion
to dismiss as to the following issue: “Whether, in deciding a
motion to dismiss for cause under 11 U.S.C. § 707(a), a
bankruptcy court is prohibited from considering a debtor’s
monthly income and expenses when assessing a debtor’s good
faith in filing a bankruptcy petition.”

                                III.

        Section 707(a) provides, in pertinent part, that “[t]he court
may dismiss a case under this chapter only after notice and a
hearing and only for cause,” and provides three non-exclusive
examples of “cause” warranting dismissal. 11 U.S.C. § 707(a).
Although a debtor’s lack of good faith is not mentioned in the
statute, in Tamecki, we held that a debtor’s lack of good faith in
filing a bankruptcy petition is a proper cause for dismissal under
section 707(a). 229 F.3d at 207. Here, the Bankruptcy Court
has certified the question of whether in assessing good faith
under section 707(a), a bankruptcy court may consider a debtor’s
income and expenses, to which we turn below.


                                 6
                               A.

       The first issue we must decide is whether the newly-
added provisions in section 707(b), which create a presumption
of abuse against consumer debtors who have an ability to repay,
imply that a bankruptcy court may not consider a debtor’s
income and expenses in adjudicating a motion to dismiss under
section 707(a). Because the canon of negative implication does
not apply in this case, as explained below, we conclude that the
new provisions of section 707(b) do not impliedly prohibit a
bankruptcy court from considering a debtor’s income and
expenses under section 707(a).

        The principle that the enumeration of one case excludes
another is a canon of statutory interpretation. The canon applies
only when the expressed and unmentioned items are part of a
“commonly associated group or series,” United States v. Vonn,
535 U.S. 55, 65 (2002), “justifying the inference that items not
mentioned were excluded by deliberate choice, not
inadvertence.” Barnhart v. Peabody Coal Co., 537 U.S. 149,
168 (2003). In other words, the expressed item and the
unmentioned item should be understood to go “hand in hand,”
thus supporting a sensible inference that Congress must have
meant to exclude the unmentioned item. Id. (citation and
internal quotation marks omitted). The canon is “only a guide,
whose fallibility can be shown by contrary indications that
adopting a particular rule or statute was probably not meant to
signal any exclusion of its common relatives.” Vonn, 535 U.S.
at 65; see Burns v. United States, 501 U.S. 129, 136 (1991) (“An
inference drawn from congressional silence certainly cannot be
credited when it is contrary to all other textual and contextual
evidence of congressional intent.”).

       By virtue of the 2005 Act, Congress enacted an
income/expense test for consumer filings under section 707(b),
and in doing so, has expressed a clear intention to permit
bankruptcy courts to consider a consumer debtor’s income and
expenses in deciding a motion to dismiss under that subsection.
Congress has not created an income/expense test for filings
under section 707(a). The Bankruptcy Court suggested that
Congress’s singular expression of an intention to authorize

                                7
bankruptcy courts to consider income and expenses under
section 707(b) justifies the inference Congress did not intend for
bankruptcy courts to consider income and expenses under
section 707(a). As explained below, such an inference cannot be
made because Congress has not treated consumer filings under
section 707(b) and consumer/non-consumer filings under section
707(a) as part of a “commonly associated group or series.”
Vonn, 535 U.S. at 65.

       As an initial matter, two separate subsections govern the
dismissal of bankruptcy petitions filed under Chapter 7:
subsection (a) governs the dismissal of all bankruptcy filings,
when adequate “cause” has been shown, and subsection (b)
governs the dismissal of only those bankruptcy filings involving
primarily consumer debts, when granting relief would be an
“abuse” of Chapter 7. 11 U.S.C. § 707(a), (b). As indicated
below, Congress codified these two subsections at different
times and for different reasons.

        Subsection (a) was enacted first, as part of the Bankruptcy
Reform Act of 1978 (the “1978 Act”). At that time, there was
no analogous provision to what is now subsection (b), relating
only to consumer filings. See In re Padilla, 222 F.3d 1184, 1194
(9th Cir. 2000); Pub. L. No. 95-598, 92 Stat. 2549 (codified as
amended at 11 U.S.C. § 707(a)). It was not until six years later
that Congress added subsection (b) through the Bankruptcy
Amendments and Federal Judgeship Act of 1984 (“the 1984
Act”). Pub. L. No. 98-353, 98 Stat. 333 (codified as amended at
11 U.S.C. § 707(b)). Moreover, unlike subsection (a),
subsection (b) was enacted as part of a package of consumer
credit amendments in response to perceived abuses by consumer
filers. See 6 Collier on Bankruptcy, ¶ 707.LH[2] (Matthew
Bender 15th ed., rev. 2006); see also S. Rep. No. 98-65 (1983)
(observing that there had been a dramatic increase in the number
of consumer bankruptcy case filings since the enactment of the
1978 Bankruptcy Act). Hence, from a historical perspective,
Congress has treated consumer filings under section 707(b) and
consumer/non-consumer filings under section 707(a) differently,
not as part of a package or “commonly associated group or
series.” Vonn, 535 U.S. at 65.


                                8
       Furthermore, the legislative history to the 2005 Act does
not indicate that the modifications to section 707(b) imply
anything about the dismissal of bankruptcy cases under section
707(a). As stated in the House report, the amendments were
intended to “respond to many of the factors contributing to the
increase in consumer bankruptcy filings, such as lack of personal
financial accountability, the proliferation of serial filings, and the
absence of effective oversight to eliminate abuse in the system.”
H.R. Rep. No. 109-31, at 2 (2005), as reprinted in 2005
U.S.C.C.A.N. 88, 89 (emphasis added). The amendments to
section 707(b) effectively tightened the dismissal procedures for
consumer filings. There is no indication that Congress intended,
contrarily, to restrict a bankruptcy court’s discretion in deciding
motions to dismiss under section 707(a).

        In summary, we conclude that Congress would not have
considered its treatment of dismissal procedures for consumer
filings under section 707(b) “to go hand in hand” with the
dismissal provisions under section 707(a). See Peabody Coal,
537 U.S. at 168 (citation and internal quotation marks omitted).
As a result, we conclude that Congress’s adoption of an
income/expense test applicable to consumer filings under section
707(b) was not meant to signal any exclusion of income-and-
expense factors from a bankruptcy court’s consideration of
motions to dismiss under section 707(a).

                                 B.

       Having concluded that the 2005 Act amendments to
section 707(b) do not, by negative implication, preclude a
bankruptcy court from considering income-and-expense factors
in deciding whether to dismiss a bankruptcy petition under
section 707(a), there remains the more salient question of
whether consideration of income-and-expense factors is
consonant with section 707(a) itself, as informed by our
precedent and the legislative history.

       Hitachi asserts that in deciding whether to dismiss a
bankruptcy petition for lack of good faith under section 707(a), a
bankruptcy court should consider a debtor’s ability to repay his
debts. Specifically, Hitachi contends that a bankruptcy court

                                  9
should consider whether a debtor has substantial income or
maintains a lavish lifestyle entailing excessive and continued
expenditures, the adjustment of which would result in a
substantial amount of net discretionary income. Hitachi posits
that a debtor who has an ability to repay his debts is not the
“honest but unfortunate debtor” that the Bankruptcy Code was
intended to protect. In response, the Perlins contend that the
legislative history to section 707(a) makes clear that in deciding
whether to dismiss a petition for cause, a bankruptcy court may
not consider a debtor’s ability to repay his debts. For the reasons
stated below, we hold that, in deciding a motion to dismiss under
section 707(a), a bankruptcy court may consider a debtor’s
substantial income and expenses together with other factors in
assessing good faith.

        In answering a question of statutory interpretation, we
normally begin with the statutory language, but because section
707(a) does not touch on the question presented, we will begin
our analysis by looking to the legislative history to discern
congressional intent. See United States v. Gregg, 226 F.3d 253,
257 (3d Cir. 2000) (“Where the statutory language does not
express Congress’s intent unequivocally, a court traditionally
refers to the legislative history and the atmosphere in which the
statute was enacted in an attempt to determine the congressional
purpose.”). Here, the House and Senate committee reports
indicate that Congress did not intend for a debtor’s ability to
repay his debts to be adequate cause for dismissal of a
bankruptcy petition:

       The section does not contemplate, however, that the
       ability of the debtor to repay his debts in whole or in
       part constitutes adequate cause for dismissal. To
       permit dismissal on that ground would be to enact a
       non-uniform mandatory chapter 13, in lieu of the
       remedy of bankruptcy.

H.R. Rep. No. 95-595, at 380 (1977), as reprinted in 1978
U.S.C.C.A.N. 5963, 6336; S. Rep. No. 95-989, at 94 (1978), as
reprinted in 1978 U.S.C.C.A.N. 5787, 5880. As in Tamecki, we
read the legislative history to mean that a debtor’s ability to
repay his debts out of disposable income is not a sufficient

                                 10
reason to dismiss a bankruptcy petition under section 707(a). As
stated by one court, “[i]t is difficult to contemplate how
Congress could more emphatically have stated that the debtor’s
net worth or future prospects is not ‘cause’ as the word is used in
Section 707 for dismissal.” In re Goulding, 79 B.R. 874, 876
(Bankr. W.D. Mo. 1987).

        While the legislative history makes clear that a debtor’s
ability to repay his debts is inadequate cause for dismissal, we do
not read the history as prohibiting a bankruptcy court from
considering a debtor’s substantial income and expenses in
determining whether the debtor filed his bankruptcy petition in
good faith. The legislative history establishes only that a
debtor’s ability to repay is an invalid cause for dismissal. It does
not indicate that a bankruptcy court must ignore the economic
reality of a debtor’s financial situation in determining whether a
valid cause for dismissal exists.

        As with the legislative history, we do not read our
precedents as prohibiting a bankruptcy court from considering a
debtor’s income and expenses as part of a good faith analysis.
As noted above, in Tamecki, we held that a debtor’s lack of good
faith in filing a bankruptcy petition is a proper cause for
dismissal under section 707(a). 229 F.3d at 207. Although we
stated that a debtor’s “ability to repay is not in and of itself
sufficient proof of bad faith,” id. at 208, we did not rule out the
possibility that a debtor’s income may be considered as part of a
good faith analysis. Rather, we instructed that courts should
assess a debtor’s good faith on an “ad hoc basis,” considering the
“honest intention” of the debtor and “whether the debtor has
abused the provisions, purpose, or spirit of bankruptcy law.” Id.
at 207. Moreover, we emphasized that the good-faith
determination rests within the sound discretion of the bankruptcy
court. Id.

       Our non-restrictive approach in Tamecki reflects the fact-
intensive nature of the good-faith inquiry. An assessment of a
debtor’s good faith requires consideration of all of the facts and
circumstances surrounding the debtor’s filing for bankruptcy.
See In re Integrated Telecom Express, Inc., 384 F.3d 108, 118
(3d Cir. 2004) (Chapter 11 case) (“Whether the good faith

                                11
requirement has been satisfied is a ‘fact intensive inquiry’ in
which the court must examine ‘the totality of facts and
circumstances’ and determine where a ‘petition falls along the
spectrum ranging from the clearly acceptable to the patently
abusive.’” (citation and internal quotation marks omitted)).
Indeed, “[t]he facts required to mandate dismissal based upon a
lack of good faith are as varied as the number of cases.” In re
Bingham, 68 B.R. 933, 935 (Bankr. M.D. Pa. 1987).

        Of course, a bankruptcy court’s discretion in making a
good-faith determination is not without limitations. In Tamecki,
we acknowledged certain limitations on that discretion. First,
we noted that a finding of lack of good faith “should not [be]
lightly infer[red].” 229 F.3d at 208. Second, we cautioned that
dismissal should be “confined carefully” and utilized only in
“egregious cases that entail concealed or misrepresented assets
and/or sources of income, lavish lifestyles, and intention to avoid
a large single debt based upon conduct akin to fraud, misconduct
or gross negligence.” Id. (quoting In re Zick, 931 F.2d 1124,
1129 (6th Cir. 1991)); see also 229 F.3d at 209 (“[B]ankruptcy
and district courts have reserved bad faith dismissal for the truly
egregious case, often involving individuals with substantial
means who have flaunted their wealth, have continued their
lavish lifestyles, and are engaging in creative, elaborate schemes
to conceal their assets and cheat their creditors or to otherwise
inflict harm on third parties.”) (Rendell, J., dissenting). But
other than delineating these general limitations, we were careful
not to restrict the bankruptcy court’s discretion.

        So too in this case, we favor an approach to the certified
question that does not restrict a bankruptcy court’s consideration
of entire categories of facts and circumstances in a case, which
restriction could lead to a skewed good-faith analysis. At the
same time, however, to avoid undercutting congressional intent
as expressed in the legislative history to section 707(a), we
believe that articulation of some parameters to guide a
bankruptcy court’s consideration of income-and-expense factors
is entirely appropriate.

      As an initial matter, there are certain situations in which a
bankruptcy court’s consideration of income-and-expense factors

                                12
do not implicate the concerns Congress expressed in the
legislative history. One such example is where the bankruptcy
court considers evidence that the debtor “concealed or
misrepresented assets and/or sources of income.” Tamecki, 229
F.3d at 207 (internal quotation marks omitted); see In re Marks,
174 B.R. 37, 41 (E.D. Pa. 1994) (“Most instances of dismissal
for bad faith filing under § 707(a) involve concealment,
misrepresentation, or unexplained transfers to place assets
beyond the reach of creditors.” (citing cases)); see also In re
Brown, 88 B.R. 280, 284 (Bankr. D. Hawaii 1988) (finding a
lack of good faith where the debtor earned a substantial income
and transferred the profits of his medical practice to avoid
paying a malpractice judgment). Another example is where a
creditor raises allegations that the debtor has artificially inflated
expenses to disguise a state of financial well-being. In re
Keobapha, 279 B.R. 49, 52 (Bankr. D. Conn. 2002) (internal
quotation marks and citation omitted) (setting forth a variety of
factors for bankruptcy courts to consider in assessing good
faith). As these examples illustrate, a bankruptcy court may
properly and unqualifiedly consider a debtor’s income and
expenses as an analytical step in assessing allegations of debtor
misconduct.

        Hitachi also argues that a bankruptcy court should
consider a debtor’s substantial earnings and lavish lifestyle as
evidence of a debtor’s bad faith in filing a bankruptcy petition.
We agree that in deciding a motion to dismiss based upon a
debtor’s lack of good faith, a bankruptcy court may consider
these factors together with any other facts and circumstances
surrounding the debtor’s filing for bankruptcy. Our conclusion
flows not only from the fact-intensive nature of the good-faith
inquiry, see Integrated Telecom Express, 384 F.3d at 118, but
also from our recognition in Tamecki that dismissal should be
utilized only in “egregious cases that entail concealed or
misrepresented assets and/or sources of income, lavish lifestyles,
and intention to avoid a large single debt based upon conduct
akin to fraud, misconduct or gross negligence.” Id. (emphasis
added) (quoting Zick, 931 F.2d at 1129).

      However, to avoid undercutting congressional intent, a
bankruptcy court’s ultimate finding of bad faith may not be

                                 13
based exclusively or primarily on a debtor’s substantial financial
means. Otherwise, dismissal would essentially be based upon a
debtor’s mere ability to repay, which is expressly prohibited by
the legislative history. We note that several other courts have
adopted a similar approach. Compare McDow v. Smith, 295
B.R. 69, 81 (E.D. Va. 2003) (holding that debtor’s annual
income of $454,000 and lavish lifestyle, which included annual
private school tuition of $68,000, were insufficient cause for
dismissal under section 707(a)), with In re Cappuccetti, 172 B.R.
37, 38-41 (Bankr. E.D. Ark. 1994) (finding that debtors filed
Chapter 7 case in bad faith where in addition to the debtors’ high
income and expenses and lavish lifestyle, there were numerous
inaccuracies and misstatements on their schedules and they had
attempted to transfer assets out of reach from their creditors),
and In re Hammonds, 139 B.R. 535, 542-43 (Bankr. D. Col.
1992) (“While some ability to repay debts is certainly not, in and
of itself, adequate cause for dismissal of a Chapter 7 case . . . ,
when considered in conjunction with (1) the transfer of
non-exempt corporate assets, without fair consideration, to
Debtor’s non-debtor spouse, (2) a continuing comfortable
life-style, (3) a deliberate and persistent pattern of evading a
single major creditor, (4) less than candid, full disclosure, and
(5) Debtor’s prior procedural gymnastics in Bankruptcy Court,
this Court must find that the Debtor lacks the requisite good faith
. . . [under § 707(a)].”), and In re Jones, 114 B.R. 917, 926
(Bankr. N.D. Ohio 1990) (finding lack of good faith where the
debtor could repay his debts, engaged in fraudulent conduct, and
attempted to conceal income).

        As these cases illustrate, although a debtor’s ability to
repay is not, itself, sufficient cause for dismissal, “[w]hen a
debtor capable of at least partial repayment has made every
effort to avoid payment of an obligation, lack of good faith
sufficient to justify dismissal may be found.” Zick, 931 F.2d at
1127 n.3 (citation, internal quotation marks, and brackets
omitted). Indeed, we need look no further than the facts in
Tamecki for a good example of this principle. 229 F.3d 205.

       In Tamecki, the debtor had filed for Chapter 7 protection
seeking the discharge of approximately $35,000 in credit card
debt. Id. at 206. The trustee sought dismissal of the debtor’s

                                14
petition for lack of good faith under section 707(a), arguing that
the debtor acted in bad faith in filing his petition while knowing
that he would soon be in a position to repay his debts. Id. at
206-07. The bankruptcy court granted the trustee’s motion and
entered an order dismissing the case for lack of good faith, and
the district court affirmed. Id. at 207. After applying a burden-
shifting framework, we too affirmed. Id. at 208. In affirming,
we explained that while a debtor’s ability (or, as in that case,
future ability) to repay his debts is not itself sufficient proof of
bad faith, there were two aggravating facts which had the effect
of shifting the burden to the debtor, namely, the reasonableness
of the debt accrual and the timing of filing. Id. First, when the
debtor accrued the $35,000 debt, he was earning a small amount
of income and did not have an urgent need to accrue a large
consumer debt. Id. at 207. Second, at the time of filing for
bankruptcy, the debtor was involved in a divorce proceeding
which would soon leave him with approximately $50,000. Id.
Based upon those circumstances, we concluded that there was no
error in the bankruptcy court’s ruling that the debtor failed to
prove good faith. Id. at 208.

       Hence, as Tamecki illustrates, in deciding a motion to
dismiss based upon a debtor’s lack of good faith, a bankruptcy
court may consider all of the facts and circumstances
surrounding the debtor’s filing of the bankruptcy petition,
including the reality of the debtor’s financial situation.

       For all of the foregoing reasons, we conclude that, in
deciding a motion to dismiss under section 707(a), a bankruptcy
court may consider a debtor’s income and expenses together
with other factors in assessing good faith. The recent
modifications to counterpart-section 707(b) do not impliedly
preclude a bankruptcy court from considering income-and-
expense factors, and, as discussed and qualified above,
consideration of income-and-expense factors is consonant with
section 707(a) itself.

                                C.

      Although a bankruptcy court may consider a debtor’s
income and expenses in assessing whether a debtor filed a

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bankruptcy petition in bad faith, we conclude that no reasonable
factfinder would find that the evidence in this case demonstrates
bad faith. There is no evidence that the Perlins schemed to
conceal or misrepresent income, inflated their expenses to hide
income, filed misleading statements or schedules in an effort to
defraud their creditors, unduly interfered with the judicial
process, or engaged in any other misconduct. On the contrary,
the Bankruptcy Court found that the Perlins were
“straightforward in their schedules” and “forthcoming with the
Court and their creditors,” and Hitachi has not appealed these
factual determinations. Furthermore, unlike the debtor in
Tamecki, the Perlins did not time the filing of their bankruptcy
petition to shield a future source of income. Likewise, the
accrual of their debt to start a medical imaging company, which
had a business plan with definite income projections, was not
unreasonable.

        Although, it is true, that the Perlins have a substantial
income and a comfortable lifestyle, those factors are insufficient,
at least in this case, to demonstrate their bad faith in filing the
bankruptcy petition. Hence, we ultimately agree with the
Bankruptcy Court that this is not the kind of “egregious case”
which warrants dismissal for lack of good faith under § 707(a).

                               IV.

      For the foregoing reasons, we will affirm the Bankruptcy
Court’s order denying Hitachi’s motion to dismiss.




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