U.S. District Court in Miami cites means test in agreeing to hear bankruptcy appeal

By Elizabeth Alt | May 23, 2018

MIAMI – The U.S. District Court for the Southern District of Florida issued an order to deny a bankruptcy trustee’s motion to dismiss an appeal for lack of jurisdiction.

MIAMI – The U.S. District Court for the Southern District of Florida issued an order to deny a bankruptcy trustee’s motion to dismiss an appeal for lack of jurisdiction.

U.S. District Judge Beth Bloom wrote the court order on May 11.

Richard Butler filed for Chapter 11 bankruptcy in March 2017 in U.S. Bankruptcy Court for the Southern District of Florida. He converted his petition to a Chapter 7 code following a motion from the Office of the United States Trustee (UST) that Butler change to a Chapter 7 petition or dismiss the case in October 2017.

In December 2017 the UST filed a motion to dismiss Butler’s bankruptcy petition for abuse and presumption of abuse after Butler filed his means test, which calculates how much discretionary income a person has against their debt. If a person is found to have too much income, it is found to be an abuse of the bankruptcy code. Sonya Salkin, the bankruptcy trustee assigned to Butler, opposed the motion to dismiss.

Butler joined in the UST’s motion to dismiss his case, and in doing so, “waive(d) his right under 11 U.S.C. § 707(b)(2)(B) to rebut the presumption of abuse and request(ed) that his case be dismissed pursuant to 11 U.S.C. 707(b)(2) and 11 U.S.C. 707(b)(3).”

The Bankruptcy Court denied the UST’s motion to dismiss, noting that Salkin had identified $732,000 in assets and that there were more unidentified, finding that “dismissal of the case now would be inappropriate… considering the totality of the circumstances under Section 707(b)(3).” The Bankruptcy Court also noted that Butler’s reports showing his current monthly income show that his debts greatly exceeded his income.

Butler appealed, stating that the Bankruptcy Court erred in including his “phantom” mortgage payments when calculating his debts in the means test, leading to the Bankruptcy Court finding no abuse and “to deny the request for dismissal under the totality of the circumstances test,” noting the Bankruptcy Court was required to dismiss a bankruptcy case if abuse was found and the debtor chose not to convert his petition.

Salkin filed a motion to dismiss the appeal for lack of jurisdiction. 

Judge Bloom noted throughout the order that many points in Butler’s brief contain questions of law that will help many bankruptcy cases, including the conflicting opinions among bankruptcy judges on whether to include phantom mortgage payments in the means test. “For the reasons explained above, the court is persuaded that the specific issues raised in this particular appeal satisfy the criteria for interlocutory review of the Bankruptcy Court’s order denying the UST’s motion to dismiss.”

Salkin’s motion to dismiss Butler’s appeal for lack of jurisdiction was denied.

U.S. District Court Southern District of Florida, Miami Division, Case Number 18-cv-60183-BLOOM 

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