Cite as: Keith M. Lundin, Lundin On Chapter 13, § 6.5, at ¶ ____, LundinOnChapter13.com (last visited __________).
Added to the Bankruptcy Code in 1984 and amended in 1986 to be more broadly effective, prior to 2005 § 707(b) permitted the dismissal of a Chapter 7 case filed by an individual with primarily consumer debts if the granting of relief would be a “substantial abuse” of Chapter 7. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)1 reduced “substantial abuse” to “abuse,” and added a presumption of abuse when the debtor’s current monthly income, as defined in § 101(10A), exceeds the statutory formula in § 707(b)(2).
After the 2005 amendments, when applying the statutory formula in § 707(b)(2), a finding of abuse requires dismissal of the Chapter 7 case unless the debtor consents to conversion to Chapter 13.2 The abuse test in § 707(b) was touted by congressional sponsors of BAPCPA as a way to ferret out “can pay” Chapter 7 debtors and redirect them to Chapter 13.3 It hasn’t worked that way.4 But debtors’ counsel are forced by the abuse test to do much additional work with clients contemplating a Chapter 7 bankruptcy.5 Chapter 13 is an alternative for many individual debtors with primarily consumer debt who would face a difficult abuse test in a Chapter 7 case.
1 Pub. L. No. 109-8, 119 Stat. 23 (2005).