In re: Steven Perlin

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Precedential or Non-Precedential: Precedential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

15

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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