McDow v. Dudley

Summarized by Deborah Crowder , U.S. Bankruptcy Court, Western District of North Carolina
14 years 3 months ago

Citation:

7:09-cv-00336-sgw (4th Cir. 2011)

Tag(s):

Ruling:

The Fourth Circuit Court of Appeals vacated the order of the Virginia District Court, and ruled that a Bankruptcy Court's order denying a Chapter 7 motion to dismiss as abusive pursuant to 11 U.S.C. §707(b) is a final order appealable to the district court. The Fourth Circuit reasoned that other courts have permitted appellate review of bankruptcy orders that might be considered interlocutory in other contexts. The Court concluded that orders in bankruptcy cases may be immediately appealed if they finally dispose of discrete disputes within the bankruptcy case. The Court found that the denial of a §707(b) motion does dispose of a discrete dispute, since it conclusively resolves the issue of whether the case is an abusive filing. The Court observed that the Seventh Circuit and First Circuit have likewise concluded that the denial of a motion to dismiss under §707(b) is a final order. The Court also discussed the practical implications of not allowing such an order to be appealed immediately: if the case continues with the liquidation and distribution of a debtor's assets, then those resources that could otherwise be used to pay creditors would be exhausted. The Court also discussed the altered presumption of abuse under the BAPCPA, and the short deadlines given to U.S. Trustees to determine whether a case is presumptively abusive. All of these factors led the Court to its determination that Congress intended the question of abuse to be a threshold matter, since such a motion to dismiss cannot be filed at any other time during the bankruptcy case.

Procedural context:

The issue on appeal was whether an order denying the U.S. Trustee's motion to dismiss a debtor's Chapter 7 bankruptcy case as abusive under 11 U.S.C. §707(b) is a final order appealable under 28 U.S.C. §158(a). The District Court dismissed the U.S. Trustee's appeal for lack of subject matter jurisdiction, ruling that the Bankruptcy Court's order was interlocutory and not final within the meaning of 28 U.S.C. §158(a).

Facts:

Debtors filed a Chapter 13 case, and when the Chapter 13 Trustee moved to dismiss the case or convert it to a Chapter 7, the Debtors voluntarily converted their case to Chapter 7. The U.S. Trustee then filed a motion to dismiss the Chapter 7 case under 11 U.S.C. §707(b)(1) as abusive, claiming that the Debtors failed the means test under §707(b)(2) since their net monthly income was over $2,000. Debtors filed a motion for summary judgment in opposition to the U.S. Trustee's motion to dismiss, asserting that §707(b) did not apply to a case such as theirs that was initially filed under Chapter 13 and thereafter converted to Chapter 7. Debtors argued that the language of §707(b) referring to dismissal under "this chapter" refers to a case originally filed under Chapter 7. The Bankruptcy Court granted Debtors' motion for summary judgment, stating that the language of §707(b)(2) did not encompass converted cases. While this appeal was pending, the Bankruptcy Court entered an order discharging Debtors' debts. The U.S. Trustee also appealed the order of discharge, arguing that the order of discharge was improper because the Bankruptcy Court lacked jurisdiction while the case was on appeal, and Bankruptcy Rule 4004 (c)(1)(D) prohibits discharge if a motion to dismiss the case under §707 is pending.

Judge(s):

Niemeyer, King, and Agee (Circuit Judges)

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