By: Angela Bonica
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
Under title 11 of the United States Code (the “Bankruptcy Code”), a bankruptcy court may dismiss a consumer debtor’s bankruptcy case if it finds that granting relief to the debtor would be “an abuse.” In In re Smith, the Bankruptcy Court for the Western District of Oklahoma dismissed a debtors’ Chapter 7 bankruptcy case after finding that the debtors did not file the case in good faith, which is considered “an abuse” of the Chapter 7 relief.
In 2017, Debtors Michael and Adriana Smith filed voluntary petitions for relief under Chapter 7 of the Bankruptcy Code. In their original bankruptcy schedules, the debtors listed their total current gross monthly income as $12,225.58 with a monthly take-home income of $9,329. The United States Trustee (UST) concluded that the debtors incurred excessive costs in the form of transportation and vehicle expenses, and made excessive voluntary contributions to their Federal Thrift Savings Plan. Eventually, the debtors disclosed that, before filing for bankruptcy, they had incurred an average monthly gambling expense of approximately $11,000. Consequently, the UST filed a motion to dismiss the debtors’ Chapter 7 case, arguing that this pre-petition gambling, together with other factors, demonstrated an abuse of the Chapter 7 process. In response, the debtors argued that gambling was not a factor in determining abuse because (1) they had broken even, (2) they had reduced gambling post-petition, and (3) they had no debts on accounts from gambling.
Under 11 U.S.C. 707(b), a court may dismiss a Chapter 7 case or convert it to a Chapter 11 or 13 case by a motion by the UST, when the court finds that granting the Chapter 7 relief of debts would be abuse. Further, section 707(b)(3) provides that, when that suspicion of abuse does not arise, or the abuse is rebutted by the debtor for “special circumstances,” a court can consider whether the petition was filed in bad faith or whether the “totality of the circumstances” of the debtor’s financial situation demonstrates abuse. In using this “totality of circumstances” test, the court determines if the debtor would have been able to pay any amount to unsecured creditors, which is the primary factor in determining whether Chapter 7 relief amounts to abuse. Because the Bankruptcy Code does not define specific circumstances when dismissal is required,  a court will typically apply the “Stewart Factors” to determine if the totalities of the circumstances demonstrate abuse. These factors include:
1. Whether the debtor enjoys a stable source of future income;
2. Whether the debtor is eligible for adjustment of debt through Chapter 13;
3. Whether state remedies exist to ease the financial predicament;
4. The degree of relief obtainable through private negotiation;
5. Sudden illness, calamity, disability or unemployment;
6. Whether the debtor’s expenses are excessive and/or can be significantly reduced without being deprived of adequate food, and clothing, shelter, and other necessities;
7. The accuracy of the statements and schedules;
8. The existences of excessive cash advances or consumer purchases; and
9. The debtor’s good faith.
Under the “totality of the circumstances” standard for determining abuse, the court must examine not only excessive unnecessary expenses and inaccuracy of the schedules provided by the debtor, but also the debtor’s good faith.
In In re Smith, the court determined that the debtors’ did not act in good faith and used the debtors’ gambling as evidence of breach of good faith, in addition to other factors. The debtors were aware of their debts and continued to gamble, while borrowing money from family members and reaping state unemployment benefits. The court considered the debtors’ gambling, in conjunction with the inaccuracy of the debtors’ schedules and excessive expenses by the debtors, as evidence that the debtors’ conduct was abuse of use of Chapter 7 relief. Gambling alone, however, would generally not be sufficient to determine debtors’ good faith or even further, determine abuse. 
 In re Smith, 585 B.R. 168 (W. Dist. OK 2018).
 See id. at 182.
 See id. at 172.
 See id.
 See id. at 173.
 See id. at 173.
 See id. at 176.
 See id. at 172.
 11 U.S.C. § 707(b)(1) (2012).
 11 U.S.C. § 707(b)(3).
 Smith, 585 B.R. at 176.
 Id.; see In re Stewart, 175 F.3d 796, 809 (10th Cir. 1999).
 Stewart, 175 F.3d at 809−810.
 Smith, 585 B.R. at 177.