Means Test Does Not Require Dismissal if Chapter 13 Is Zero

By: Bryan Kotliar
St. John's Law Student
American Bankruptcy Institute Law Review Staff 

Recently, in In re Siler,[1] the court allowed a debtor whose monthly disposable income created the presumption of abuse under the means test to remain in chapter 7 since the creditors would not receive any distribution under a chapter 13 plan.[2] Generally, if a debtor cannot rebut the presumption of abuse, the case must be dismissed or converted to chapter 13, which is why the Bankruptcy Administrator[3] moved to dismiss.[4] However in this case, under a chapter 13 plan, the debtor would be entitled to deduct her ERISA contributions and 401(k) loan obligation repayments from her monthly disposable income—deductions not available for her CMI calculation under chapter 7.[5] Because of these deductions, creditors would not receive any distribution under an alternate chapter 13 plan.[6] Therefore, the court held that the debtor was entitled to remain in chapter 7, notwithstanding the language of 707(b), because dismissing or converting her case to chapter 13 would create absurd results contrary to Congress’s intent.[7]

The court noted that section 707(b)’s plain language unambiguously states that the case must be dismissed or converted if a debtor fails the means test.[8] Although a statute’s plain language is normally controlling, courts will not enforce the plain language of the statute when literal application creates results “demonstrably at odds with clearly expressed Congressional intent . . . .”[9] The Siler court noted that Congress enacted the means test as a way to deny a quick discharge under chapter 7 to those debtors who can make payments to creditors in a chapter 13 plan.[10] If the case was converted to chapter 13, this debtor would be making zero payments under the plan for three to five years.[11] Thus, the court found that dismissal or conversion would create absurd results because the creditors would not receive any distributions.[12] Therefore the debtor was entitled to remain in chapter 7 notwithstanding the language of 707(b).[13]

Two other courts faced with similar facts to Siler allowed debtors who failed the means test to remain in chapter 7.[14] Under those cases’ reading of section 707(b), courts have discretion when dismissing the case for abuse.[15] Like Siler, they also cite to Congressional intent in enacting the means test as a mechanism for restricting access to chapter 7.[16] One of those courts noted that “if the definition of abuse is the receipt of a Chapter 7 discharge by a debtor who can afford to pay something to unsecured creditors . . . under a Chapter 13 plan, there can be no abuse or violation . . . [when] the debtor can afford to pay nothing in Chapter 13.”[17]

Although courts may disagree as to the plain meaning of section 707(b), courts appear to agree that Congress did not intend for debtors who fail the means test to be forced into a chapter 13 plan where creditors will not receive any distribution.[18]  Siler seems to be narrowing dismissal under 707(b) to situations where a debtor (1) fails to rebut the presumption of abuse and (2) where creditors would not receive any distribution under a chapter 13 plan. The rule of Siler alleviates problems of an overly harsh reading of 707(b)’s dismissal rule by permitting courts to not dismiss where doing so would be meaningless.