The traditional view of consumer Chapter 7 cases was that the test for "substantial abuse" was based upon facts as they existed at the time of filing. If a debtor was eligible for a Chapter 7 as of the date of filing, it did not necessarily matter that a short time thereafter he/she got a new job and would be able to pay a significant portion of their unsecured debt. The recent amendments in the BAPCPA do not necessarily change this analysis, but instead turn the initial eligibility question into a set mathematical formula.
The Fifth Circuit has recently affirmed the fact that post-petition events, such as a new job and higher income, can be used as a factor in determining "substantial abuse" under the pre-BAPCPA version of § 707(b). In In re Cortez, displayTruncatedTitle(“— F.3d —-, 2006 WL 2023117”, “http://statcont.westlaw.com”) — F.3d —-, 2006 WL 2023117 (5th Cir. July 20, 2006), the debtor husband got a new job four days after filing the joint petition (prior to which he was unemployed). Their post-petition income would have been sufficient to pay $1,325 per month to their debts, according to the US Trustee, who filed a motion to dismiss for substantial abuse. The court agreed that post-petition income could be used in the analysis (see the analysis below) and remanded the case. playTruncatedTitle(“C.A.5 (Tex.),2006.”, “http://statcont.westlaw.com”)
While the court limited its holding to pre-BAPCPA cases, there is little reason to assume the analysis would not apply equally to post-BAPCPA cases, as the new version of §707(b)(3)
(3) In considering under paragraph (1) whether the granting of relief would be an abuse of the provisions of this chapter in a case in which the presumption in subparagraph (A)(i) of such paragraph does not arise or is rebutted, the court shall consider—
The reasoning of the Fifth Circuit, as far as allowing post-petition events, is as follows —
The statute conditions dismissal on a finding “that the granting of relief would be a substantial abuse of the provisions of this chapter.” 11 U.S.C. § 707(b). Although “granting of relief” is undefined, its context reveals that it is referring to a Chapter 7 discharge, and not the relief associated with the commencement of the case under § 301. First, the phrase “provisions of this chapter” refers to Chapter 7, the chapter in which § 707(b) is located. Section 727, the relief under Chapter 7, discharges the debtor from all debts that arose before the filing of the petition. See id. § 727(b). That “granting of relief” means a discharge under § 727 and not an order for relief under § 301 is also evident from the use of the words “would be” following “granting of relief,” indicating that the relief is to take place sometime in the future. This interpretation is consistent with the bankruptcy procedural rules, which delay granting a § 727 discharge when a motion to dismiss under § 707(b) is pending. See Fed. R. Bankr.P. 4004(c)(1)(D). Finally, the courts of appeals considering § 707(b) have implicitly, if not explicitly, recognized that “granting of relief” means a Chapter 7 discharge. See First USA v. Lamanna (In re Lamanna), 153 F.3d 1, 3 (1st Cir.1998) (“Section 707(b) was enacted to impose a restraint on consumer debtors’ access to Chapter 7 discharge by interposing bankruptcy courts as gatekeepers who could examine the worthiness of debtor petitions and dismiss those petitions deemed abusive.”) (emphasis added); U.S. Trustee v. Harris (In re Harris), 960 F.2d 74, 75 (8th Cir.1992) (stating that § 707(b) “permits the bankruptcy court to dismiss a Chapter Seven proceeding if it finds that granting a discharge ‘would be a substantial abuse of the provisions of this chapter’ ”) (emphasis added); see also 6 Collier on Bankruptcy ¶ 707.04[a] (15th ed. rev.2006) (“In determining whether a substantial abuse exists, there is a presumption in favor of granting the relief sought by the debtor, i.e., a discharge.”). Therefore, we think that the “granting of relief” in § 707(b) is referring to the relief associated with Chapter 7, the discharge of all debts under § 727, and not the relief associated with the commencement of the case under § 301. Section 707(b) does not condition dismissal on the filing of bankruptcy being a “substantial abuse” but rather on the granting of relief, which suggests that in determining whether to dismiss under § 707(b), a court may act on the basis of any development occurring before the discharge is granted.
On remand, the bankruptcy court should consider any post-petition events affecting the Cortezes’ financial situation, including any post-petition improvements in income or, if still applicable, Mr. Cortez’s unemployment.
In re Cortez 2006 WL 2023117, *8 (C.A.5 (Tex. (C.A.5 (Tex.),2006) (emphasis added).