11 U.S.C. Section 707(b) - Consumer Chapter 7 Abuse Dismissal

What Is Section 707(b)?

Section 707(b) is the principal mechanism for dismissing a consumer Chapter 7 case as an abuse of the bankruptcy system. Added in its current form by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the provision created the "means test" and authorized the United States Trustee (UST), the standing trustee, or any party in interest to seek dismissal of a Chapter 7 case where the debtor's income and expenses indicate ability to fund a meaningful Chapter 13 plan.

The provision applies only to individual debtors "whose debts are primarily consumer debts." Business debtors and individual debtors whose debts are predominantly business in nature are outside Section 707(b) entirely, even if their income is high. The consumer-debt threshold is determined as of the petition date by comparing the dollar value of consumer debts to non-consumer debts.

Section 707(b)(1): Authority to Move

Section 707(b)(1) authorizes the court, on its own motion or on the motion of the UST, the standing trustee, the bankruptcy administrator (in jurisdictions where applicable), or any party in interest, to dismiss a Chapter 7 case "if it finds that the granting of relief would be an abuse of the provisions of this chapter." With the debtor's consent, the court may convert the case to Chapter 11 or 13 in lieu of dismissal.

The UST plays the central role. Under Section 704(b), the UST must, within 10 days of the Section 341 meeting, file a statement of whether the case is presumed an abuse. If presumed abuse is found, the UST must, within 30 days after the statement, either file a Section 707(b) motion or a statement why a motion is not appropriate. These deadlines structure the early life of every above-median consumer case.

Section 707(b)(2): The Means-Test Presumption

Section 707(b)(2) creates a presumption of abuse based on a mechanical means-test calculation. The test compares the debtor's "current monthly income" (as defined in Section 101(10A), generally the six-month average of income prior to filing) to the median income for households of the debtor's size in the debtor's state. If income is below median, the presumption does not arise and the analysis ends at the (b)(7) safe harbor discussed below.

For above-median debtors, the test then computes "monthly disposable income" by deducting from current monthly income certain expenses, including IRS National and Local Standards (food, clothing, housing, transportation), actual expenses for categories not covered by the Standards, payments on secured debts, priority claims, and certain other allowances. The result is multiplied by 60 to produce a five-year disposable income figure.

Under Section 707(b)(2)(A)(i), the presumption of abuse arises if 60 months of disposable income equals or exceeds the lesser of: 25 percent of the debtor's nonpriority unsecured claims (and at least a specified minimum amount), or a specified maximum threshold. The exact threshold amounts are periodically adjusted for inflation under Section 104.

If the presumption arises, the debtor may rebut it under Section 707(b)(2)(B) by demonstrating "special circumstances" such as a serious medical condition or a call to active duty in the Armed Forces that justify additional expenses or adjustments to income for which there is no reasonable alternative. The debtor must itemize the expenses, document them, and attest to their accuracy under penalty of perjury.

Section 707(b)(3): Totality-of-the-Circumstances

Even where the presumption does not arise or has been rebutted, Section 707(b)(3) authorizes dismissal based on bad faith or on the "totality of the circumstances of the debtor's financial situation" demonstrating abuse. The totality test is judge-made and inquires into the debtor's actual ability to pay a meaningful dividend in a Chapter 13 case using factors not captured by the rigid (b)(2) calculation.

Courts considering totality argue often examine post-petition income increases, voluntary retirement contributions or other discretionary expenses, lifestyle expenses (luxury vehicles, private school, recreational property), the size of the unsecured debt, and the cause of the financial difficulty (medical events versus discretionary consumption). The doctrine gives the UST a second avenue when the means test does not flag the case but the broader picture suggests abuse.

Section 707(b)(7): The Below-Median Safe Harbor

Section 707(b)(7) provides a critical safe harbor: the court may not dismiss or convert a case under Section 707(b)(2) (the means-test presumption) if the debtor's current monthly income, multiplied by 12, is less than the median family income for the debtor's state and household size. For below-median debtors, the (b)(2) presumption is unavailable to any moving party.

The safe harbor does not bar a dismissal under Section 707(b)(3) for bad faith or totality of circumstances, but as a practical matter (b)(3) motions against below-median debtors are rare and difficult to prevail on. The below-median classification therefore functions as the primary screening criterion for Section 707(b) exposure in most consumer practices.

Income figures for the median-income comparison are published by the U.S. Census Bureau and updated periodically by the UST. Counsel evaluating eligibility must use the figures applicable on the petition date, not at the time of analysis. Border-line debtors sometimes time filings to take advantage of new figures or to capture or avoid a recent income spike in the six-month current-monthly-income window.

UST Filing Deadlines

The 30-day UST motion deadline is calculated from the date the UST files its Section 704(b) statement, not from the petition date or the 341 meeting. The deadline can be extended by the court for cause but is otherwise strict. Other parties in interest, including the standing trustee and creditors, have until 60 days after the first date set for the 341 meeting to file a motion under Section 707(b), absent extension. Calendar discipline at this stage is critical: a late-filed motion is procedurally defective regardless of its merits.

Related Bankruptcy Code Sections

This section operates in concert with several other provisions of the Bankruptcy Code:

• Section 101(10A) - Current monthly income definition
• Section 109 - Eligibility to file
• Section 305 - Abstention
• Section 349 - Effect of dismissal
• Section 706 - Conversion from Chapter 7
• Section 1325(b) - Chapter 13 disposable-income test

Understanding how these sections interact is important for consumer debtors, the UST, standing trustees, and counsel evaluating Chapter 7 eligibility.