In Re Huckfeldt

39 F.3d 829 (8th Cir. 1994)

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Nature of the Case

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Facts

In twelve years of marriage, H and W accumulated over $250,000 in debts while Huckfeldt completed college, medical school, and six years of a residency in surgery, and Georgianne completed college and law school. These debts include $166,000 in student loans to H and $47,000 jointly borrowed from W's parents. H and W divorced on March 26, 1992. The divorce decree ordered H to pay his student loans, one-half of the debt to W's parents, and other enumerated debts totaling some $241,000. The decree ordered H to hold W harmless for these debts and denied W's request for maintenance. On June 4, 1992, six months before H would complete his residency in surgery, he filed a voluntary Chapter 7 petition, listing assets of $1,250 and liabilities of $546,857. H then accepted a fellowship at Oregon Health Sciences University, a one or two-year position paying $45,000 per year, substantially less than the income he could likely earn as a surgeon during the pendency of his Chapter 7 proceeding. Following Huckfeldt's petition, creditors of the debts assigned to him in the divorce decree began pursuing W for repayment. W filed for bankruptcy protection in March 1993. W and her parents ('the Creditors') then filed a motion to dismiss H's Chapter 7 petition on the ground that it was filed in bad faith. The Creditors alleged that H had threatened to file for bankruptcy during the divorce proceedings and had commenced this proceeding in defiance of the divorce decree for the purpose of shifting responsibility for assigned debts to W. The Creditors further alleged that W 'has deliberately taken steps to reduce his annual income' to avoid payment of his debts through a Chapter 7 liquidation. The Creditors argued that this bad faith warranted dismissal under sections 105, 109, 301, and 707 of the Bankruptcy Code. The Creditors' motion to dismiss was granted. H appealed: the bankruptcy court committed an error of law in dismissing the Chapter 7 petition because (i) ability to repay debts is not grounds for dismissal under §707(a), and (ii) his petition could not be dismissed for 'substantial abuse' of Chapter 7 under §707(b), which does focus on ability to pay.