Case Summary:
Debtors originally filed their case as a Chapter 13. Upon realizing they did not qualify for Chapter 13 relief, they converted to Chapter 11. The U.S. Trustee brought a motion to convert the Chapter 11 to a 7 or dismiss the case. The Debtors did not oppose conversion to Chapter 7. The U.S. Trustee now brings this motion to dismiss for abuse under 11 U.S.C. § 707(b). Debtors first argued the motion was barred by judicial estoppel. The Court found that judicial estoppel did not apply where the U.S. Trustee had been consistent with his position throughout the proceedings, the Court was not misled, and it would not result in an unfair advantage. Debtors next argued that section 707(b) did not apply to converted cases. The Court followed the majority rule that section 707(b) does apply to converted cases, also citing policy concerns if Debtors were able to file in Chapter 13 or 11 and convert to Chapter 7 to make themselves immune from section 707(b). Lastly, the Court found there was cause for abuse based upon the totality of the circumstances. The Debtors have a stable source of high income and have engaged in reckless consumer spending. Their expenses are unreasonably high and there are deficiencies with their schedules. The Court dismissed the case.

Statute/Rule References:
11 U.S.C. § 707 -- Dismissal

Key Terms:
Abuse
Dismissal
Estoppel