IN RE ASHWORTH

LETITIA CLARK, Bankruptcy Judge

The court has held a hearing on the "Motion of the United States Trustee to Dismiss Chapter 7 Case Pursuant to 11 U.S.C. § 707(b)" (Docket No. 12). The following are the Findings of Fact and Conclusions of Law of the court. A separate Judgment will be entered granting the motion. To the extent any of the Findings of Fact are considered Conclusions of Law, they are adopted as such. To the extent any of the Conclusions of Law are considered Findings of Fact, they are adopted as such.

Findings of Fact

In 1997, Ronald K. Ashworth and Barbara G. Ashworth (collectively, "Debtors") were married. Each had been previously married. Prior to the marriage, Ronald Ashworth had purchased a 1400 square foot, three bedroom, two bathroom home in League City, Texas, for approximately $75,000. At that time, Ronald Ashworth worked as a piping designer, for Parsons Energy and Chemical.

At the time of the Debtors' marriage, Barbara Ashworth was working for Texas Source Group. On May 27, 1997, Barbara Ashworth stopped working for Texas Source Group.

Debtors experienced financial hardship, beginning in the first year of their marriage. After Barbara Ashworth had stopped working, Ronald Ashworth was placed on unpaid leave from Parsons in September, 1997. He returned to work in November, 1997.

During September, 1997, Barbara Ashworth obtained a two month contract to work in Cincinnati, Ohio. During January, 1998, she began to work as a software application developer on an independent contract, for Input Output, a company located in Stafford, Texas.

In February, 1999, Ronald Ashworth was again laid off at Parsons. Barbara Ashworth was, at that time, working as an independent contractor at Input Output.

In May, 1999, Debtors formed PCIS, Inc. Barbara Ashworth testified that the company was formed in part so that Debtors could avoid certain self-employment taxes. Barbara Ashworth continued to work on a contract basis for Input Output. Ronald Ashworth began to work, through PCIS, for Sterling Chemicals.

In July, 1999, Debtors purchased a 24-foot VIP Vindicator powerboat, with a 454 horsepower motor, and a trailer. The value of the boat, on the date of the petition, was approximately $27,000. Debtors have indicated their intent to reaffirm the debt secured by the boat, in the amount of $30,009.41. (Government Exhibit 6).

Debtors operated PCIS as a conduit for their work as independent systems analysts from May, 1999 through July, 2002. In their operation of PCIS, Debtors incurred a business debt owed to Chase Small Business Financial Services, which Debtors scheduled with an amount owing of $74,000. (Government Exhibit 2C).

Barbara Ashworth testified that, during the time when PCIS was operating, Debtors were paying $2,000 per month on the debt owed to Chase. She testified that the proceeds of the loan were used to finance the general operating expenses of PCIS, and to enable Debtors to pay their household bills at times when they were unable to sell their contract systems analysis services.

Ronald Ashworth testified that, beginning in December, 2000, there was no work for PCIS. He testified that Sterling Chemicals stopped employing his services. The court takes judicial notice that Sterling Chemicals filed a voluntary petition under Chapter 11 of the Bankruptcy Code in the Southern District of Texas on July 16, 2001.

Beginning in March, 2001, Barbara Ashworth worked, through PCIS, for Xnet, as a Lotus Notes systems analyst and application developer. She testified that, during the last few months before she stopped working for Xnet in approximately June, 2002, Xnet stopped paying her for full time services, called her in to work infrequently, and had difficulty paying its bills. She testified that Xnet went out of business in approximately July, 2002.

Barbara Ashworth testified that, in 2001, she filed for divorce from Ronald Ashworth, in part because of her feeling of financial strain.

In late 2001 or early 2002, Ronald Ashworth began working on a contract basis for M.D. Anderson Cancer Center. In March, 2002, he became a full time employee there. Debtors' schedule I reflects that Ronald Ashworth's gross salary is $6,326.66 per month. (Government Exhibit 2C).

In August, 2002, Barbara Ashworth began working on a temporary contract with Sumitomo Corporation. On January 1, 2003, at the conclusion of the contract, she became a full time employee of TOSSWA, a division of Sumitomo. Debtors' schedule I reflects that Barbara Ashworth's gross salary is $7,083.33 per month.

During the first week of March, 2002, approximately two weeks before Ronald Ashworth became a full time employee of M.D. Anderson, and while Barbara Ashworth was working for Xnet, Debtors purchased two luxury sport utility vehicles, a 2002 GMC Yukon Denali, and a 2002 Cadillac Escalade. The value of the GMC, on the date of the petition, was approximately $34,000. Debtors have agreed to reaffirm the debt secured by the GMC, in the amount of $34,057.81. (Government Exhibit 4). The value of the Cadillac, on the date of the petition, was approximately $38,000. Debtors have agreed to reaffirm the debt secured by the Cadillac, in the amount of $41,562.44. (Government Exhibit 5).

Debtors filed a voluntary petition under Chapter 7 of the Bankruptcy Code on August 13, 2003.

Debtors' schedule I reflects that they have combined gross income of $13,409.99 per month. From their gross income, in addition to payroll taxes, Social Security tax, insurance, and Medicare tax, Debtors deduct $202.46 for retirement savings, and $73.88 for Ronald Ashworth's contract parking at M.D. Anderson. Debtors' schedule I reflects combined monthly net income of $10,199.75. Schedule J reflects total expenses of $6,702.83 per month. This leaves approximately $3,500 per month that could have funded a Chapter 13 plan toward partial repayment of creditors, had Debtors chosen to file Chapter 13 instead of Chapter 7. (Government Exhibit 2C).

Both Debtors testified that they are in good health, and have no outstanding medical debts. They testified they are unaware of any impending danger that their employment may be terminated.

Ronald Ashworth testified that the deductions taken from his pay for retirement savings are the only retirement savings Debtors have. He testified that he cashed out a prior retirement account in order to fund the operations of PCIS.

As noted above, Debtors' schedule J reflects that they have total expenditures of $6,702.83 per month. These expenses represent an expensive style of living. They include $381.36 per month on an installment loan secured by the boat, $50.00 per month on insurance for the boat, $916.52 per month on an installment loan secured by the Cadillac, $874.95 per month on an installment loan secured by the GMC, and $200.00 per month for automobile insurance. Both Debtors commute by car to their work. The expenses also include $600 for transportation expenses other than the automobile installment payments and automobile insurance. The expenses also include $650 per month for food, and $300 per month for entertainment. (Government Exhibit 2C).

In response to discovery requests of the United States Trustee in connection with the instant motion, Debtors produced a summary of their expenses from the beginning of January, 2003 through the end of November, 2003. (Government Exhibit 8G). The time period covered by summary includes months before and after the filing of the petition on August 13, 2003 in the instant case. The summary indicates that Debtors spent an average of $1,309.34 per month on food, $215.45 per month on dry cleaning, $408.68 on transportation, and $334.86 per month on clothing.

Debtors produced logs of checks and credit card transactions which formed the basis of the summary of expenses. The log of food expenses indicates that, in the months after they filed the petition in the instant case, they continued to dine out frequently, as they had done prior to filing the petition. The restaurant expenditures for the first three and one-half months postpetition include nine meals in excess of $50.00. (Government Exhibit 8H).

During 2003, Debtors paid by check or credit card at restaurants 34 times in January, 46 times in February, 49 times in March, 47 times in April, 37 times in May, 37 times in June, 30 times in July, 7 times in August (the month the petition was filed), 22 times in September, 20 times in October, and 11 times in November.

Both Debtors testified that, because they both work long hours, far from their home, at the end of the day they are often too tired to prepare a meal. Ronald Ashworth testified that he works from 6:00 a.m. to 3:00 p.m., and often does not return home until 5:30 p.m.

With respect to the two luxury sport utility vehicles, Ronald Ashworth testified that Debtors bought the large vehicles because they are expected to show up for work, no matter what the weather conditions are. He testified that both vehicles were bought after floods throughout the Houston area in 2001.

With respect to transportation costs, Ronald Ashworth testified that both he and Barbara Ashworth drive from League City to their respective places of employment in Houston, five days a week. Additionally, he testified that Debtors had driven to a leased home in the Deerfield area of west Houston, in order to support the efforts of Barbara Ashworth's daughter on her school's drill team. The court takes judicial notice that League City, Texas is approximately 25 miles south of the central area of Houston, Texas, in which both Debtors work. The court takes judicial notice that the Deerfield subdivision is approximately 25 miles west of downtown Houston, Texas.

With respect to the boat, Ronald Ashworth testified that he has used the boat only once in the year preceding the filing of the petition in the instant case. He described use of the boat as a family hobby.

In addition to their agreements to reaffirm the debts secured by the two luxury sport utility vehicles and the boat, Debtors have agreed to reaffirm a mortgage on their home, (Government Exhibit 19) and a home equity loan. (Government Exhibit 20). In addition, Barbara Ashworth testified that Debtors have agreed to reaffirm one credit card debt, because they would have been unable to purchase insurance from an affiliate of the creditor otherwise.

Barbara Ashworth testified that Debtors' spending patterns have not changed since they filed the instant Chapter 7 case. She testified that the manner of payment has changed for some of Debtors' transactions. She testified that, prior to filing the instant case, she had paid some work-related expenses with a corporate credit card of her employer. She testified that, when Debtors filed the instant case, she cancelled the corporate credit card, because she wanted to avoid her co-workers' knowing that Debtors had filed a bankruptcy case.

Conclusions of Law

Section 707(b) of the Bankruptcy Code provides:

After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, but not at the request or suggestion of any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts if it finds that the granting of relief would be a substantial abuse of the provisions of this chapter. There shall be a presumption in favor of granting the relief requested by the debtor. In making a determination whether to dismiss a case under this section, the court may not take into consideration whether a debtor has made, or continues to make, charitable contributions (that meet the definition of "charitable contribution" under section 548(d)(3)) to any qualified religious or charitable entity or organization (as that term is defined in section 548(d)(4)).

11 U.S.C. § 707(b).

"Substantial abuse" is not defined in the Bankruptcy Code. Neither the Supreme Court nor the Court of Appeals for the Fifth Circuit has opined on the meaning of "substantial abuse" pursuant to Section 707(b) of the Bankruptcy Code.

Each of the courts of appeal which has considered the question of how to determine whether the granting of relief would be a substantial abuse of the provisions of Chapter 7 has adopted a "totality of the circumstances" approach. However, the courts of appeal are split on the question of how much weight to give the debtor's ability to pay.

The Ninth Circuit was the first court of appeals to opine on the subject of the proper standard for determining substantial abuse. In In re Kelly, 841 F.2d 908 (9th Cir. 1988), the Ninth Circuit held that the court should examine the totality of the circumstances, "utilizing criteria such as the following: (1) Whether the debtor has a likelihood of sufficient future income to fund a Chapter 11, 12, or 13 plan which would pay a substantial portion of the unsecured claims; (2) Whether the debtor's petition was filed as a consequence of illness, disability, unemployment, or some other calamity; (3) Whether the schedules suggest the debtor obtained cash advancements and consumer goods on credit exceeding his or her ability to repay them; (4) Whether the debtor's proposed family budget is excessive or extravagant; (5) Whether the debtor's statement of income and expenses is misrepresentative of the debtor's financial condition; and (6) Whether the debtor has engaged in eve-of-bankruptcy purchases.

In In re Walton, 866 F.2d 981 (8th Cir. 1989), the Eighth Circuit, citing Kelly, determined that "the debtor's ability to pay his debts when due as determined by his ability to fund a chapter 13 plan is the primary factor to be considered in determining whether granting relief would be substantial abuse."

In In re Krohn, 886 F.2d 123 (6th Cir. 1989), the Sixth Circuit held that the decision of whether to dismiss under Section 707(b) is an equitable determination of whether the debtor is dishonest or "non-needy." Under such a test, according to the Sixth Circuit, courts should determine "from the totality of the circumstances whether the debtor is merely seeking an advantage over his creditors, or instead is `honest,' in the sense that his relationship with his creditors has been marked by essentially honorable and undeceptive dealings, and whether he is `needy' in the sense that his financial predicament warrants the discharge of his debts in exchange for liquidation of his assets." This test was also adopted by the Fourth Circuit in In re Green, 934 F.2d 568 (4th Cir. 1991).

In In re Lamanna, 153 F.3d 1 (1st Cir. 1998), the First Circuit adopted a totality of the circumstances approach. The court noted, following Krohn, that "in assessing the totality of a debtor's circumstances, courts should regard the debtor's ability to repay out of future disposable income as the primary, but not necessarily conclusive, factor of `substantial abuse.'"

In In re Kornfeld, 164 F.3d 778 (2d Cir. 1998), the Second Circuit affirmed a finding of substantial abuse, where "the bankruptcy court found that the debtors had incurred substantial debts largely because of an extravagant lifestyle that they declined to alter in the face of lowered income."

In In re Stewart, 175 F.3d 796 (10th Cir. 1999), the Tenth Circuit adopted the totality of the circumstances standard, stating: "While we agree ability to pay is a primary factor in determining whether `substantial abuse' occurred, we believe other relevant or contributing factors, such as unique hardships, must also be examined before dismissing a Chapter 7 petition. Conversely, where an inability to pay exists, we believe other factors may nevertheless establish substantial abuse. We recognize the factors articulated by the other courts as instructive, but conclude they are not inclusive of all factors considered. A substantial-abuse analysis must be made on a case-by-case basis."

In the instant case, the court has determined, based on an examination of the totality of the circumstances, that permitting the Debtors to receive Chapter 7 relief would be a substantial abuse of the provisions of Chapter 7. Debtors, at present, have disposable income which, if applied to the debts Debtors owe to creditors, would pay nearly all of Debtors' unsecured debt in three years.

Although Debtors' testimony indicates that, over the course of the past seven years, they have been unemployed (or operating a business which had no work) nearly as often as they have been employed, both Debtors were, at the time of filing of the petition in the instant case, earning more income than they have earned at any other time.

Debtors have an expensive lifestyle; they have chosen to reaffirm debts on two luxury vehicles and a boat, and to continue their prepetition pattern of dining out nearly every night. These choices, while consistent with their current income, are at the expense of their unsecured creditors. While Debtors are capable of partial payment of the unsecured creditors through a Chapter 13 plan, they have opted for a Chapter 7 case, in which their unsecured creditors will receive nothing. The court concludes, based on the totality of the circumstances, that Debtors filed the petition in the instant Chapter 7 case in order to continue to enjoy an expensive lifestyle, while avoiding the unsecured debts which they incurred in leaner times. The court concludes, based on the totality of the circumstances, that the "Motion of the United States Trustee to Dismiss Chapter 7 Case Pursuant to 11 U.S.C. § 707(b)" (Docket No. 12) should be granted. Nothing in this opinion prevents Debtors from filing a Chapter 13 case.

Based on the foregoing, a separate judgment will be entered granting the "Motion of the United States Trustee to Dismiss Chapter 7 Case Pursuant to 11 U.S.C. § 707(b)" (Docket No. 12).