## Facts

- John and Glenda Calhoun filed a voluntary Chapter 7 petition in February 2008 seeking to discharge $106,707 in unsecured debt.
- The Calhouns had no dependents and lived on a 3.5-acre property in South Carolina; after being unable to sell the home, they spent over $130,000 renovating it and decided to remain.
- Their income included approximately $7,313 per month from two retirement plans plus $1,459 per month in Social Security benefits; Mrs. Calhoun had no independent income.
- The unsecured debt accumulated over time through a second mortgage and multiple credit cards; before filing, they paid $2,638 per month to unsecured creditors under a debt-management plan for 22 months.
- The bankruptcy court found the filing was not prompted by sudden illness, disability, unemployment, or similar hardship.
- The bankruptcy court found their budget “borderline extravagant” with “ample room for reduction,” highlighting $439 per month in life-insurance premiums, $930 per month for food plus other discretionary services, and unjustified transportation expenses.

## Issues

1. Whether a Chapter 7 case may be dismissed as an “abuse” under 11 U.S.C. § 707(b)(3) based on the totality of the circumstances even when the § 707(b)(2) means test does not create a presumption of abuse.
2. Whether, and to what extent, Social Security benefits may affect the § 707(b)(3) abuse analysis.

## Decision

- The Fourth Circuit affirmed the district court, which had affirmed the bankruptcy court’s dismissal of the Chapter 7 case for abuse under § 707(b)(3).
- The court held the record supported a finding of abuse because the debtors could repay a meaningful portion of unsecured debt by reducing discretionary and excessive expenses.
- The court concluded that, on this record, the abuse finding was supported even without relying on Social Security benefits.

## Legal Principles

- A court may dismiss a Chapter 7 case for “abuse” under § 707(b)(3) based on the “totality of the circumstances” of the debtor’s financial situation, even if the means test under § 707(b)(2) does not trigger a presumption of abuse.
- In the § 707(b)(3) inquiry, courts may consider the debtor’s ability to repay creditors, the reasonableness of claimed expenses, and whether financial distress stems from voluntary budgeting choices rather than unforeseen hardship.
- Appellate review defers to the bankruptcy court’s factual findings absent clear error; legal conclusions are reviewed de novo.
- Where the debtor’s ability to pay is established through reduction of discretionary spending, an abuse finding may be affirmed without resolving broader statutory questions about the role of Social Security benefits in the § 707(b)(3) analysis.

## Conclusion

The Fourth Circuit upheld dismissal of the Calhouns’ Chapter 7 case as abusive because their stable income and reducible, excessive expenses showed an ability to fund meaningful repayment, and the outcome did not depend on counting Social Security benefits.


Calhoun v. U.S. Trustee, 650 F.3d 338 (4th Cir. 2011)