## Facts

- Randy and Jeanne Deutscher filed a voluntary Chapter 7 petition in 2008 and stated their debts were primarily consumer debts.
- Their schedules reflected roughly $336,000 in secured debt, about $2,200 in unsecured priority debt, and about $61,800 in unsecured nonpriority debt.
- More than half of the secured debt related to a 42‑foot Silverton yacht purchased in 2007, with a loan balance of about $177,800 and a scheduled value around $180,000.
- Within six months before filing, the Deutschers incurred additional secured consumer debt for luxury or recreational items, including about $11,000 for a small recreational boat and about $30,000 for a luxury automobile (a 2008 Lincoln MKZ, listed with a loan balance around $35,970 and value around $30,000).
- The debtors owned other vehicles besides the Lincoln, and they had no dependents.
- Mr. Deutscher claimed he was unemployed during periods when some of the luxury purchases were made; the schedules also reflected unemployment compensation and that he operated a painting business, while Mrs. Deutscher had regular employment income.
- The debtors were above the applicable median income, but the § 707(b)(2) means test did not create a presumption of abuse largely because secured debt payments reduced disposable income.
- The debtors’ Schedule J expenses included large monthly payments tied to the yacht, boat, and Lincoln, and they intended to reaffirm those secured debts rather than surrender the collateral.
- The Chapter 7 trustee filed a no‑asset report, and the United States Trustee moved to dismiss under § 707(b), relying on § 707(b)(3).
- The court held an evidentiary hearing and considered whether granting Chapter 7 relief would be an abuse in light of the debtors’ budget choices and ability to pay.

## Issues

1. May a bankruptcy court dismiss a consumer Chapter 7 case as an abuse under 11 U.S.C. § 707(b)(1) and (3) even when § 707(b)(2)’s means test does not create a presumption of abuse?
2. Under § 707(b)(3)(B), does the totality of the circumstances show abuse when above‑median debtors seek to discharge substantial unsecured debt while continuing significant monthly payments to retain a yacht, a recreational boat, and a late‑model luxury vehicle?

## Decision

- The court granted the United States Trustee’s motion to dismiss.
- The court dismissed the Chapter 7 case as an abuse under 11 U.S.C. § 707(b)(1) and (3).
- The court based dismissal on the totality of the circumstances under § 707(b)(3)(B), without needing a finding of bad faith.

## Legal Principles

- Section 707(b)(2)’s means test creates a presumption mechanism, but it is not the only path to dismissal for abuse; a case may still be dismissed under § 707(b)(3) when no presumption arises.
- When applying § 707(b)(3), the court must consider either (A) whether the petition was filed in bad faith or (B) the totality of the circumstances of the debtor’s financial situation; either ground can support dismissal.
- Under § 707(b)(3)(B), a debtor’s ability to pay unsecured creditors is a major consideration, including whether expenses are reasonable for a Chapter 7 debtor seeking a discharge.
- A debtor’s decision to maintain expensive, nonessential secured collateral (including through reaffirmation) while discharging sizable unsecured debt can show that Chapter 7 relief would shift the cost of discretionary lifestyle choices to general unsecured creditors.
- The court may consider the nature and timing of recent luxury or recreational purchases, the share of the household budget devoted to those items, and whether the debtors could fund repayment to unsecured creditors by surrendering or not reaffirming such collateral.

## Conclusion

In re Deutscher held that passing the means test does not end the abuse inquiry: even without a § 707(b)(2) presumption, a Chapter 7 case may be dismissed under § 707(b)(3) when the totality of the debtors’ financial situation shows abuse, such as where above‑median debtors seek to discharge significant unsecured debt while committing substantial monthly income to retain a yacht, a recreational boat, and a late‑model luxury vehicle.


In re Deutscher, 419 B.R. 42 (2009)