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In Re: Damian Gerald Chapman; Melissa Ann Chapman v. Damian Gerald Chapman; Melissa Ann Chapman

March 11, 2011

IN RE: DAMIAN GERALD CHAPMAN; MELISSA ANN CHAPMAN, DEBTORS. HABBO G. FOKKENA, U.S. TRUSTEE, U.S. TRUSTEE - APPELLANT,
v.
DAMIAN GERALD CHAPMAN; MELISSA ANN CHAPMAN, DEBTORS - APPELLEES. IN RE: MARIA CHRISTINA CRUSE,
DEBTOR.
HABBO G. FOKKENA, U.S. TRUSTEE, *
UNITED STATES U.S. TRUSTEE -
APPELLANT,
v.
MARIA CHRISTINA CRUSE;
DEBTOR - APPELLEE.



Appeal from the United States Bankruptcy Court for the District of Minnesota Appeal from theBankruptcy Court for theSouthern District of Iowa

The opinion of the court was delivered by: Schermer, Bankruptcy Judge

Submitted: February 1, 2011

Before SCHERMER, SALADINO and NAIL, Bankruptcy Judges

The United States Trustee (the "U.S. Trustee") appeals from orders of the United States Bankruptcy Court for the District of Minnesota and the United States Bankruptcy Court for the Southern District of Iowa, denying the U.S. Trustee's motions to dismiss the Chapter 7 bankruptcy cases of Damian Gerald Chapman and Melissa Ann Chapman (the "Chapmans") and Maria Christina Cruse (Ms. Cruse and together with the Chapmans, the "Debtors") pursuant to § 707(b) of Title 11 of the United States Code (the "Bankruptcy Code").We have jurisdiction over these appeals from the final orders of the bankruptcy courts. See 28 U.S.C. § 158(b). For the reasons set forth below, we reverse and remand these cases to the bankruptcy courts for determinations of dismissal under §§ 707(b)(2) and (3).

ISSUE

The issue on appeal is whether 11 U.S.C. § 707(b)(1) applies in these cases that have been converted from Chapter 13 to Chapter 7 of the Bankruptcy Code. We also consider the threshold issue of whether the bankruptcy courts' orders denying the U.S. Trustee's motions to dismiss under 11 U.S.C. § 707(b) are final orders for the purposes of these appeals. We conclude that: (1) the orders denying the U.S. Trustee's 11 U.S.C. § 707(b) motions to dismiss were final orders; and (2) in light of the Eighth Circuit's decision in Resendez v. Lindquist, 691 F.2d 397 (8th Cir. 1982), 11 U.S.C. § 707(b)(1) must be applied in these cases converted from Chapter 13 to Chapter 7.

BACKGROUND

The relevant facts are not in dispute in either of these consolidated appeals.

Chapman

The Chapmans filed a petition for relief under Chapter 13 of the Bankruptcy Code. When creditors obtained relief from the automatic stay several months after confirmation of the Chapmans' Chapter 13 plan, the Chapmans converted their Chapter 13 case to a case under Chapter 7. The Chapmans had not contested the creditors' requests for relief from the automatic stay. They stated that their inability to pay was due to a reduction in Mrs. Chapman's overtime income and unanticipated but necessary changes in their personal living expenses. The U.S. Trustee filed a motion to dismiss the Chapmans' bankruptcy case under 11 U.S.C. § 707(b) for abuse, relying on both §§ 707(b)(2) and (3). The bankruptcy court for the District of Minnesota denied the U.S. Trustee's motion to dismiss on the basis that § 707(b)(1) did not apply to a case that was commenced by the filing of a petition under Chapter 13 and converted to a case under Chapter 7 post-petition.

Cruse

Maria Christina Cruse filed her petition for relief under Chapter 13 of the Bankruptcy Code. Less than a year after confirmation of her Chapter 13 plan and due to complications from surgery, Ms. Cruse quit working and began to receive short-term disability benefits. When the Chapter 13 trustee moved to dismiss Ms. Cruse's case because of her failure to make plan payments, Ms. Cruse converted her Chapter 13 case to a case under Chapter 7. After filing her Chapter 13 petition but before converting her case to one under Chapter 7, Ms. Cruse married a surgeon who earned a high income. The U.S. Trustee moved to dismiss Ms. Cruse's case under § 707(b) for abuse, citing grounds under §§ 707(b)(2) and (3). Like the court in Minnesota, the Iowa bankruptcy court denied the U.S. Trustee's motion to dismiss on the basis that § 707(b)(1) did not apply to a case that was commenced by the filing of a petition under Chapter 13 and converted to a case under Chapter 7 post-petition.

STANDARD OF REVIEW

We review findings of fact for clear error and conclusions of law de novo. Fokkena v. Draisey (In re Draisey), 395 B.R. 79, 80 (B.A.P. 8th Cir. 2008)(citation omitted). Issues of statutory ...


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