Robert S Miller

1Because this case was filed prior to the effective date of the Bankruptcy Abuse Prevention
and Consumer Protection Act, the new “means test” which establishes a presumption of abuse
does not apply here.
IN THE U NITED S TATES B ANKRUPTCY C OURT
FOR THE E ASTERN D ISTRICT OF P ENNSYLVANIA
IN RE 	: C HAPTER 7
:
R OBERT S. M ILLER 	: BANKRUPTCY N O . 05-16936
:
D EBTOR 	:
OPINION
By: 	STEPHEN RASLAVICH , UNITED STATES BANKRUPTCY J UDGE .
Introduction
The United States Trustee has filed a motion to dismiss this case under § 707(b).
The Debtor opposes the motion. A hearing on this matter was held on November 15,
2005 after which the matter was taken under advisement. For the reasons set forth
below the Motion will be granted.
Applicable Law
Former Bankruptcy Code § 707 provides:
[T]he court 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. …
11 U.S.C. § 707(b). 1 Two elements must be established for this Court to determine that
the proceeding must be dismissed: that the Debtor owes “primarily consumer debts”
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and that this filing constitutes a “substantial abuse.” As to both elements, the Trustee
bears the burden of proof. In re Browne, 253 B.R. 854, 855-56 (Bankr.N.D.Ohio 2000)
Does this Debtor Owe
Primarily Consumer Debts?
The Bankruptcy Code defines consumer debt as debt “incurred by an individual,
primarily for a personal, family, or household purpose.” 11 U.S.C. § 101(8). In applying
this definition, many courts have looked to whether the debt was incurred with a profit
motive. 6 Collier on Bankruptcy ¶ 707.04[3][a]. And in determining how much of the
debt must be consumer- as opposed to business-related, the courts have interpreted
the term "primarily" with some variation. An early case determined the question on the
basis of “all of the facts and circumstances presented.” In re Bryant, 47 B.R. 21, 26
(W.D.N.C. 1984) (finding that the debtor had primarily consumer debts when both the
number and amount of consumer debts exceeded the business debts). Other courts
have held that a bare majority of consumer debts will suffice. See In re Stewart, 175
F.3d 796, 808 (10th Cir. 1999) (“primarily means over 50% of debt); In re Booth, 858
F.2d 1051, 1055 (5th Cir. 1988) (stating that '' 'primarily' suggests an overall ratio of
consumer to non-consumer debts of over fifty percent ... consumer debts should be
evaluated not only by amount, but by their relative number''); In re Kelly, 841 F.2d 908,
913 (9th Cir. 1988) (holding that when ''more than half ... of the dollar amount owed is
consumer debt, the statutory threshold is passed;'' 88% of the debt was consumer
debt); In re Bell, 65 B.R. 575, 577 (Bankr. E.D. Mich. 1986) (according more weight to
the amount of debt involved than to the number of consumer debts in relation to other
debts). The leading bankruptcy commentator explains the standard more generally:
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“The term primarily would seem to imply that the debts should reflect a strong consumer
orientation.” 6 Collier on Bankruptcy ¶ 707.04[3][d]. What does the record show in that
regard?
The motion alleges that “Debtors [sic] in the present case acknowledge that the
debts listed on their Schedules were incurred for the purpose of purchasing consumer
products, and not for the purpose of producing income.” Motion ¶ 8. In his response,
the Debtor admits the substance of this allegation and argues, instead, that such debts
are not collectable because they are beyond the limitations period. See Response, ¶ 8.
Yet, at the hearing, the Debtor would recant his admission that his debts were
consumer debts. Transcript (T) -4. The record, however, contains no amendment of
the admission. Generally, factual assertions admitted by a party in an answer or
response are considered judicial admissions which are conclusively binding upon the
party who made them. In re C.F. Foods, LP, 265 B.R. 71, 87 (Bankr.E.D.Pa.2001). So
as a technical legal matter, this Debtor is estopped from arguing that his debts are not
consumer debts. But even if he were not precluded from raising the issue, the Court
finds the Debtor’s testimony on this point to have little credibility. When pressed by the
Trustee as to how he had arrived at the percentages for those debts which are part
business and part consumer, the Debtor admitted that he was guessing. T-38. The
debts were simply too old for him to recollect the nature of each. See T-13 (contending
that his debts are ten years old). Documentation might have helped but all that the
Debtor claims to have been able to recover is two monthly account statements for his
American Express Card. The Court therefore finds that the Trustee has met his burden
in proving that the Debtor’s debts are primarily consumer claims for purposes of this
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motion.
Substantial Abuse
Next, the Trustee maintains that the granting of relief to this Debtor would
constitute “substantial abuse.” Motion, ¶ 9. While the Bankruptcy Code does not define
the term, the legislative history indicates that the Congressional intent behind the
passage of § 707(b) was to restrict the use of chapter 7 by petitioners not in need of
relief or acting in bad faith. S. Rep. No. 65, 98th Cong., 1st Sess. 54 (1983). 	Section
707(b) focuses on the purpose of Chapter 7 relief under the Bankruptcy Code, primarily
the issue of whether the petitioner is the honest and needy consumer debtor the Code
was intended to protect. In re Motilla, 306 B.R. 782, 788 (Bankr.M.D.Pa.2004).
Whether such abuse exists in a case is largely left to the court's discretion." In re Miller,
302 B.R. 495, 498 (Bankr.M.D.Pa.2003), citing In re Bacco, 160 B.R. 283, 288
(Bankr.W.D.Pa.1993). "Section 707(b) has always been intended, at least in part, to
balance the interests of a debtor who cannot pay his debts as they come due against a
creditor's interest in obtaining repayment of at least a portion of the debts if such
repayment would not be a burden." Ann Morales Olazabal, Consumer Bankruptcy
Reform and 11 U.S.C. § 707(b): A Case-based Analysis, 12 B.U. Pub. Int. L.J. 317,
326-27 (2003). While the Third Circuit has not had occasion to rule on the question of
what constitutes substantial abuse for purposes of § 707(b), other circuits have. A
recent bankruptcy case from this circuit thoroughly surveyed the various methodologies
employed:
The first court of appeals to provide a framework for
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analyzing substantial abuse, the Ninth Circuit Court of
Appeals, has held that a debtor's ability to pay his debts will,
standing alone, justify dismissal under Section 707(b). In re
Kelly, 841 F.2d 908, 914 (9th Cir.1988). Kelly relied on
language in the legislative history of a bill introduced into the
Senate in 1983, which ultimately lead to the passage of the
Bankruptcy Act of 1984. "The committee report on the final
version of S. 445 states clearly that dismissal for substantial
abuse is intended to 'uphold[ ] creditors' interests in obtaining
repayment where such repayment would not be a burden,'
and that 'if a debtor can meet his debts without difficulty as
they come due, use of Chapter 7 would represent a
substantial abuse.' " Kelly, 841 F.2d at 914, citing, S.Rep.
No. 65, 98th Cong., 1st Sess. 53, 54 (1983)(accord, In re
Walton, 866 F.2d 981 (8th Cir.1989))(debtor's ability to repay
two-thirds of his debt over three years was sufficient to justify
the bankruptcy court's
finding of "substantial abuse.")
Other circuits, however, have embraced a broader test that
allows a bankruptcy court greater discretion to consider all of
the circumstances surrounding a debtor's Chapter 7 filing.
See, Green, 934 F.2d at 572; In re Lamanna, 153 F.3d 1, 5
(1st Cir.1998). The ability of the debtor to repay his debts out
of future income is a factor in the court's analysis of
substantial abuse, but it is not the only factor. The "totality of
the circumstances" analysis "demands a comprehensive
review of the debtor's current and potential financial
situation." Lamanna, 153 F.3d at 4. When applying this
analysis, the following factors generally are considered:
(1) whether the bankruptcy petition was filed because of
sudden illness, calamity, disability, or unemployment;
(2) whether debtor made consumer purchases far in excess
of his ability to repay;
(3) whether debtor's proposed family budget is excessive or
unreasonable;
(4) whether debtor's schedules and statements of current
income and expenditures reasonably and accurately reflect
debtor's true financial condition; and
(5) whether the bankruptcy petition was filed in bad faith.
Green, 934 F.2d at 572.
Other circuits have added other factors to the Green test.
For instance, the Sixth Circuit in In re Krohn, 886 F.2d 123,
126 (6th Cir.1989) recommended the following matters for
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consideration:
whether [a debtor] has engaged in 'eve of bankruptcy
purchases,' ... whether ... [he] enjoys a stable source of
future income, whether he is eligible for adjustment of his
debts through Chapter 13 of the Bankruptcy Code, whether
there are state remedies with the potential to ease his
financial predicament, the degree of relief obtainable through
private negotiations, and whether his expenses can be
reduced significantly without depriving him of adequate food,
clothing, shelter and other necessities.
Krohn, 886 F.2d at 126.
The approach used by the Krohn Court has been referred to
by other courts and various commentators as a "hybrid"
between the positions enunciated in Kelly and Green. The
distinction between the analysis employed in these cases is
that Krohn, unlike Green, holds that a case may be
dismissed solely because the debtor has the means to repay
his debts, but does not mandate dismissal on this factor
alone. Krohn, 886 F.2d at 127.
In re Miller, 302 B.R. 495, 498-499 (Bankr.MD.Pa.2003). Because the hybrid approach
permits the widest latitude to take into account all of the evidence in a case, but also
allows a court to recognize that "[a] vast majority of both courts and commentators have
opined that a debtor's ability to pay is the sine qua non of section 707(b)," In re
Attanasio, 218 B.R. 180, 184 (Bankr.N.D.Ala.1998), this Court will adopt it here. 	It has
also been expressly employed in another decision from this district. See In re Green,
No. 04-10341, Memorandum Opinion and Order, p.7, October 21, 1995
(Bankr.E.D.Pa.2005) (Carey, J.) (same).
Ability to Pay
The Court begins with an analysis of the Debtor’s assets and income to
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determine if there exists an ability to pay. The Debtor owns no real estate. See
Bankruptcy Schedule A. His personal property consists of $8000 in a 401(k) fund and
$3000 in clothing. See Schedule B. Although he claims this property as exempt (see
Schedule C), such property may be figured into the ability to pay analysis whether or not
immune from creditors. See In re Taylor, 212 F.3d 395, 397 (8th Cir.2000). He makes
an annual salary of approximately $200,000. See Schedule K ; T-21. After payroll
deductions, his net monthly income is roughly $10,900. Id. He lists no other income.
The Debtor’s total monthly expenses total $12,272. See Schedule J. The
Trustee points out that the Debtor has listed a housing expense of over $3000 per
month yet the house he lives in is owned solely by his wife. Motion ¶ 4. And as a
general matter, the Trustee maintains that many of the Debtor’s expenses are
excessive or unnecessary. T-50. Are the Debtor’s expenses legitimate?
Housing
Starting with housing, the Court finds well-taken the Trustee’s objection to the
Debtor’s payment of his nondebtor wife’s mortgage. The burden will therefore be
shifted to the Debtor to explain this unorthodox living arrangement. To that end, the
Debtor offers the following explanation: in 1994 he purchased the house he presently
lives in for $326,000; it is now worth between $500,000 to $540,000. T-25. Sometime
after he married his second wife, he transferred the property to himself and her. Id.
Four years ago, the home was transferred to her for no consideration. T-24, 25. The
purpose of the transfer, he explains, was to enable his wife to get financing to pay off
his debt to the IRS. T-11, 22, 22. He could not obtain financing himself because of
poor credit. T-24. Essentially, then, the Debtor would have the Court accept that he is
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paying the mortgage debt which his wife incurred for his benefit in exchange for allowing
him to live in that same home. T-22.
For all its elaboration, the Debtor’s testimony fails to shed light on whether the
monthly housing payment is reasonable. Clearly, the Trustee must concede that the
Debtor must pay for some housing; the question is how much? In considering whether
a housing expense is excessive, due regard should be given to the size of the family,
their reasonable needs, and the cost of alternative housing. In re Beitzel, 333 B.R. 84,
90 (Bankr.M.D.N.C. 2005). Furthermore, a court should not unduly depreciate a
debtor's long-standing, traditional ties to a homestead. Id. citing 11 U.S.C. §
524(d)(2)(providing that a court is not required to ascertain whether a reaffirmation of a
consumer debt secured by the debtor's real property would result in an undue hardship
on a debtor or whether it would be in the debtor's best interest). What are the Debtor’s
circumstances?
The Debtor is married; he lists two dependent children, ages 17 and 20. See
Schedule I. Both children are the product of his former marriage and neither lives with
him full time. T-40 The older child is in college and the younger lives with his former
wife, but it appears he has alternating weekend visitation rights. T-40, 44. By the
Debtor’s own testimony, then, this is essentially a household of two people. Id. How
much housing do the Debtor and his wife need?
Useful in answering that question are the IRS guidelines for assessing an offer-
in-compromise. An offer-in-compromise is an attempt by a taxpayer to settle a
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2The Internal Revenue Code provides that the IRS may compromise any tax obligation.
I.R.C. § 7122(a). The Secretary of the Treasury prescribes guidelines for the IRS to determine
whether an offer in compromise is adequate and should be accepted. 	I.R.C. §§ 7122(c),
7701(a)(11).
3While there is a disclaimer on the IRS website advising the public to refer to the United
States Trustee Program for expense information related to bankruptcy calculations, the source of
t h e 	U . S . 	T r u s t e e 	P r o g r a m ’ s 	f i g u r e s 	i s 	t h e 	I R S ’ 	f i g u r e s . 	S e e
www.usdoj.gov/ust/eo/bapcpa/meanstesting., note 2. 	Moreover, the U.S.Trustee Program’s
website asks the public to report any differences between the figures on the its website and those
of the IRS’ website. Id. The figures from the IRS are therefore reliable for present purposes.
9
delinquent tax liability. 2 To assess whether the taxpayer is paying as much as she or
he reasonably can under the circumstances, the IRS compares the taxpayer’s budget to
a compilation of similar expenditures for a similarly situated taxpayer. Known as the
Collection Financial Standards, these guidelines set forth reasonable living expenses
some of which vary depending on locality and family size. See
www.irs.gov/individuals/article0,,id=96543,00.html. Housing is one of those expenses
which varies with the region and size of household. Id. The IRS derives its housing
figures from Census and Bureau of Labor Statistics data. Id. Effective January 1, 2005,
a family of two persons residing in Montgomery County, Pennsylvania, should expect to
pay $1438 per month for housing and utilities. See
www.irs.gov/small/article/0,,id=104836,00.html 	These figures have been adopted by
the United States Trustee Program for the calculation of the new “means test” to
determine substantial abuse under § 707(b)(2) of the BAPCPA. 3 Although the IRS
standard lumps mortgage/rent and utilities together, that figure is broken down into
housing and utilities by the United States Trustee Program on its website: $1011 for
mortgage/rent and $427 for utilities. See www.usdoj.gov/ust/eo/bapcpa/meanstesting.
This Debtor is already paying $487 per month in utilities. See Schedule J. That means
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that his budgeted mortgage expense ($3146) is three times the amount that the
guidelines deem reasonable. This expense must be reduced accordingly.
Other Expenses
In addition to the housing expense, the Motion takes issue with $487.39 for
electric and heat, $150 for cable, $200 for pet food, $1000 for food, $500 for clothing,
$230 for medical and dental expenses outside of health insurance, $669 for life
insurance, $415 for auto insurance, $62 for pet insurance, $1259 in automobile lease
payments, $1452 for a child’s college tuition, $100 for laundry/dry cleaning, and $1130
for his nondebtor wife’s credit cards. See Motion ¶4. At the hearing, the Trustee limited
his challenges to the expenses discussed below.
Automobiles
This Debtor leases two cars, a 2005 Acura and a 2003 Yukon, and insures a
third. T-44, 45. He explains that the Yukon is needed because he has two dogs and
because he needs to transport his daughter to and from college. T-46. That is not a
valid reason for the second car. Neither should he pay for insurance on that Yukon.
The third car which he insures is a Honda which is driven by his children. He assumed
that insurance expense pursuant to his divorce decree. T-44.
Payment of Expenses
For Wife’s Benefit
The Debtor should not be paying for the clothing which his wife wears (T-42), the
cell phone which she uses (T-48), or the charges which she makes on her credit card.
T-49,50. The Debtor specifically testified that his wife is employed and earns
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approximately $40,000 annually. T-26,27. 	She should bear her own expenses.
Food
A $1000 monthly expense item for food is excessive given that the Debtor
admitted that dining out is included in that amount (T-41) and that, again, the Debtor’s
wife receives an income. See In re Bryant, 47 B.R. 21, 25 (W.D.N.C.1984); In re Krohn,
886 F.2d at 127.
Pets
The Court considers excessive the expenses for pet food and pet insurance.
The Court is in agreement with those cases which hold that “as between the debtor’s
[animals] and his creditors, … the creditors should be paid first.” In re Wyant, 217 B.R.
585, 587 (Bankr.D.Neb.1998); see also In re Fauntleroy, 311 B.R. 730, 738
(Bankr.W.D.N.C.2004) (perceiving a pattern of abuse in excessive pet insurance
expense); In re Wray, 136 B.R. 122, 125 (Bankr.W.D.Pa.1992) (finding pet expense
excessive where debtor owed $76,000 to creditors and claimed as exempt virtually of
their assets which could be liquidated to make at least partial distribution to creditors). It
is reasonable for the creditors to expect the Debtor to pay some amount for pet food;
however, the creditors should not have to bear the expense of pet insurance.
This Debtor’s
Disposable Income
In order to determine whether this Debtor has an ability to pay his creditors under
a Chapter 13 plan, the Court will reduce his budgeted mortgage expense to $1011, the
figure considered reasonable by the IRS and United States Trustee Program for a
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4For purposes of this hypothetical, the Court will set the Trustee’s commission at the highest
percentage allowable. See 28 U.S.C. § 586(e)(1)(B)(i).
12
similarly situated family in that same locale. Next, the Court will halve the following
expenses: the auto leases, the clothing, and pet food. The expense for auto insurance
will be reduced by one-third because he does not need the Yukon. The entire amount
of his wife’s cell phone bills will be eliminated from this calculation. The Debtor’s food
allotment should be reduced by $100 because it include meals in restaurants. Finally,
the creditors should not be expected to bear any cost of insuring the health of the
Debtor’s pets. That reduces the Debtor’s monthly expenses to $8797.57. Subtracting
that amount from the Debtor’s monthly income ($10,907.41) yields disposable income of
$2109.84. If the Debtor were to pay that amount per month over a 3 year plan, the
amount of a distribution to his unsecured creditors would be as follows:
$2109.84 x 36 months = $75,954.24
less trustee commission (10%) 4 = $7595.42
distribution = $68,358.82
Because his debts total $89,448.30, this Debtor would appear to have enough
disposable income to pay his creditors approximately 76%. The ability to pay element
is, therefore, satisfied.
Other Factors Under
the Hybrid Approach
But because an ability to pay creditors – even in full – does not mandate
dismissal under the hybrid analysis, the Court must review all of the other
circumstances to determine if this filing was abusive. The Court has already examined
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5 The Court is also troubled by the Debtor’s decision to list not the present holders of the
claims against him but, rather, the original holders. T-59, 60, 63,64. The reason he gives for doing
that is that the present holders of the claims lack privity with him. T-63,72,73. The Court finds that
position to be highly dubious. Privity is broadly defined as "mutual or successive relationships to
the same right of property, or such an identification of interest of one person with another as to
represent 	the 	same 	legal 	right. 	Montella 	v. 	Berkheimer 	Assoc., 	690 	A.2d 	802, 	804
(Pa.Cmwlth.1997). The Debtor has offered no evidence that the original holders lacked the right
to assign their claim, at a discount or otherwise. Without proof of some restraint on assignment,
privity by succession would be established between the Debtor and the present holders.
13
the Debtor’s monthly expenses identifying several which may be either eliminated or
reduced without hardship. And where he was not overreaching, this Debtor has failed
to give the Court a true and accurate picture of his financial condition. The Debtor
testified that the gratuitous transfer of the home to his wife to raise funds to pay the IRS
occurred four years ago. T-24. If that is so, then the Court is left to wonder why the
refinancing did not occur until just 6 months ago? T-11. That 3½ year hiatus indicates
more an attempt to place assets outside the reach of creditors than a vehicle for
creative financing. The Debtor also admitted to paying $1130 per month towards his
wife’s credit card bills yet failed to disclose such payment on his Schedule J. T-49,50.
The Court is left to wonder where the money is coming from to pay those bills. And on
his Statement of Financial Affairs, the Debtor failed to disclose his income for 2003 and
2004. See Statement Financial Affairs, Question #1. On cross-examination, the Debtor
identified copies of his joint tax returns for 2002 and 2003; he testified that his 2004
return showed gross income of $236,000. T-27. So for the three years prior to
bankruptcy, the Debtor and his wife earned gross income of $207,000 to $236,000
annually. T-27; Ex. T-3, T-4. He alone will earn $200,000 for 2005. T-26. Such stable
and significant income makes him better suited for a Chapter 13 filing; he was certainly
within its debt limits. See 11 U.S.C. § 109(e).5
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The Purpose of this
Bankruptcy Filing
But making payment towards his debts is what this Debtor was always intent on
avoiding. As he explained in his Response, his debts are beyond the statute of
limitations and are, therefore “uncollectible.” Response, ¶ 8. Notwithstanding, the
Debtor goes on, these debts continue to appear on his credit report. T-9. This is
occurring, it was explained to the Debtor by someone he consulted about this problem,
because those debts were “be[ing] resold and resold,” they continue to appear as
current debt. T-23. Until those claims are expunged from his credit report, says the
Debtor, he cannot obtain new credit. T-9. What easier way, then, to correct an
erroneous credit score than to present the credit reporting agencies with the force of a
discharge order? T-59, 67, 68. That is why the Debtor filed this bankruptcy case. Is
that a proper purpose?
Available Remedies Under
the Fair Credit Reporting Act
The operative premise of this entire bankruptcy filing is that the Debtor’s credit
history contains information which should not be on there. And the corollary argument
is that a bankruptcy filing may be used to correct that. For purposes of this discussion,
the Court accepts the Debtor’s contention that stale information continues to appear on
his credit report. What, if any, non-bankruptcy law affords him the remedy he seeks.
In 1968, Congress enacted the Fair Credit Reporting Act (FCRA), in order to
establish "reasonable procedures for meeting the [credit reporting] needs of commerce"
and the banking industry in a "manner that is fair and equitable to the consumer, with
regard to the confidentiality, accuracy, relevancy and proper utilization of such
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6The Act defines the term "consumer report" to mean “any written, oral, or other
communication of any information by a consumer reporting agency bearing on a consumer's credit
worthiness….” 15 U.S.C. § 1681a(d)(1).
15
information ...." 15 U.S.C. §§ 1681(b), et seq. The FCRA was essentially prompted by
"congressional concern over abuses in the credit reporting industry." Philbin v. Trans
Union Corp., 101 F.3d 957, 962 (3rd Cir.1996)(quoting Guimond v. Trans Union Credit
Info Co., 45 F.3d 1329, 1333 (9th Cir.1995)). As such, one of the main goals of the
FCRA is to protect individuals from inaccurate or arbitrary information found in their
credit history reports. See Pinner v. Schmidt, 805 F.2d 1258, 1261 (5th Cir.1986). In
other words, a general purpose of the FCRA is to protect the creditworthiness and
reputation of every consumer. Ackerley v. Credit Bureau of Sheridan, Inc., 385 F.Supp.
658, 659 (D.Wyo.1974). To that end, the FCRA requires that a credit report must
exclude the following information:
(a) Information excluded from consumer reports6
Except as authorized under subsection (b) of this section, no
consumer reporting agency may make any consumer report
containing any of the following items of information:
(1) Cases under Title 11 or under the Bankruptcy Act that,
from the date of entry of the order for relief or the date of
adjudication, as the case may be, antedate the report by
more than 10 years.
(2) Civil suits, civil judgments, and records of arrest that,
from date of entry, antedate the report by more than seven
years or until the governing statute of limitations has expired,
whichever is the longer period.
(3) Paid tax liens which, from date of payment, antedate the
report by more than seven years.
(4) Accounts placed for collection or charged to profit and
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7The Federal Trade Commission ("FTC") is the federal agency empowered by Congress to
administer and enforce this statute. 15 U.S.C. § 1681s. The Fair Credit Reporting Act provides the
FTC with "procedural, investigative and enforcement powers, including the power to issue
procedural rules to enforce compliance" with the act. Id. As the act's administrative agency, the
FTC has issued various commentaries and interpretive readings of the act, the most recent of which
is its Statement of General Policy or Interpretation: Appendix – Commentary on the Fair Credit
Reporting Act. 16 C.F.R. § Pt. 600, App. (“the Official Staff Commentary”) While the FTC was not
given rule-making authority as to the FCRA, this Court may nonetheless defer to the FTC’s
interpretations of the act on issues not expressly addresses by Congress. See Chevron v. Natural
Resources Defense Council, 467 U.S. 837, 843, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984).
16
loss which antedate the report by more than seven years.
(5) Any other adverse item of information, other than records
of convictions of crimes which antedates the report by more
than seven years.
15 U.S.C. § 1681c(a). The Federal Trade Commission7 dubs this type of objectionable
information to be “obsolete.” 16 C.F.R. Pt.600, App. § 605. The FCRA prohibits the
reporting of most adverse information which is more than seven years old 15 U.S.C. §
1681c(a); 16 C.F.R. Pt.600, App. § 605(1). 	The FCRA provides specific time frames
for five specialized types of information -- bankruptcies, suits and judgments, paid tax
liens, accounts placed for collection or charged to profit or loss, and records relating to a
crime -- and then provides a general rule for ''any other adverse item of information,''
excepting ''records of convictions of crimes.'' Consumer Credit Law Manual § 16.06[2]
(Matthew Bender). The information complained of here – stale credit card debt – would
not come within the definition of the first three examples. And on this record, it would
likewise not come within the fourth as there is no evidence that the accounts were either
placed for collection or charged off. That leaves the fifth example – adverse information
– which is akin to a catch-all provision. The term “adverse information” has been
defined as
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8A “consumer reporting agency” is defined as a person for purposes of the FCRA. 15 U.S.C.
§ 1681a(f).
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information which may have, or may reasonably be expected
to have, an unfavorable bearing on a consumer's eligibility or
qualifications for credit, insurance, employment, or other
benefit, including information which may result, or which may
be reasonably expected to result, in a denial of or increased
costs for such benefits.
Equifax, Inc. v. Federal Trade Commission, 678 F.2d 1047, 1050 (11th Cir.1982) citing
FTC’s Final Order to Cease and Desist issued December 15, 1980. The general rule
that adverse items (other than criminal conviction records and the five exceptions listed
in the statute) cannot antedate the report by more than seven years applies to most
information about delinquent loans other than those placed for collection or charged to
profit and loss. 	16 C.F.R. Pt.600, App. § 605(a)(6) item 1. The existence of a
delinquent account may be reported for seven years from the date of the last regularly
scheduled payment before the account became delinquent. Id. Accepting Debtor’s
contention that his debts are at least ten years old (T-13), they would constitute adverse
information which should have been excluded from his credit report. What, then, does
the FCRA allow the Debtor to do about the reporting agency’s reporting of such
obsolete information?
A consumer has a private right of action against persons8 who fail to comply with
any FCRA requirement. See 15 U.S.C. § 1681n and o. That person would be liable for
actual damages sustained as a result of negligent noncompliance with the act and, in
the case of a successful action, the costs of the action together with reasonable
attorney's fees. 15 U.S.C. § 1681o(a). A person who willfully fails to comply with the
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FCRA is liable for either (a) actual damages sustained by the consumer as a result of
the violation or (b) damages ranging from $100 to $1000. 15 U.S.C. § 1681n(a)(i)(A).
In addition, willful noncompliance may also result in punitive damages. 15 U.S.C. §
1681n(a)(2). So as to the credit reporting agencies, the Debtor had a clear avenue to
relief outside of bankruptcy.
Relief Under the FCRA
as to the Creditors
It is not only consumer reporting agencies whose actions are governed by the
FCRA. The act also references users of consumer reports as well as furnishers of
information to the consumer reporting agency. See 15 U.S.C. § 1681s-2; see also,
generally, Carney v. Experian Information Solutions, Inc., 57 F.Supp. 496, 500-502
(W.D.Tenn.1999). The act was amended in 1996 to "provide new tools to insure that
furnishers of information to consumer reporting agencies cooperate in maximizing the
goal of the [FCRA] that only accurate and complete information is included in credit
reports." Vasquez-Garcia v. Trans Union de Puerto Rico, 222 F.Supp.2d 150, 154
(D.P.R.2002) quoting Richard J. Rubin, "Fair Credit Reporting Act Amendments Provide
New Duties on Furnishers of Information," Corporate Law and Practice Course
Handbook Series, Practicing Law Institute, Vol. 4, Issue 1, p. 203, 205 (April 1999). A
"furnisher of information" is not specifically defined in the FCRA, but case law has
"defined it as an entity 'which transmits information concerning a particular debt owed
by a particular consumer to consumer reporting agencies such as Experian, Equifax,
MCCA, and Trans Union.' " DiMezza v. First USA Bank Inc., 103 F.Supp.2d 1296, 1299
(D.N.M.2000)(quoting Carney, 57 F.Supp.2d at 501). The credit card claimants in this
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19
case would come within that definition. What duties does the FCRA impose upon such
persons?
Section 1681s-2 of the act provides, in pertinent part:
(b) Duties of furnishers of information upon notice of dispute
(1) In general
After receiving notice pursuant to section 1681i(a)(2) of this
title of a dispute with regard to the completeness or accuracy
of any information provided by a person to a consumer
reporting agency, the person shall–
(A) conduct an investigation with respect to the disputed
information;
(B) review all relevant information provided by the consumer
reporting agency pursuant to section 1681i(a)(2) of this title;
(C) report the results of the investigation to the consumer
reporting agency;
(D) if the investigation finds that the information is
incomplete or inaccurate, report those results to all other
consumer reporting agencies to which the person furnished
the information and that compile and maintain files on
consumers on a nationwide basis; and
(E) if an item of information disputed by a consumer is found
to be inaccurate or incomplete or cannot be verified after any
reinvestigation under paragraph (1), for purposes of
reporting to a consumer reporting agency only, as
appropriate, based on the results of the reinvestigation
promptly–
(i) modify that item of information;
(ii) delete that item of information; or
(iii) permanently block the reporting of that item of
information.
(2) Deadline
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A person shall complete all investigations, reviews, and
reports required under paragraph (1) regarding information
provided by the person to a consumer reporting agency,
before the expiration of the period under section 1681i(a)(1)
of this title within which the consumer reporting agency is
required to complete actions required by that section
regarding that information.
15 U.S.C. § 1681s-2(b). One court has encapsulated the furnisher’s duties under this
subsection:
This [sub]section specifies what happens after a [credit
reporting agency] receives notice "pursuant to section
1681i(a)(2) ... of a dispute with regard to the completeness
or accuracy of information provided by a person" to the CRA.
The person, i.e., the furnisher of the disputed information,
has four duties: to conduct an "investigation with respect to
the disputed information;" to review all relevant information
provided by the CRA; to report the results of its investigation
to the CRA; and if the investigation finds the information is
incomplete or inaccurate to report those results "to all
[nationwide] consumer reporting agencies to which the
person furnished the information."
Nelson v. Chase Manhattan Mortg. Corp., 282 F.3d 1057, 1059 (9th Cir.2002); see also
Vasquez-Garcia, 222 F.Supp.2d at 154 (explaining that § 16821s-2(b) imposes a duty
upon a furnisher of information to conduct investigation and promptly report any
inaccurate or incomplete information to consumer reporting agencies, upon notice of a
dispute by a consumer). Had the Debtor disputed these items with the credit reporting
agency, the agency would then have been required to notify the furnisher of the
information – here, the credit card companies – of the dispute. That, in turn, would have
triggered the above-cited duties on the credit card companies’ part. And if the
furnishers of information would fail to comply with those duties, they would be subject to
liability under §1681n and o. There are specific limitations on furnisher liability found in
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9(c) Limitation on liability
Except as provided in section 1681s(c)(1)(B) of this title, sections 1681n and
1681o of this title do not apply to any violation of--
(1) subsection (a) of this section, including any regulations issued
thereunder;
(2) subsection (e) of this section, except that nothing in this paragraph shall
limit, expand, or otherwise affect liability under section 1681n or 16810 of
this title, as applicable, for violations of subsection (b) of this section; or
(3) subsection (e) of section 1681m of this title.
15 U.S.C. § 1681s-2(c)
21
15 U.S.C. § 1681s-2(c) 9 ; however, these limitations do not apply to violations of §
1681s-2(b):
The civil liability sections, 15 U.S.C. § 1681n and 1681o,
explicitly provide a private right of action for consumers
wishing to enforce any provision of the Fair Credit Reporting
Act against "any person" who either "willfully fails to comply"
or is "negligent in failing to comply." Absent any explicit
limitation, the plain language of 15 U.S.C. §§ 1681n, 1681o,
1681s-2(b) and (c) provide a private right of action for a
consumer against furnishers of information who have willfully
or negligently failed to perform their duties upon notice of a
dispute. Furthermore, the negative inference of explicitly
precluding a consumer's right of action for violations of §
1681s-2(a) is that they are preserved in § 1681s-2(b).
Accordingly, the plain language of the Fair Credit Reporting
Act compels the conclusion that there is a private right of
action for consumers to enforce the investigation and reporting duties imposed on furnish
Sheffer v. Experian Information Solutions, Inc., 249 F.Supp.2d 560, 562 (E.D.Pa. 2003)
citing DiMezza v. First USA Bank, Inc., 103 F.Supp.2d at 1300; see also Nelson v.
Chase Manhattan Mortg. Corp., 282 F.3d at 1060 (describing purpose of § 1681s-2(b)
as "provid[ing] some private remedy to injured consumers") The Debtor was thus
afforded an avenue of relief as against the credit card companies who were furnishing
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10His counsel explained that the Debtor met with a credit counselor but the testimony is not
clear on exactly whom he consulted. T-57. Regardless, a statement by this unknown individual is
hearsay and will be given no weight. See Petruzzi's IGA Supermarkets, Inc. v. Darling-Delaware
Co., 998 F.2d 1224, 1234 n. 9 (3d Cir.), cert. denied, 510 U.S. 994, 114 S.Ct. 554, 126 L.Ed.2d 455
(1993).
22
obsolete information as well as the credit reporting agencies.
As the Court pointed out to the Debtor, the record does not show that he availed
himself of any of the FCRA’s remedies. The provisions of this act are specifically
designed for the harm which the Debtor claims he is suffering yet all he appears to have
done is consulted some unnamed person about why these charges continue to appear
on his credit report; there is no indication that the Debtor ever contacted the credit
reporting agencies. 10 See Casella v. Equifax Credit Information Services, Inc., 56 F.3d
469, 474 (2d Cir.1995) (“Prior to being notified by a consumer, a credit reporting agency
generally has no duty to reinvestigate credit information.” Had he exhausted the
administrative procedures under the FCRA and still received no relief he could have
then proceeded in federal court. See O’Brien v. Equifax Information Svs., 382
F.Supp.2d 733, 734 (E.D.Pa. 2005) (explaining that the FCRA creates subject matter
jurisdiction in federal court as it involves a federal question pursuant to 28 U.S.C. §
1331). So his contention that he would have to proceed in state court (T-52) is
incorrect; the FCRA provided him with an independent basis of federal court jurisdiction.
And once in federal court, the Debtor would not – as he insisted he would – have to file
over twenty separate lawsuits against twenty different creditors (T-52), but, rather could
join as defendants both the credit reporting agencies and those creditors who continue
to furnish the inaccurate information. See F.R.C.P. 20; see also 4 Moore’s Federal
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23
Practice, Civil § 20.02(a)(i) (“The permissive party joinder rule gives the plaintiff a
powerful tool to structure litigation in the complaint.”) 	The Debtor’s claims against both
the credit reporting agencies and the claim holders arise out of the same series of
transactions or occurrences – here the furnishing and reporting of obsolete information
– which constitutes a violation of the FCRA. Id. There was, then, no need to proceed in
Bankruptcy Court to obtain the relief that the Debtor desires.
Summary
This case is a misuse of the bankruptcy system for a number of reasons. The
principal purpose of the Debtor in filing this case is not to obtain relief from oppressive
indebtedness. Indeed, it is the Debtor’s position that outside of bankruptcy he cannot
be made to pay any of the debt which he seeks to discharge, because recovery would
be barred by the statute of limitations. The Debtor’s sole purpose in commencing this
case is to improve the content of the reports which credit reporting agencies issue about
him. However, as discussed above, the Debtor’s credit report problems can be
corrected outside of bankruptcy. In fact, while a bankruptcy discharge might relieve him
of his uncollectible scheduled debts, it would adversely affect his credit because the
bankruptcy itself would be reportable. It seems counterintuitive, therefore, to conclude
that a bankruptcy filing helps him. Completely aside from that, however, his financial
condition demonstrates that he clearly is able to pay his creditors a substantial amount
of what they are owed, irrespective of whether it remains within their ability to pursue
recovery. It is apparent that the Debtor has sought relief under Chapter 7 simply
because he views it as a more expedient means to obtain relief than to seek such relief
under other statutes specifically enacted to address his circumstances. The Court
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24
views this as an artifice which it should not condone. 	In closing, the Court reiterates
that the Debtor’s failure to candidly portray his financial situation is an additional factor
which militates against him in this setting and further supports the dismissal of his case.
BY THE COURT :
____________________________________
STEPHEN RASLAVICH
UNITED STATES BANKRUPTCY JUDGE
DATED : 	DECEMBER 19, 2005
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IN THE U NITED S TATES B ANKRUPTCY C OURT
FOR THE E ASTERN D ISTRICT OF P ENNSYLVANIA
IN RE 	: C HAPTER 7
:
R OBERT S. M ILLER 	: BANKRUPTCY N O . 05-16936
:
D EBTOR 	:
ORDER
AND NOW , upon consideration of the United States Trustee’s Motion to Dismiss
Pursuant to 11 U.S.C. § 707(b), the Debtor’ Response, after hearing held on November
15, 2005, and for the reasons stated in the foregoing Opinion, it is
ORDERED, that the Motion is Granted and that the above-captioned case is
Dismissed.
BY THE COURT :
___________________________________
STEPHEN RASLAVICH
UNITED STATES BANKRUPTCY JUDGE
DATED : 	DECEMBER 19, 2005
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2
MAILING LIST:
George Conway, Esquire
Office Of The U.S. Trustee
950W Curtis Center
7th & Sansom Streets
Philadelphia PA 19106
Frank J. Marcone, Esquire
2530 North Providence Road
Upper Providence, PA 19063
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