James A. Savoie and Jennifer M. Savoie

1 The first was a voluntary hiatus from work for one year when their daughter Caroline was
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UNITED S TATES B ANKRUPTCY COURT
FOR T HE E ASTERN DISTRICT O F PENNSYLVANIA
In re 	: 	Chapter 7
:
JAMES A. SAVOIE and 	: 	Bankruptcy No. 05-13263DWS
JENNIFER M. SAVOIE, 	:
:
Debtors. 	:
MEMORANDUM OPINION
BY: 	DIANE WEISS SIGMUND, Chief Bankruptcy Judge
Before the Court is the Motion of the United States Trustee (“UST”) to Dismiss
Pursuant to 11 U.S.C. § 707(b). An evidentiary hearing was held on September 12, 2005 at
which the debtor James A. Savoie (“James”) testified. 	Based on that testimony and the
documentary evidence elicited, the Motion will be granted. However, my order of dismissal
shall not become effective for ten (10) days to allow the Debtors to convert their case to one
under Chapter 13.
BACKGROUND
James and Jennifer Savoie (“Jennifer”) have been struggling with their debts for ten
of the twelve years of their marriage. They have lived up to the limits of their joint salaries
and reacted to the three periods of Jennifer’s unemployment1 by funding their living expenses
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born in 1995. The second occurred when they relocated to Philadelphia in May 2000. It was not
clear if her unemployment for six months prior to taking a position with Philadelphia International
Marketing (“Marketing”) was likewise by choice. However, Marketing down- sized her position
in May 2002 and she could not find work until January 2003.
2 In 1995 James’ student loans were consolidated and restated at $60,000. They went in and
out of forbearance but continued to accrue interest at all times. The present obligation is $91,000.
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with credit cards. In 1995, their credit card debt was $14,000; when they left New York in
2000 it had escalated to $26,000.
James has a graduate degree in theater and has completed all his course work for
a PhD. 	He testified that he still hopes to complete his dissertation and earn his degree
although 	it 	does 	not 	appear 	that 	this 	goal 	is 	associated 	with 	future 	employment.
His extensive education has left him with substantial unpaid student loans. Both he and
Jennifer who are college administrators take home a monthly combined income of $6,168
but carry expenses of $6,080. The present crux of the problem is the amount of funds that
are allocated to the education and care of their nine year old daughter Caroline in addition
to their regular expenses and continuing student loan debt.2
According to James, upon their relocation from New York to Philadelphia in 2000,
they secured rental housing in the Main Line suburb of Narberth. Their daughter was too
young to be enrolled in the Lower Merion school district, so they enrolled her in the local
Catholic school. 	When their lease expired, they purchased a house in Philadelphia,
concluding that the housing cost would be no greater and maybe less than a lease renewal.
That cost is $1,019.00 per month exclusive of real estate taxes and insurance. Exhibit T-1.
While there was a public school in their new neighborhood, they discovered that a high
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3 While the early withdrawal resulted in a $10,000 penalty and therefore loss of Jennifer’s
own retirement funds, they nonetheless made a $500 contribution to the Penn Charter faculty
retirement plan. When questioned about making this voluntary contribution, James stated that he
felt social pressure to do so but had discontinued the practice the second year.
4 Schedule F indicates that they failed to pay Penn Charter $1,000 on account of that
program.
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percentage of the students were reading below grade level and there was no gifted program
available for Caroline who had been tested and found to be in the 90 to 98th percentile.
Exhibit D-1 and D-2. Rather than continue with a parochial school education which they
were not comfortable with, they elected to enroll her in the William Penn Charter School
which was near James’ work and their home. She did not thrive well her first year, being
angry at her parents’ school choice and requiring counseling for social issues. However, she
is now flourishing both academically and socially. The annual cost of her tuition only, which
increases in the higher grades, is presently $15,250. Exhibit D-3. However, that amount is
just one part of the cost of educating Caroline. In 2003, Jennifer withdrew $32,000 from her
pension in order to raise the $22,000 they spent on Caroline’s education.3 In addition to the
academic year tuition, the parents continue Caroline’s Penn Charter experience with its after
school program that costs $900 per trimester4 and a summer camp program that costs $1,500.
The latter is supplemented by a college student babysitter at $250 per week since the camp
does not cover the entire school vacation and both parents work. Noting that the camp at
Baldwin, another exclusive private school, was even more expensive, James nonetheless
conceded that he had not investigated any less costly summer camps or child care.
Debtors’ monthly net income is $6,168.00. Exhibit T-1 (Schedule I). Their monthly
expenses total $6,080. 	Id. (Schedule J). 	The budget reflects monthly school tuition and
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5 They owe $91,000 to Sallie Mae according to Debtor’s Schedules. The budget allocates
$750 per month for this non-dischargeable obligation.
6 Bankruptcy Code § 707(b) provides as follows:
(b) 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.
There is no dispute that the debts are primarily consumer debts in this case.
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expenses of $1,220 and child care, including camp, dance and music school of $425,
aggregating $19,740 per year. 	Caroline, while a bright girl who obviously benefits from
this education, has no special needs that require it. Debtors’ monthly budget also includes
$160 for telephone, $68 for internet and cable, $200 for recreation, $70 for charitable
contributions, $300 for clothing, $560 for food, $100 for personal care. These and their other
expenditures leave no dollar available for payment to creditors other than their mortgage,
car loan and student loan,5 debts that are secured or non-dischargeable.
DISCUSSION
The United States Trustee seeks to dismiss this Chapter 7 case pursuant to § 707(b)
for “substantial abuse.” 6 Section 707(b) was enacted in response to pressure from retailers
and consumer lenders who complained of an increased number of Chapter 7 bankruptcy
filings by "non-needy" debtors. 	See Green v. Staples (In re Green), 934 F.2d 568, 571
(4th Cir. 1991). 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. 989, 95th
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7 Of course, Congress has radically changed § 707(b) by establishing a presumption of abuse
when a “means test” is triggered. The amendment to the law becomes effective on October 17, 2005
and is not applicable here.
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Cong., 2d Sess. 94 (1978). 7 While debtors should be afforded a "fresh start", the rights of
unsecured creditors to repayment of their debts where debtors can pay the debts without
undue burden must be protected. Zolg v. Kelly (In re Kelly), 841 F.2d 908, 914 (9th Cir.
1988).
The trustee has the burden of proving that the granting of relief would be a
"substantial abuse" of Chapter 7. 	In re Woodhall, 104 B.R. 544, 545 (Bankr. M.D. Ga.
1989). The Bankruptcy Code does not elaborate on what constitutes substantial abuse under
§ 707(b). See In re Walton, 866 F.2d 981, 983 (8th Cir. 1989). Legislative history suggests,
and case law teaches, that dismissal under § 707(b) for substantial abuse "can be predicated
upon either lack of honesty or want of need." In re Krohn, 886 F.2d 123, 126 (6th Cir. 1989).
In other words, dismissal of a case under § 707(b) may be warranted where, considering the
totality of the circumstances, the debtor is acting in bad faith or where the debtor has the
ability to repay a substantial portion of its unsecured debt. 	See United States Trustee v.
Harris, 960 F.2d 74 (8th Cir. 1992).
The Sixth Circuit Court of Appeals set forth the following factors to be considered
when determining whether a case should be dismissed under § 707(b) because the debtor has
the ability to repay a substantial portion of its debt:
(a) whether the debtor has the ability to repay debts out of his future income;
(b) whether the debtor enjoys a stable source of income;
(c) whether he is eligible for adjustment of debts through Chapter 13 planning;
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8 In Krohn, the chapter 7 case was dismissed because court found that "the debtor had ample
future income, his financial situation was not the product of an unforseen or catastrophic event, and
. . . good, old-fashioned belt tightening was available to the debtor . . ."
9 In Walsh, the debtors placed each of their three children in private school ($1,750 per
month or $17,500 for the academic year), spent $600 for recreation and clubs (including a country
club membership, private piano lessons and $300 for hockey fees), $850 for food, and $1,800 in
rent.
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(d) whether there are state remedies with potential to ease the financial predicament
and the degree of relief obtainable through private negotiations; and
(e) whether expenses can be reduced significantly without depriving debtor of
adequate food, clothing, shelter, and other necessities.
In re Krohn, 886 F.2d at 126-27. 8 In Green, supra, the Court identified the relevant factors
as (a) whether the bankruptcy petition was filed because of sudden illness, calamity,
disability, or unemployment; (b) whether debtor incurred cash advances and made consumer
purchases far in excess of its ability to pay; (c) whether debtor's schedules and statements of
current income and expenses reasonably reflect the true financial condition; (d) whether the
debtor’s proposed family budget is excessive or unreasonable and (e) whether the petition
was filed in good faith. Notably in each case the reasonableness of the debtor’s expenditures
is a material factor in the court’s analysis.
The court in In re Walsh, 287 B.R. 154, 156 (Bankr. D. N.C. 2002), cogently
explained the position I find myself in when it noted that while it did not want to make
lifestyle decisions for debtors, “it would be patently unfair for the debtors to continue to
make lifestyle choices that ignore their obligations to creditors.” 9 The discomfort I feel is
exacerbated because the Debtors’ motives are pure. They wish what every parent wishes,
i.e., to provide their child with an education that will maximize her potential so that she may
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enjoy a rich and productive life. However, they have pursued this goal without regard to
their responsibility for the debts they have incurred and the limitations of their joint income.
With admitted outstanding and growing credit card debt, Debtors chose housing that they
found compelled them to seek private school education for their daughter and then selected
the best schooling they could find without regard to cost. 	They supplemented Caroline’s
already expensive tuition with after school care and camp and private dance and music
lessons, and appear to have no intention of compromising the quality and concomitant cost
of the education and enrichment being provided to her.
James stresses that his family lives a modest lifestyle but for their commitment to
educate their daughter at Penn Charter. While I would agree that they are not extravagant
in their expenditures except for the amount they spend on Caroline, they clearly also have
the ability to decrease their spending which is anything but modest. However, James does
not appear to recognize any responsibility to conserve resources to allow them to provide
Caroline with the costly education she is enjoying. I can discern no belt tightening on the
Debtors’ part to compensate for the large education expenditures. Rather the Debtors have
made the choice to have their creditors pay for their daughter’s expensive education without
realizing any of the pain themselves. 	While it is not clear to me that the Debtors could
sufficiently reduce their expenses to afford Caroline’s present education and enrichment
program, it is clear that they have made no attempt to do so. When I asked James how he
was going to pay his non-dischargeable debts and maintain the education expense that the
couple are committed to, James had no credible answer.
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10 While there have been periods during the Savoie’s ten years of financial distress that
Jennifer did not work, I do not view them to be the precipitating cause of the bankruptcy. While a
steady second income would have reduced their reliance on credit card debt, the evidence is that
they had significant credit card debt in 1995 before any interruption in Jennifer’s work. While it
grew to $26,000 by the time the Debtors left New York in 2000, it appears that the one year hiatus
Jennifer took from the workplace in 1995 when Caroline was born which no doubt contributed to
their financial problems was by choice.
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In short, I conclude that Debtors have a stable source of income exceeding $100,000
for the past three years. Their expenses can be reduced significantly without depriving them
of adequate food, shelter or other necessities. 	Their bankruptcy petition was not filed
because of any sudden illness, disability or unemployment10 but rather is the consequence of
years of spending beyond their means, a practice which is not addressed in this bankruptcy
case. While they certainly need bankruptcy relief from the sizeable credit card debt they
have accumulated, the nature of the relief they seek is not only unfair to their creditors but
ineffective to address their financial problems. The Debtors need financial counseling which
will enable them to formulate a realistic budget and a plan for paying their creditors. If they
are prepared to make the difficult decisions that such a plan requires, they could do so in a
Chapter 13 case. 	However, I will not allow this Chapter 7 case to proceed under these
circumstances.
The Debtors have requested that they be given the opportunity to convert their case
to one under Chapter 13 should I grant the UST’s motion. The UST objects and argues that
I am compelled to dismiss. I respectfully disagree. As the Debtors are not precluded from
filing a petition under Chapter 13, so they are not precluded from requesting conversion.
The Chapter 7 case is being dismissed as a substantial abuse since the Debtors have not
committed to use their future income to pay their creditors. 	An agreement to do so by
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11 Such an undertaking is a requirement of an individual debtors seeking a discharge in cases
filed after October 17, 2005 when the Bankruptcy Abuse Prevention and Consumer protection Act
of 2005 becomes effective. 11 U.S.C. § 1328(g).
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undertaking a Chapter 13 plan is the desired objective of § 707(b), and thus it is
counterintuitive not to grant their request. However, the quid pro quo of the continuation of
this bankruptcy case is the filing of a Chapter 13 plan that reflects a significant reduction in
their spending, including a reassessment of the education plan for Caroline consistent with
their other obligations. In that connection, Debtors are urged to obtain personal financial
management education to develop a realistic and workable budget.11
An Order consistent with the foregoing Memorandum Opinion shall be entered.
DIANE WEISS SIGMUND
Chief U.S. Bankruptcy Judge
Dated: 	October 6, 2005
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UNITED S TATES B ANKRUPTCY COURT
FOR T HE E ASTERN DISTRICT O F PENNSYLVANIA
In re 	: 	Chapter 7
:
JAMES A. SAVOIE and 	: 	Bankruptcy No. 05-13263DWS
JENNIFER M. SAVOIE, 	:
:
Debtors. 	:
ORDER
AND NOW, this 6th day of October 2005, upon consideration of the Motion of the
United States Trustee to Dismiss (“Motion”) Pursuant to 11 U.S.C. § 707(b), after notice and
evidentiary hearing and for the reasons stated in the accompanying Memorandum Opinion;
It is hereby ORDERED that the Motion is GRANTED provided, however, that
the Debtors will be given the opportunity to convert this case to one under Chapter 13.
If no motion to convert is filed within ten (10) days, this case shall be dismissed.
DIANE WEISS SIGMUND
Chief U.S. Bankruptcy Judge
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Copies to:
Eric L. Frank, Esquire
DIDONATO & WINTERHALTER
1818 Market Street
Suite 3520
Philadelphia, PA 19103
George M. Conway, Esquire
Office of the U.S. Trustee
833 Chestnut Street
Suite 500
Philadelphia, PA 19107
William C. Miller, Esquire
Standing Chapter 13 Trustee
P. O. Box 40119
Philadelphia, PA 19106-0119
Gary Francis Seitz, Esquire
The Bayard Firm
222 Delaware Avenue
Suite 900
Wilmington, DE 19899
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