A Critical Analysis of Bankruptcy Code Section 707(b)

In response to criticism by the credit industry and the dramatic rise in the amount of consumer bankruptcy filings, a number of provisions relating to consumer credit, often referred to as the "Consumer Credit Amendments," were included in the Bankruptcy Amendments and Federal Judgeship Act of 1984....Section 707(b)9 is one of the most significant changes included in the Consumer Credit Amendments. This entirely new provision allows bankruptcy courts to dismiss a Chapter 7 petition for substantial abuse when the case is filed by an individual debtor whose debts are primarily consumer debts. The purpose of the Consumer Credit Amendments is clearly expressed. However, the language of section 707(b) and the sparse and conflicting statements of legislative intent behind section 707(b) have given rise to four difficult issues that have not been resolved consistently by the courts: (1) What is the effect of a party in interest raising the issue of substantial abuse? (2) What is the appropriate definition of the phrase "primarily consumer debts"? (3) What circumstances would constitute substantial abuse? (4) What is the effect of the presumption in favor of relief? The ultimate resolution of these issues will determine if the legislation will create an improved bankruptcy system or dramatically alter the traditional "fresh start" approach to individual bankruptcy. This Article reviews various court decisions and attempts to provide a workable framework for the application of the concepts embodied in section 707(b).