In re                                                                                              
No. 98-32106SCDM 

NAHLA AND ANTHONY P. BUCHANAN, 
Debtors   
___________________________________/

ORDER DENYING SECTION 707(b) MOTION TO DISMISS

On August 10, 1998, the United States Trustee ("UST") filed a motion to dismiss
the Chapter 7 case of Nahla and Anthony Buchanan ("Debtors") for substantial abuse
pursuant to 11 U.S.C. § 707(b). Debtors filed an opposition, arguing that their
debts were not primarily "consumer debts" as required by section 707(b). The court
held a hearing on the motion to dismiss on October 16, 1998; the UST appeared
through Patricia Cutler, Esq. and Debtors appeared through John Raymond, Esq. For
the reasons stated below, the motion to dismiss is hereby DENIED.

Section 707(b) provides that the 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." Both the UST and the Debtors concede that while the Bankruptcy Code does
not quantify "primarily" for the purposes of section 707(b), the Ninth Circuit has
determined that the standard is met when more than half of the dollar amount owed
is consumer debt. Zolg v. Kelly (In re Kelly), 841 F.2d 908, 913 (9th Cir. 1988).
In this case, state and federal income tax liabilities constitute more than fifty
percent of Debtors' scheduled debts. Thus, because Debtors' liabilities are
"primarily" income tax debts, the court must determine whether those tax
obligations constitute "consumer debts" under section 707(b).

The Bankruptcy Code defines "consumer debt" as a "debt incurred by an individual
primarily for a personal, family or household purpose." See 11 U.S.C. § 101(8).
While most cases addressing whether income taxes constitute "consumer debt"
involve sections 362 or 1301 of the Bankruptcy Code, the majority of these
decisions have interpreted the definition of "consumer debt" in section 101(8) to
exclude income taxes.⁽¹⁾ Similarly, those cases arising in the context of section
707(b) have generally held that income tax liability is not a "consumer debt." As
noted by the court in In re Brashers, 216 B.R. 59 (Bankr. N.D. Okla. 1998)
(section 707(b) case):

Tax liability is not "incurred" as part of a consumption activity, but is
involuntarily imposed in the course of earning income. [Citations omitted.] A tax
"is not 'incurred,' but rather, is involuntarily imposed by a government for the
public welfare. Such public purpose is sufficient . . . to take the debt outside
the scope of a consumer debt."

Id. at 60-61, quoting In re Stovall, 209 B.R. 849, 853-54 (Bankr. E.D. Va. 1997)
(collecting cases concluding that unpaid income taxes are not "consumer debts"
under section 101(8)). Likewise, in In re Traub, 140 B.R. 286, 288 (Bankr. D. N.M.
1992), the court held income taxes do not qualify as consumer debts for the
purposes of section 707(b). The Traub court noted that although most cases
addressing the nature of consumer debts involve section 1301, all of the cases
were interpreting consumer debts as defined by section 101(8). "[Section] 101(8)
is an omnibus section which applies to all sections of the Code." Id.

The weight of case law excluding income taxes from "consumer debts" is consistent
with the legislative history of section 101. Senate Report 95-989 notes the
definition of "consumer debt" in section 101 "is adapted from the definition used
in various consumer protection laws. It encompasses only a debt incurred by an
individual primarily for a personal, family, or household purpose." See S. Rep.
No. 989, 95th Cong., 2d Sess. 1978, 1978 U.S.C.C.A.N. 5787, 1978 WL 8531. Cases
interpreting the "various consumer protection laws" have excluded taxes from their
scope. See Staub v. Harris, 626 F.2d 275, 277-78 (3d Cir. 1980) (per capita tax
was not a "debt" under the Fair Debt Collections Practices Act); Beggs v. Rossi,
994 F. Supp. 114, 116-17 (D. Conn. 1997), aff'd, 145 F.3d 511 (2d Cir. 1998)
(personal property taxes assessed on motor vehicles were not "debts" under the
Consumer Credit Protection Act). To the extent the legislative history to section
101 refers to other consumer protection laws in defining "consumer debt," taxes
are excluded from that definition.

The UST, citing three cases, argues that Debtors' income tax liability
constitutes "consumer debt" because Debtors minimized their tax withholdings in
order to meet living expenses. However, the court disagrees with the legal
principle espoused and the cases cited by the UST. Two of the cases are
distinguishable, and the third case is not binding and is not persuasive.

The first case, In re Stewart, involved student loans, not taxes. Because the
loans were used to pay the living expenses of the debtor and his family, the
Stewart court considered the debt to be consumer in nature. See Stewart v. United
States Trustee (In re Stewart), 215 B.R. 456, 464-65 (10th Cir. BAP 1997).⁽²⁾ In
the second case cited by the UST -- In re Gentri, 185 B.R. 368, 372-73 (Bankr.
M.D. Fla. 1995) -- the debtors defaulted on their home mortgage loan, which was
forgiven by the lender. Consequently, the debtors incurred tax liability for the
forgiveness of the debt. The Gentri court treated the tax liability as a consumer
debt because, absent the triggering event (the forgiveness of the loan), the debt
would have been consumer in nature. Because the nexus between the underlying
consumer loan and the resulting tax debt was so clear and direct, the Gentri court
held that the tax retained the same character as the original loan. In contrast,
in this case, Debtors did not borrow money from a lender to pay consumer debts,
thereby distinguishing both Stewart (where student loan was incurred to support
family) and Gentri (where forgiveness of consumer loan directly resulted in tax
liability).

The third case cited by the UST - In re Westberry, 219 B.R. 976 (Bankr. M.D.
Tenn. 1998) - is more closely on point, but is not binding; moreover, while this
court appreciates the reasoning of Westberry, it disagrees with the analysis. The
Westberry court held that income tax liability could constitute a "consumer debt"
because consumer debt does not require "consumption" by the debtor. In making this
analysis, the Westberry court noted that Congress could have used "consumer credit
transaction" versus "consumer debt" and, absent the more particular reference, a
court interpreting section 101(8) is not bound by the definitional limitations
contained in consumer credit regulatory statutes. The Westberry court thus
disregarded prior bankruptcy court interpretations of "consumer debt," as well as
the legislative history to section 101(8). As discussed above, the legislative
history to section 101(8) indicates that the definition of "consumer debt" is
adapted from the definition used in consumer protection laws; cases interpreting
those laws are instructive and exclude "taxes" from their scope.

The Westberry court held that income tax liability can constitute "consumer debt"
if the debtor paid living expenses with funds which could have otherwise been
withheld from earnings for tax payments. This court, however, chooses not to adopt
the reasoning of Westberry that an income tax is a "consumer debt" merely because
a debtor fails to withhold sufficient income to pay taxes and uses distributed
income to pay consumer or living expenses. The connection is too tenuous to
justify characterizing income tax liability as a "consumer debt." Income tax
liability is not determined at the time of withholding but is set at the end of
the tax year. Many factors other than withholding affect the liability:
deductions, adjustments, additional income. Many reasons exist to adjust
withholding, including a desire to earn interest on income. This court will not
characterize a decision to minimize withholdings as an affirmative act of consumer
consumption absent a clear legislative mandate.

In light of the foregoing, the court hereby DENIES the UST's motion to dismiss.

Dated: October 27, 1998

_________________________________
Dennis Montali
United States Bankruptcy Judge

1. See In re Gault, 136 B.R. 736, 738 (Bankr. E.D. Tenn. 1991) (section 1301 case) (applying section 101(8), court noted
that an "income tax liability is simply not a consumer debt because it is not incurred in the course of a consumptive
activity"); see also Goldsby v. United States (In re Goldsby), 135 B.R. 611, 613 (Bankr. E.D. Ark. 1992) (section 1301
case) (citing extensive authority that "federal income taxes do not constitute a consumer debt").