In Re Allen

Citations: 411 B.R. 913; 2009 Bankr. LEXIS 2557; 2009 WL 2867898Docket: 18-40794

Court: United States Bankruptcy Court, S.D. Georgia; May 12, 2009; Us Bankruptcy; United States Bankruptcy Court

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Patricia Lynn Allen filed for Chapter 7 bankruptcy on December 18, 2007. Following her filing, the United States Trustee moved to dismiss the case on March 17, 2008, alleging that it constituted an abuse of Chapter 7 under two grounds: a presumption of abuse per 707(b)(2)(A)(I) and a totality of circumstances test under 707(b)(3)(B). The parties entered into a joint stipulation of facts following discovery. Key findings include:

1. The debtor's filing included necessary documentation such as bankruptcy schedules, a statement of financial affairs, and a Means Test Form.
2. The debtor primarily held consumer debts.
3. On the petition date, only the debtor resided in her household, after her youngest daughter moved out in early December 2007, although the debtor claimed her as a dependent on her tax return for that year.
4. The U.S. Trustee's office sent an inquiry on January 15, 2008, requesting additional documents, leading to the adjournment of the creditors' meeting convened on January 17, 2008.
5. The debtor provided requested documentation via email on February 4, 2008.
6. After reviewing the documents, the U.S. Trustee informed the debtor's counsel on February 6, 2008, that the continued meeting of creditors would not require the debtor's presence.
7. The Chapter 7 Trustee concluded the meeting without further input from the debtor on February 7, 2008.
8. The U.S. Trustee filed a Statement of Presumed Abuse on February 19, 2008, following the weekend and a federal holiday. 

These findings outline the procedural developments in the bankruptcy case and the basis for the U.S. Trustee's motion to dismiss.

On March 17, 2008, the U.S. Trustee filed a motion to dismiss the debtor's case, citing presumptions of abuse under 707(b)(2) and the totality of the debtor's financial situation under 707(b)(3). At the time of the petition, the debtor owned a home and a 2006 Toyota Solara, both of which she intended to surrender to secured creditors, having missed mortgage payments since October 2007 and made no post-petition payments. Additionally, the debtor owned a 2001 Volkswagen Jetta, which she transferred to her daughter without compensation, while continuing to pay insurance for it. In a separate arrangement, the debtor's mother purchased a 2008 Dodge Caliber for the debtor, with the debtor responsible for monthly payments. 

Exhibits F, G, and H include agreed-upon means test analyses, and stipulated income and expense schedules as of the petition date and as of January 27, 2009, respectively. The debtor, a healthy 41-year-old registered nurse earning a base salary of $56,000 annually, lives alone without dependents. The U.S. Trustee submitted three sets of interrogatories to the debtor, who claimed four disputed deductions in her Means Test calculation, specifically related to secured debt payments and a vehicle ownership deduction for the Volkswagen Jetta.

The Debtor contends that the United States Trustee's motion to dismiss was untimely, citing 11 U.S.C. § 704(b), which mandates the Trustee to file a statement regarding potential abuse within 10 days of the first meeting of creditors. The Trustee, however, argues that this timeframe should be calculated from the conclusion of that meeting. The court aligns with the Trustee's interpretation, referencing the decision in *In re Molitor*, and concludes that the motion to dismiss was timely.

Regarding the presumption of abuse under 11 U.S.C. § 707(b)(2), the court notes that a debtor's case is presumed abusive if their current monthly income, after allowable deductions, exceeds $182.50 when averaged over 60 months. The Debtor reports a monthly income of $4,620.93 and deductions of $4,966.71, resulting in a negative disposable income. However, if the Trustee disallows certain deductions, the presumption of abuse may apply.

The court further analyzes the Debtor’s financial situation, considering future payments on secured claims. The Trustee calculates the disposable income at $988.09, allowing $696.00 for a mortgage the Debtor intended to surrender. The court agrees with the Trustee’s calculation, allowing deductions related to both the first mortgage and an automobile payment, but ultimately finds that the Debtor's disposable income is $280.45 per month, exceeding the abuse threshold of $182.50.

Finally, the court addresses allowable deductions under IRS standards, as per § 707(b)(2)(A)(ii), which permits deductions for monthly expenses defined by IRS National and Local Standards and actual necessary expenses. These standards, detailed in the IRS Financial Analysis Handbook, guide revenue agents in evaluating a taxpayer's financial capacity.

The IRM categorizes expenses into three types: National Standards, Local Standards, and Other Necessary Expenses. National Standards provide uniform allowable expenses for food, clothing, household supplies, personal care, and miscellaneous items across all regions. Local Standards include varying transportation and housing/utilities expenses based on geographic location. Other Necessary Expenses allow for actual monthly expenditures, such as student loan payments and healthcare, without specified limits.

In the case at hand, the Debtor claims a vehicle ownership deduction of $332.00 for a 2001 Volkswagen Jetta, while the United States Trustee allowed no deduction for ownership but increased the Operations Expense for an old car. The core issue is whether the Debtor can claim this vehicle ownership expense despite owning the vehicle free of liens. The IRS Local Standards distinguish between ownership costs and operational costs for vehicles and public transportation.

The United States Trustee argues that the deduction is only permissible if the vehicle is leased or subject to a secured obligation. Conversely, the Debtor asserts that applicable expenses relate to geographic factors and vehicle count, independent of actual loan or lease payments. This has led to a split in court interpretations of 707(b)(2)(A)(ii)(I). 

Some courts adopt a "plain language approach," permitting deductions based on geographic region and number of vehicles owned, regardless of actual expenses. Others follow the "IRM approach," stating that deductions can only be made if there is a corresponding expense. The Seventh Circuit noted that the IRM methodology serves as an interpretive guide for the means test, suggesting that Local Standards must be viewed in the context of their application in revenue collection.

Under the I.R.S. methodology, taxpayers without car payments are entitled only to a transportation operation deduction, not an ownership deduction. However, despite owning her car outright, the Debtor is permitted to claim the deduction under Line 24 of the Means Test Form, allowing a deduction of $332.00. Consequently, her Transportation Operations Expenses on Line 22 will be limited to $260.00, rejecting an additional $200.00 proposed by the United States Trustee. This adjustment reduces her disposable income from a tentative $280.45 to $148.45 per month, which is below the $182.50 threshold, thereby preventing a presumption of abuse.

The United States Trustee has also requested the dismissal of the Debtor's Chapter 7 case under 11 U.S.C. 707(b)(3)(B), asserting that relief would constitute abuse based on the totality of her financial circumstances. Since the presumption of abuse does not arise, the burden rests with the United States Trustee to demonstrate that the overall financial situation indicates abuse. The Trustee must show more than just the ability to fund a Chapter 13 plan; various factors will be considered, including the nature of the bankruptcy filing, eligibility for Chapter 13, efforts to repay debts, availability of non-bankruptcy remedies, potential for meaningful distributions in Chapter 13, ability to reduce expenses, the timeline of debt accumulation, and stability of future income sources.

The United States Trustee has demonstrated that the Debtor's financial situation constitutes "abuse" under bankruptcy law. Courts assess whether a Debtor can make a "meaningful" distribution in a hypothetical Chapter 13 case by examining the Debtor's financial schedules and other relevant facts, without a strict definition of "meaningful." A threshold of $182.50, established in 707(b)(2)(A), serves as a guide for evaluating the potential for abuse under 707(b)(3)(B).

In this case, the Debtor has a disposable income of $669.53 monthly, which, after an increase in expenses by $65.00, adjusts to $604.53, totaling $36,271.80 over a five-year plan. This amount exceeds the $182.50 threshold. The Debtor has no secured debt but holds $15,358.14 in priority unsecured debt and $40,834.77 in nonpriority unsecured debt. After addressing the priority debt, approximately $20,913.66 remains to pay nonpriority creditors, resulting in a 51.2% dividend, surpassing the 25% threshold.

The Debtor is eligible for Chapter 13, earning an annual salary of $56,000, significantly above Georgia's median for a single-person household, and has maintained stable employment as a registered nurse. There is no evidence of bankruptcy caused by unforeseen circumstances. The Debtor can also reduce monthly expenses, particularly a $225.00 payment to adult children not residing at home. Eliminating this expense would increase disposable income to $829.53 monthly, yielding an estimated 84% dividend for unsecured creditors over five years.

Debtor is currently paying $79.00 monthly for insurance on a 2001 Jetta, which was gifted to her youngest daughter post-petition without any compensation. Following this gift, Debtor incurred an additional $359.00 monthly expense for a new vehicle. If the United States Trustee's argument against these deductions succeeds, Debtor could potentially have $1,360.87 in disposable income monthly, which could yield a 100% dividend to unsecured creditors over a 5-year Chapter 13 plan. The court finds that Debtor can fund a meaningful repayment under Chapter 13, leading to the conclusion that the United States Trustee has demonstrated a basis for dismissal based on the totality of circumstances. Consequently, the court orders the case dismissed unless Debtor converts her Chapter 7 to a voluntary Chapter 13 by May 22, 2009. Additionally, the United States Trustee challenges Debtor's $32.04 vehicle ownership deduction for a Toyota Solara but concedes it is not critical to the case. Debtor also urged the court to reassess its previous decisions regarding the dismissal of cases under Section 707(b), arguing that dismissal should occur only in cases of bad faith; however, this contradicts the bifurcated nature of Section 707(b)(3) under BAPCPA, which allows dismissal based on either bad faith or the totality of circumstances. Lastly, adjustments to Debtor’s utility expenses have increased monthly costs by $65.00.