496 B.R. 765
Bankr. M.D. Penn.2013Background
- Debtor Thad M. Holmes filed Chapter 7 on March 29, 2012; he lives with longtime non-filing housemate/companion Bradley T. Jones but they have no legal relationship.
- Debtor’s Schedules and Form B22A/MFT variably listed Jones’ income in the “spouse” column and listed household size as two; Debtor later filed amended B22As explaining Jones’ monthly contribution.
- U.S. Trustee moved to dismiss under 11 U.S.C. § 707(b)(2) (means-test presumption of abuse) or, alternatively, under § 707(b)(3) (totality-of-circumstances). Trustee argued Debtor understated Jones’ household contribution and overstated tax and health deductions.
- Trial evidence included payroll records and a ledger of Jones’ expenses; U.S. Trustee’s CPA witness re-allocated many of Jones’ expenditures as household contributions, increasing Debtor’s disposable income. Debtor maintained Jones has no legal obligation to pay his debts and that Jones’ listed expenses were personal.
- Court found errors conceded or proved on taxes and health-insurance adjustments but refused to impute the large unspecified portion of Jones’ expenses to Debtor because the parties are not legally joined and the record left many items ambiguous.
Issues
| Issue | U.S. Trustee's Argument | Debtor's Argument | Held |
|---|---|---|---|
| Whether a means-test presumption of abuse under § 707(b)(2) arises | Debtor’s B22A understates Jones’ household contribution and overstates tax and health deductions, which if corrected produces positive disposable income and a presumption | Jones is a non-filing roommate with no legal obligation to pay Debtor’s debts; many of Jones’ listed expenses are personal and not household contributions | No presumption of abuse under § 707(b)(2); taxes and health adjustments credited to Trustee but Court declined to impute the disputed portion of Jones’ income |
| Whether income of a non-filing housemate may be included in CMI as household contributions | Trustee: include amounts regularly paid toward household expenses; many of Jones’ expenditures are household and within IRS allowances | Debtor: only actual amounts regularly contributed to household should count; ambiguous categories should not be forced into contribution | Court applied statutory test: only amounts actually paid for household expenses count; ambiguous/unspecified categories treated as personal to Jones and not added to Debtor’s CMI |
| Whether Debtor overstated tax and health-care deductions on B22A | Trustee’s CPA demonstrated numerical errors reducing deductions, increasing disposable income | Debtor conceded the health-insurance error and offered no expert rebuttal on taxes | Court found the tax and health-insurance deductions overstated and adjusted B22A accordingly |
| Whether dismissal is warranted under § 707(b)(3) (totality/bad faith) | Trustee: Debtor made excessive consumer and eve-of-bankruptcy purchases, maintains excessive budget, and can fund a Chapter 13 plan | Debtor: medical issues and lack of alternative state remedies explain filing; some expenses justified | Court found totality of circumstances shows abuse under § 707(b)(3) and granted dismissal unless Debtor converts to Chapter 11 or 13 within 14 days |
Key Cases Cited
- U.S. Trustee v. Miller, 302 B.R. 495 (Bankr. M.D. Pa.) (articulating factors used in totality-of-circumstances analysis)
- In re Krohn, 886 F.2d 123 (6th Cir. 1989) (enumerating factors to evaluate abuse/totality of circumstances)
- In re Baldino, 369 B.R. 858 (Bankr. M.D. Pa. 2007) (non-filing spouse’s income included in CMI only to extent regularly contributed to household)
- DeAngelis v. Lanza (In re Lanza), 450 B.R. 81 (Bankr. M.D. Pa. 2011) (use of multi-factor totality-of-circumstances analysis)