DeAngelis v. Lanza (In Re Lanza)
450 B.R. 81
Bankr. M.D. Penn.2011Background
- Debtors filed a voluntary Chapter 7 petition July 30, 2010; both have consumer debts totaling $52,788, including $24,481 in student loans.
- Debtors’ income is below Pennsylvania four-person household median; Schedules show net monthly income $5004 and expenses $5192.
- Debtors’ Florida residence has FMV $69,500 with liens $201,269; they intend to surrender the home and a Florida timeshare with $255 monthly payment.
- Debtors have already stopped paying the Florida residence and timeshare obligations since filing and do not expect to resume payments.
- Debtors’ daughter’s education costs: $564 monthly student loan and $546 monthly tuition for a 21-year-old, which are alleged to be discretionary.
- Court must decide whether, despite being below median, the case can be dismissed under § 707(b)(3) based on totality of circumstances and ability to repay through Chapter 13.
- Debtors propose a Chapter 13 plan could repay all unsecured debt within 36 months; the UST argues such income should be used to pay creditors instead of discretionary expenditures.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether below-median debtors may be dismissed under § 707(b)(3). | UST contends § 707(b)(3) allows totality-of-circumstances review even without § 707(b)(2) presumption. | Debtors argue below-median status exempts them from Means Test and § 707(b)(3) analysis of ability to pay. | Yes; § 707(b)(3) may be applied despite no § 707(b)(2) presumption. |
| Whether the court may consider ability to pay when no presumption exists. | UST asserts disposable income may show abuse under § 707(b)(3). | Debtors contend no ability-to-pay review without presumption. | Court may consider ability to repay under § 707(b)(3). |
| Whether adult-education expenses for the debtor's child are reasonable and necessary. | Debtors’ $1110 monthly educational costs should be disallowed as not a necessary expense. | Debtors claim education expenses are necessary for family support; some courts permit, others do not. | Discretionary education expenses for adult child should be allocated to creditors; reduce disposable income accordingly. |
| What is the appropriate conclusion given disposable income and feasibility of a Chapter 13 plan? | Debtors can fund a 36-month Chapter 13 plan if disposable income is diverted to creditors. | Debtors dispute the size of their disposable income and feasibility of Plan. | Case dismissed unless Debtors convert to Chapter 13; plan feasible within 36 months. |
| Impact of prior holdings (Athens) on the current rule governing § 707(b)(3). | UST relies on Athens allowing review under § 707(b)(3) for below-median debtors. | Debtors seek to limit review to Means Test; Athens stance should apply. | Court reaffirms that § 707(b)(3) review applies to below-median debtors; not bound by Athens' narrower view. |
Key Cases Cited
- In re Athens, 347 B.R. 12 (Bankr.D.Del. 2006) (discussed as underpinning for totality of circumstances review in § 707(b)(3))
- In re Paret, 347 B.R. 12 (Bankr.D.Del. 2006) (cited for inclusion of disposable income in totality analysis)
- In re Pak, 343 B.R. 239 (Bankr.N.D. Cal. 2006) (supports considering ability to repay under § 707(b)(3))
- In re Zaporski, 366 B.R. 758 (Bankr.E.D. Mich. 2007) (discretion to apply § 707(b)(3) to below-median debtors)
- In re Shores, ? (Bankr.M.D.Pa. 2003) (listed as authority on non-allowable discretionary education expenses for adult child)
- In re Miller, 302 B.R. 495 (Bankr.M.D.Pa. 2003) (factors for determining abuse under § 707(b)(3) and framework for analysis)
- In re Perlin, 497 F.3d 364 (3d Cir. 2007) (canon of negative implication not controlling in § 707(a)/(b) context)
- In re Walker, 381 B.R. 620 (Bankr.M.D.Pa. 2008) (contrasts Means Test analysis with § 707(b)(3) review)