In re Fletcher, 463 B.R. 9

Background

Debtor filed Chapter 7 on September 29, 2010 seeking discharge of $103,291.59 in unsecured consumer debt with no secured debt.
Debtor’s Schedule I shows gross monthly income of $5,202.53; $1,485.97 in deductions include 401(k) contributions and 401(k) loan repayments.
401(k) loan of $22,715.55 was borrowed July 24, 2008 and is scheduled to be repaid by August 21, 2013; loan payments are $356.61 every two weeks.
Net monthly income after deductions is $2,741.71; Schedule J shows monthly expenses of $2,775.00, yielding negative disposable income of -$33.29.
Case was dismissed then set aside; UST filed a presumptive abuse statement under 11 U.S.C. § 704(b).
UST moved to dismiss under § 707(b)(2) and § 707(b)(3)(B); after amended means test and stipulations, the matter proceeded on § 707(b)(3)(B) without disputed facts.
Court concludes debtor has the ability to fund a Chapter 13 plan, largely after the 401(k) loan is repaid in August 2013, indicating abuse under § 707(b)(3)(B).

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether totality of circumstances shows abuse under §707(b)(3)(B).	UST argues debtor can fund Chapter 13 using disposable income including 401(k) payments.	Debtor contends 401(k) contributions/loans are not disposable income or that circumstances justify relief.	Abuse found; debtor has disposable income after loan payoff and may fund Chapter 13.
Whether 401(k) contributions and loan repayments are disposable income for §707(b)(3) analysis post-BAPCPA.	Behlke/Seafort line of cases permit treating 401(k) payments as disposable income to fund Chapter 13.	Debtor argues post-BAPCPA exemptions nullify this consideration in Chapter 7 analysis.	These payments may be treated as disposable income for purposes of §707(b)(3) analysis.
Whether the debtor’s eventual ability to fund a Chapter 13 plan constitutes abuse despite temporary zero contribution to Plan.	Postponed payoff allows future funds (≈$700/month) to be directed to creditors, showing abuse.	Debtor may have zero initial contributions to Chapter 13 until August 2013, undermining fundability.	Yes; once loan expires, meaningful distribution (≈24%) to unsecured creditors is feasible, supporting abuse.
Whether dismissal should be granted or conversion required within a specified period.	Court should dismiss under §707(b)(3) if conversion to Chapter 13 is not timely pursued.	Debtor should not be penalized for mechanics of conversion; seeks relief consistent with law.	Grant of dismissal unless Debtor converts to Chapter 13 within 21 days.
What is the controlling statutory framework after BAPCPA for evaluating abuse under §707(b)(3).	Pre-BAPCPA precedents remain instructive and support abuse finding.	Argues that post-BAPCPA changes alter the disposable income calculation.	Court relies on Behlke/Seafort framework, recognizes post-BAPCPA context, and finds abuse.

Key Cases Cited

In re Behlke, 358 F.3d 429 (6th Cir. 2004) (ability to fund Chapter 13 via future earnings considered in totality)
In re Krohn, 886 F.2d 123 (6th Cir. 1989) (discusses bankruptcy dismissal standards under §707(b))
In re Summer, 255 B.R. 555 (Bankr. S.D. Ohio 2000) (burden of proof on the United States Trustee in abuse cases)
In re Pandl, 407 B.R. 299 (Bankr. S.D. Ohio 2009) (treatment of 401(k) payments as disposable income for §707(b)(3))
In re Felske, 385 B.R. 649 (Bankr. N.D. Ohio 2008) (401(k) payments treated as disposable income for §707(b)(3) analysis)
In re Seafort, 437 B.R. 204 (6th Cir. BAP 2010) (post-BAPCPA, 401(k) loan repayments can be considered disposable income)
In re Phillips, 417 B.R. 30 (Bankr. S.D. Ohio 2009) (means to demonstrate meaningful distribution to creditors under §707(b)(3))
Eisen v. Thompson, 370 B.R. 762 (N.D. Ohio 2007) (analysis supporting including 401(k) payments as disposable income)
Krohn (Behlke referenced), In re Behlke, 358 F.3d 429 (6th Cir. 2004) (needy vs. lack of need framework for abuse under §707(b)(3))