537 B.R. 147
Bankr. E.D.N.Y.2015Background
- Debtor Laurie Montalto filed chapter 7; husband Brian did not file; household gross annual income ~$140,654 (above median) and unsecured consumer debt ~$44,976.
- Debtor completed Form 22A Means Test including all of Brian’s income then claimed marital adjustments totaling $1,088.62 and various expense deductions (childcare, additional telecom, Debtor’s 401(k) loan repayment) resulting in negative disposable income.
- U.S. Trustee (UST) moved to dismiss under 11 U.S.C. § 707(b) arguing (1) presumption of abuse under § 707(b)(2) because marital adjustments and other deductions were improper, and (2) alternatively abuse under § 707(b)(3).
- At hearing, parties submitted documentary exhibits; neither spouse testified. The UST challenged specific marital adjustments: (a) non-filing spouse business expenses $447/mo, (b) non-filing spouse credit card payments $539/mo, (c) non-filing spouse 401(k) loan payment $102.62/mo; and expense deductions: childcare ($705–816), additional telecom ($100), Debtor’s 401(k) loan repayment $117.14.
- Court applied a shifting burden: UST must make a prima facie showing that non-filing spouse income is being used for household expenses or that claimed actual expenses lack documentation; then debtor must substantiate which items are non-household or are actual and necessary.
Issues
| Issue | UST's Argument | Debtor's Argument | Held |
|---|---|---|---|
| Proper burden and treatment of marital adjustment when spouse not a filer | UST must show how much of non-filing spouse’s income should be imputed to debtor to trigger presumption | Debtor contends marital adjustment should be allowed unless UST proves spouse’s income paid household expenses | Court: shifting burden — UST must make prima facie showing; debtor must then substantiate that adjustments are non-household; in practice debtor bears evidentiary burden to itemize and prove personal expenses |
| Business expenses and credit-card payments claimed as marital adjustments | Charges are largely household in nature per statements; adjustments improper absent proof they were personal | Debtor relies on tax return and asserts some charges are personal; urges UST to disprove | Court disallowed $447 business-expense adjustment and $539 credit-card adjustment for failure to substantiate that charges were non-household; presumes household use absent proof otherwise |
| Non-filing spouse 401(k) loan repayment claimed as marital adjustment | Proceeds were deposited to joint account and used for household repairs — repayment is household expense | Debtor: repayment is personal and therefore deductible as marital adjustment regardless of use of proceeds | Court: look to how loan proceeds were used; Debtor failed to prove portion used for non-household expenses — disallowed $102.62 adjustment |
| Debtor’s claimed actual expenses (childcare, additional telecom, Debtor’s 401(k) loan repayment) | UST challenges lack of documentation and argues some telecom/internet charges are for spouse’s job; 401(k) loan repayment not a deductible debt | Debtor seeks to deduct childcare (paid partly to mother in cash), $100 extra telecom, and $117.14 401(k) repayment | Court disallowed childcare deduction unless documented; allowed limited extra telecom only for Debtor’s cell-data ($30 or $45) but disallowed high‑speed internet for spouse; disallowed Debtor’s 401(k) loan repayment as a §707(b)(2)(A)(iii) deduction (401(k) loan not a "debt") |
| §707(b)(3) bad faith / totality of circumstances | Case demonstrates ability to repay and inconsistent Means Test iterations reflect bad faith | Debtor asserts good-faith legal positions on deductions | Court found no bad faith; declined to dismiss under §707(b)(3) absent presumption under §707(b)(2) after recalculation |
Key Cases Cited
- In re Egebjerg, 574 F.3d 1045 (9th Cir. 2009) (401(k) loan repayment generally not a "debt" deductible under Means Test)
- In re Vollen, 426 B.R. 359 (Bankr. D. Kan. 2010) (analysis permitting marital adjustment for non-debtor 401(k) loan where funds did not enter household income stream)
- In re Toxvard, 485 B.R. 423 (Bankr. D. Colo. 2013) (examined use of 401(k) loan proceeds to determine marital adjustment; repayment treated per use of proceeds)
- In re Meade, 420 B.R. 291 (Bankr. W.D. Va. 2009) (debtor must substantiate actual expense deductions challenged by UST)
- Stapleton v. Baldino (In re Baldino), 369 B.R. 858 (Bankr. M.D. Pa. 2007) (current monthly income includes non-filing spouse income to extent regularly used for household expenses)