495 B.R. 735
Bankr. W.D. Tex.2013Background
- Debtor filed a Chapter 7 petition on Sept. 28, 2012, and the UST moved to dismiss under 11 U.S.C. § 707(b) alleging abuse.
- Debtor moved from New York to Austin after losing a lucrative job; he reported a current salary of about $51,400, substantially below his prior earnings.
- Debtor amended schedules in Nov. 2012 and Jan. 2013, increasing tax claims and adding several unsecured, non-priority debts; he also added a scheduled real property in Connecticut valued at $650,000 in later amendments.
- Final Divorce Decree (Jan. 9, 2013) requires Debtor to pay $2,000 monthly for his adult children’s college-related expenses and allocates a portion of retirement income to his ex-wife and/or children.
- Debtor’s Final Amended Schedules show a $2,550.04 monthly retirement draw and a continued college-related expense labeled as court-ordered school support.
- Court finds the college-related expense to be a domestic support obligation and treats it as legitimate for the § 707(b)(3)(B) analysis, but ultimately denies the UST’s dismissal motion based on the totality of circumstances.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether totality of circumstances shows abuse under § 707(b)(3)(B). | UST argues factors show abuse due to misstatements, high income, and large college expense. | Debtor contends expenses are reasonable and paid from retirement, with a calamity-based hardship. | Abuse not proven; motion denied. |
| Whether college-related expense is a domestic support obligation and thus reasonable. | UST asserts such expenses are generally non-reasonable in § 707(b)(3)(B) analyses. | Debtor argues the expense is domestic support obligation established by divorce decree and funded from retirement income. | Expense treated as domestic support obligation; considered reasonable for § 707(b)(3)(B) analysis. |
| Whether Debtor’s schedules reflect a true financial condition and are credible. | UST notes multiple amendments and omissions, casting doubt on accuracy. | Debtor contends changes reflect evolving circumstances and attempts to be accurate. | Schedules deemed problematic but not fraudulent; burden on UST not met for dismissal. |
| Whether Debtor could pay a substantial portion of debts from future income in a Chapter 13 case. | Debtor could pay >50% if college expense eliminated. | Court already found college expense reasonable; future income insufficient. | Debtor could not pay substantial portion from future income. |
| Whether the petition was filed in good faith. | UST hints at bad faith via divorce and schedule changes. | No tangible evidence of bad faith; not enough for dismissal under 707(b)(3)(A). | No finding of bad faith; no basis for dismissal. |
Key Cases Cited
- In re Staub, 256 B.R. 567 (Bankr.M.D.Pa. 2000) (educational expenses for adult children generally not reasonable under § 707(b)(3)(B))
- In re Mastromarino, 197 B.R. 171 (Bankr.D.Me. 1996) (debtor’s obligations to dependents, not discretionary education expenses, affect abuse analysis)
- In re Hester, 330 B.R. 809 (Bankr.M.D.Fla. 2005) (domestic nature of obligations; disguise of domestic support vs. non-support varies with designation in decree)
- In re Shaw, 299 B.R. 107 (Bankr.W.D.Pa. 2003) (functional analysis of domestic support obligation governs reasonableness of expenses)
- In re Cortez, 457 F.3d 448 (5th Cir. 2006) (cited for treatment of totality of circumstances in abuse analysis)