585 B.R. 168
Bankr. W.D. Okla.2018Background
- Debtors Michael and Adriana Smith filed Chapter 7 on August 31, 2017; both are in their 50s and employed (Michael in IT; Adriana as a nurse).
- Pre‑petition income included significant earnings and gambling activity; Means Test showed large gambling receipts/losses and family gifts; post‑petition bank records show extensive gambling expenditures while mortgage payments fell into arrears.
- Original schedules claimed very low monthly disposable income due to high expenses; UST recalculated and found significant disposable income available for creditors under a hypothetical Chapter 13.
- Disputed expenses included voluntary retirement (TSP) contributions, elevated transportation costs after job change, a payment on a recently purchased $50k travel trailer, and a car payment for an adult son.
- UST moved to dismiss under 11 U.S.C. § 707(b)(3) (totality of circumstances); after trial the court found both bad faith (continued gambling while defaulting on obligations) and ability to pay and sustained the UST motion, giving the Debtors 10 days to convert to Chapter 13 or be dismissed.
Issues
| Issue | Plaintiff's Argument (UST) | Defendant's Argument (Debtors) | Held |
|---|---|---|---|
| Whether dismissal for abuse under § 707(b)(3) is appropriate | Totality (post‑petition gambling, inflated expenses, luxury purchases) shows abuse; Debtors can pay significant dividend in Chapter 13 | Bankruptcy caused by job loss; gambling not dispositive; voluntary retirement contributions should be protected in hypothetical Chapter 13; medical needs justify Chapter 7 discharge | Dismissal under § 707(b)(3) sustained; conversion to Chapter 13 permitted within 10 days or case dismissed |
| Treatment of voluntary retirement (TSP) contributions in § 707(b)(3) analysis | Should be counted as disposable income for ability‑to‑pay inquiry | Should be excluded because § 1322/1325 treatment in Chapter 13 would allow retention of contributions | Voluntary $771.86/month disallowed as not reasonably necessary; counted toward disposable income |
| Transportation and vehicle expenses after job change | Reduce claimed transportation to IRS standard and cap vehicle ownership expenses | Expenses reflect prior out‑of‑state employment and current needs | Transportation reduced to $430/month (IRS standard); vehicle expenses adjusted; one son’s car payment ($193) disallowed |
| Retention of recently purchased travel trailer and adult‑child support payments | Trailer is a luxury purchased shortly before default; son’s car payment is unnecessary support for an adult; both should be disallowed as expenses | Trailer retained for possible foreclosure contingency; supporting adult child is proper | Trailer payment disallowed as unnecessary luxury; son’s payment added to disposable income |
Key Cases Cited
- Stewart v. United States Trustee, 175 F.3d 796 (10th Cir. 1999) (adopts totality‑of‑circumstances factors for abuse analysis)
- Woody v. United States (In re Woody), 494 F.3d 939 (10th Cir. 2007) (voluntary retirement contributions not to take precedence over repayment of preexisting debts)
- Krohn v. Weinberg (In re Krohn), 886 F.2d 123 (6th Cir. 1989) (no constitutional right to a bankruptcy discharge; Congress may limit access to discharge)
- Anes v. United States Trustee (In re Anes), 195 F.3d 177 (3d Cir. 1999) (held voluntary retirement contributions not reasonably necessary in Chapter 13 context)
- Ross‑Tousey v. Citizens Bank (In re Ross‑Tousey), 549 F.3d 1148 (7th Cir. 2008) (means test and § 707(b)(3) are distinct; favorable means‑test result does not bar § 707(b)(3) abuse finding)