In Re Bender
OPINION GRANTING TRUSTEE’S MOTION TO DISMISS PURSUANT TO
This mаtter is before the Court on the Trustee’s Motion to Dismiss Pursuant to
Facts
Debtors John and Debra Bender filed a vоluntary Chapter 7 bankruptcy on October 10, 2006. The stipulated facts (Docket # 56) indicate that Mr. Bender retired from Ford Motor Company in November 2005, and receives social security benefits. Mrs. Bender is a long-time employee of Mercy Memorial Hospital in Monroe, Michigan. Debtors have а combined annual gross income of $72,111.24. Amended Schedules I and J disclose net monthly income of $4,461.32 and monthly expenses of $4,455.71, leaving a net surplus of $5.61. Amended Schedule E discloses $8,532.51 in unsecured priority claims (state and federal income taxes). Schedule F indicates that Debtors have $92,754.47 in unsecured nonpriority claims (including a $46,300 deficiency balance from a mobile home repossessed in 2000). In addition, Debtors have outstanding deficiencies on other real and personal property. 1
Debtors attribute the beginning of their financial difficulties to the acquisition of property on Patterson Street in Monroe Michigan in 2001. They made improvements to the property expecting that their daughter and her husband would be residing with them and paying rent. There were construction difficulties, and for various reasons, their daughter did not move in with them. The property was foreclosed upon in Novembеr, 2006, giving rise to a deficiency balance of $37,754. 2 In September, 2002, Mr. Bender voluntarily signed vehicle loans on behalf of several members of his church (members whose individual credit worthiness, it appears, did not independently support the debt). The church members did not make timely loan payments, and Mr. Bendеr did not have the financial wherewithal to make the payments himself. The vehicles were repossessed, resulting in significant deficiency balances owed by Mr. Bender. 3
Expenses (as disclosed on Amended Schedule J) of particular concern to the Trustee in the present Motion are: (1) сharitable contributions to Debtors’ church of $620 per month 4 , (2) Mrs. Bender’s 401k plan contribution and 401k loan repayment of $186 and $90, respectively, per month and, (3) food and restaurant expenses of $640 per month ($500 for food and $160 for “work lunches”). The Trustee also notes certain other expenses listеd on Schedule J that are not, presently, expenses: $90 per month for a land line phone which Debtors do not have, and $284.50 for life insurance which Debtors have yet to obtain.
The Trustee also raises concerns over a $3,000 loan obtained post-petition from a friend, to make a dоwn payment on the mobile home in which Debtors presently reside. While no payments have been
The Trustee brings the present Motiоn to Dismiss, arguing that Debtors have sufficient income to fund a Chapter 13 plan based on actual present expenses (if Debtors limit charitable contributions to historic amounts and otherwise tighten their fiscal belts). The Trustee also argues that, by continuing to incur debt post-petition, Debtors have plаced their “fresh start” (the primary purpose of the bankruptcy process) at risk, rendering a chapter 7 discharge inappropriate.
Debtors contend that they do not have sufficient income to fund a Chapter 13 plan. They note that they have to use “payday” loans to pay routine household expenses such as utilities and food. 5
Analysis
In considering under paragraph (1) whether the granting of relief would be an abuse of the provisions of this chapter in a case in which the presumption in paragraph (A)(1) of such paragraph does not arise or is rebutted, the court shall consider—
(A) whether the debtor filed the petition in bad faith; or
(B) the totality of the circumstances (including whether the debtor seeks to reject a personal services contract and the financial need for such rejection as sought by the debtor) of the debtor’s financial situation demonstrates abuse.
Pre-BAPCPA,
In determining whether a debtor is acting honestly, the court should examine whether the debtor made substantial eve of bankruptcy purchases, was dishonest in filing his bankruptcy schedules and other court documents, and whether the bankruptcy was necessitated by unforeseen or catastroрhic events.
Krohn,
In determining whether a debtor is needy, the court should decide whether the debtor could pay his debts out of future earnings, i.e., whether the debtor could fund a hypothetical Chapter 13 plan. This factor alone may compel a dismissal of the case. Id. Other factors which may show neediness, or a lack thereof, include:
1) whether the debtor enjoys a stable source of income;
2) whether he is eligible for adjustment of his debts through Chapter 13;
3) whether there are state remedies with the potential to ease his financial problems;
4) the degree of relief obtainable through private negotiations; and
5) whether his expenses can be reduced significantly without depriving him of adequate food, clothing, shelter, and other necessities.
Id.
at 126-27. A debtor is not “needy” if he can trim an exorbitant budget to fund a Chapter 13 plan.
See, e.g., In re Ploegert,
In the present case, the Trustee does not contend that Debtors have acted, in any way, dishonestly. Rather, the Trustee believes that if certain expenses are reduced or eliminated, Debtors have sufficient income to fund a Chapter 13 plan and are not neеdy. In order to determine whether Debtors in the present case are needy, the' Court must first determine whether certain expenses claimed by Debtors on Amended Schedule J, but challenged by the Trustee, are permissible in considering a motion to dismiss under
Charitable Contributions
[7]11 U.S.C. § 707(b)(1) states in part: In making a determination whether to dismiss a case under this section, the court may not take into consideration whether a debtor has made, or continues to make, charitable contributions (that meet the definition of “charitable contribution” under section 548(d)(3)) to any qualified religious or charitable entity or organization (аs that term is defined in section 548(d)(4)).
A straightforward reading of
While no case law was locаted addressing this issue, the Court finds that the statute is quite specific as to protected contributions — those that a debtor “has made, or continues to make” — not amounts which are voluntarily added into a debtor’s budget post-petition. Post-petition increases in contributions are logically chаracterized as “new” contributions rather than a continuation of prior contributions. To conclude otherwise invites Chapter 7 debtors to propose a dramatic increase in charitable giving post-bankruptcy in an effort to consciously avoid qualifying as a Chapter 13 debtor.
For these reasons, the Court finds that for purposes of determining whether the petition should be dismissed under
Although it is well established that 401(k) loan repayments and voluntary contributions cannot be considered disposable income in a chapter 13 case (
Furthermore, when determining if a debtor is able to pay his debts, “the Court must consider his actual and anticipated financial situation over the applicable Chapter 13 commitment period.”
In re Lenton,
Applying these cases to the facts at bar, the Court finds that for purposes of determining whether the petition should be dismissed under
Totality of the Circumstances
As noted earlier, in determining whether a case should be dismissed under
As previously discussed, Debtors have an additional $360 available to creditors
Rather than tightening their belts, these Debtors have added to their expenses while in bankruptcy. Debtors borrowed $3,000.00 from a friend and committed to repaying the loan at the rate of $200.00 per month. Rather than cutting food expenses, Debtors eat many of their meals in restaurants. Mrs. Bender takes out payday loans in an effort to “make ends meet”, notwithstanding the fact that Debtors have gross annual income of $72,111.24. A serious effort to cut expenses and re-direct other expenses would result in monthly income sufficient to fund a chapter 13 plan.
Conclusion
For the foregoing reasons, the Court concludes that under
Krohn'’s
totality of the circumstances test, Debtors are not needy and have sufficient income to fund a Chapter 13 plan. The Trusteе’s Motion to Dismiss Pursuant to
Notes
. This includes deficiency balances on several vehicles and a duplex at 520 Smith Street, Monroe, Michigan
. According to the parties’ stipulated facts, the deficiency balance on the Patterson Street property is $37,754. Schedule F lists the balance as $46,300.32.
. In addition tо the deficiency balances, Mr. Bender owes $540 in unpaid parking obligations incurred by the drivers of those cars.
. Over the past three years, Debtors’ charitable contributions have been approximately $260 per month. They would like to contribute $620 per month on an ongoing basis. Debtors did, in fact, сontribute $620 per month in both June and July, 2007.
. A payday loan is a bi-weekly loan through which Debtors borrow $600 and repay $676.45 two weeks later.
. The Court recognizes that the amounts available from the 401(k) contribution and loan do not translate dollar for dollar as money available for unsecured creditors. There are tax implications to the Debtors. Nevertheless, there will be some amount of money freed up from the 401 (k) payments and contributions for unsecured creditors.