In Re Booker
MEMORANDUM OPINION
This matter comes before the Court on the motion of the United States Trustee to dismiss this case pursuant to
I. FACTUAL AND PROCEDURAL BACKGROUND
On June 19, 2008, Debtors filed a petition for relief under Chapter 7 of the Bankruptcy Code. The original Schedule I showed joint net monthly income of $3,989.63. Debtors’ original Schedule J reflected expenses of $3,982.00. On August 1, Amended Schedules I and J were filed with the Court. The amended Schedule I shows monthly net combined income of $5,898.35. The difference is attributable to an additional $700.00 scheduled by Debtor Ella Booker for her part-time employment and $1,200.00 in monthly Social
II. DISCUSSION AND ANALYSIS
A. Dismissal Under Totality of the Circumstances
1. General Considerations
(3) 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 subparagraph (A)(i) 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.
In this case there is no question but that the debts are primarily consumer debts. The Debtors checked the appropriate box on the petition so indicating and have not suggested otherwise during the course of these proceedings.
Prior to BAPCPA, the courts in the Eighth Circuit had taken the position that the debtors’ ability to pay was a primary consideration, possibly determinative, in deciding whether the granting of relief under Chapter 7 would constitute a substantial abuse.
See In re Praleikas,
This Court agrees with the majority and believes that consideration of the debtors’ ability to pay is appropriate for several reasons. First, the statute clearly authorizes and directs the Court to consider the
totality of
the debtors’ circumstances when ruling on a motion brought under
Courts considering the effect of the amendments made by BAPCPA have held that the precedents setting forth the framework for analysis of the substantial abuse question and identifying factors for consideration remain helpful when considering motions to dismiss under the new statutory provisions.
See, e.g., In re Mestemaker,
2. Inclusion of Social Security Income
A subsidiary question which arises in this case is whether it is appropriate for the Court to consider the Debtors’ Social Security income in evaluating their ability to pay. The question arises because Congress has specifically excluded Social Security income from the definition of current monthly income.
See
Recently, the Court in
In re Calhoun,
3. Evaluation of Debtors’ Expenses
This Court has consistently held that the current monthly expenses of debtors seeking a discharge under Chapter 7 should show some evidence of “belt tightening.”
In re Reeves,
Schedule I indicates that the Debtors have deducted from their income the sum of $196.67 each month for contributions to their 401k plans. Debtors argue that while the 401k contributions are not expenses which are specifically authorized under
Pre-BAPCPA, in the context of a
A number of courts, however, have begun to adopt a case-by-case approach and considered whether retirement contributions are reasonably necessary based upon the unique circumstances of the debtor’s particular situation.
In re Beckerman,
The Debtors owned three vehicles at the time they filed, a 1993 Buick unencumbered by a lien, a 2001 Chrysler subject to a lien on which the monthly payment is approximately $262.00 and a 2006 Lexus bought new in 2005 for approximately $54,000.00 and on which the monthly payment is $1,268.00. The Buick is not being driven as the Debtors contend it is not operable. The Debtors propose to surrender the Chrysler and retain the Lexus, reaffirming the debt it secures. The proffered justification for this decision is that the Lexus is “more dependable.”
If the proposed retention of the Lexus is Exhibit A in the U.S. Trustee’s case for abuse, surely Exhibit B is the $850.00 per month which the Debtors pay to their son. Their son is presently incarcerated in the federal penitentiary in Leavenworth, Kansas. Suffice it to say that his needs for room and board are already well accommodated. Ms. Booker testified that the money sent to their son is used for discretionary expenditures. Clearly, this entire amount is unnecessary and unreasonable. Once again, it is indicative of the Debtors’ failure to pare their expenses to reasonable levels. Disallowance of this monthly expenditure provides another source of repayment for the Debtors’ unsecured creditors.
In addition to proposing to reaffirm the debt on the 2006 Lexus, the Debtors also propose to reaffirm the debt on a timeshare interest, the monthly payment on which is $198.00, a payment which the Debtors failed to disclose in their original Schedule J. The Debtors have offered absolutely no justification for retaining the property and continuing the payment. There is no indication that this property is necessary for the health and welfare of the Debtors or their dependents or produces income. It is, as far as the Court can ascertain, purely recreational and should be sacrificed with the money redirected to the payment of unsecured creditors.
The U.S. Trustee also objects to the Debtors’ telecommunications expense. Mrs. Booker testified that although the Debtors have a land line, they also spend approximately $200.00 per month for cellular telephone expenses. She testified that the cell phone is used in the husband’s business, an expense for which he receives no reimbursement. She also testified, however, the total usage on the phone is only approximately 300 minutes per month. The U.S. Trustee suggests, and this Court agrees, that this amount is excessive for only two lines with that monthly usage and could be trimmed by approximately $100.00 per month.
The U.S. Trustee also contends that the Debtors’ housing expense of
Finally, the United States Trustee notes that in addition to all the other specific line items for which the Debtors claim expenses on Schedule J, they have listed $210.00 of miscellaneous expenses identified as household expenses of $50.00, personal expenses of $85.00 and miscellaneous expenses of $75.00. Mrs. Booker did little to justify these expenses or to indicate why they were not already accounted for among other expenditures listed on Schedule J. While the Court believes that some allowance for miscellaneous expenses is appropriate and the amount involved is not as significant as others discussed above, it still considers these allowances excessive given the Debtors’ inability to explain their nature and purpose. They provide additional evidence that rather than attempting to minimize their expenditures, these Debtors’ approach more closely approximates expense maximization.
The Court must therefore consider what net income the Debtors have available to commit to the payment of unsecured creditors under a Chapter 13 plan. As noted above, the Court has determined that their net monthly income is $5,898.35. The expenses listed on their Schedule J total $5,894.00. The Court has determined that the $350.00 contribution the Debtors make to their son and the $198.00 timeshare payment should be deleted from their expenses. After deleting those expenses, reducing the cell phone charges and miscellaneous expenses by $100.00 each and reducing the secured debt payment on the automobile to approximately $500.00 allowed by the IRS expenses results in total deductions from the Debtors’ expenses of $1,516.00. The resultant expense figure is $4,378.00. The Debtors have scheduled no priority debt and their only secured debt is taken into consideration in these modified expense numbers. The Debtors would thus have $1,520.35 per month to contribute to the payment of their non-priority unsecured creditors. Spread over a period of 60 months, this would yield payments totaling $91,221.00 or 36.8% of the $247,845.00 in such debt listed on Debtors’ Schedule F. That represents a substantial payment. This Court has previously held that Debtors’ ability to pay a similar dividend indicates that Chapter 7 relief is not appropriate.
See, e.g., Reeves,
B. Dismissal for Bad Faith
Although prior to the enactment of BAPCPA, courts disagreed as to
Considering these factors applied to this case, the Court agrees with the U.S. Trustee that this case was not filed in good faith and should be dismissed for that reason as well. In addition to the Debtors’ failure to minimize expenses, retention of luxury items and ability to repay a significant portion of their unsecured debt, these Debtors have not demonstrated the degree of candor that the Court has a right to expect. First, as pointed out by the U.S. Trustee, the Debtors’ original schedules were materially inaccurate. Among other things, they excluded Mr. Booker’s Social Security income in the amount of $1,200.00 per month and understated by approximately $700.00 the amount of average net income Mrs. Booker receives from part-time employment. Schedule J also omitted disclosure of both the $1,268.00 monthly payment on the 2006 Lexus and the $198.00 monthly payment on the Debtors’ timeshare interest. Second, Debtors also failed to accurately disclose the circum
III. CONCLUSION AND ORDER
In summary, the Court agrees with the vast majority of courts that has held that this Court may consider the debtor’s ability to pay in determining whether the granting of relief to a Chapter 7 debtor would be an abuse of the provisions to the Bankruptcy Code based on the totality of the debtor’s financial circumstances and that ability to pay may be a dispositive factor. The Court further holds that although Social Security income is excluded from the definition of current monthly income and is not taken into consideration in determining whether a presumption of abuse arises, the Court may nonetheless consider that income source in assessing whether the debtors have an ability to pay a substantial dividend to their unsecured creditors. The Court is specifically empowered by the plain terms of the statute to dismiss a Chapter 7 case if it was filed in bad faith. In determining whether a filing was made in bad faith, the Court holds that it should focus primarily upon the debtors’ conduct, including whether the debtors have failed to disclose material facts or misrepresented their financial condition. Based upon the record in this case, the Court concludes that the Debtors have an ability to pay a significant dividend to their unsecured creditors if certain unnecessary or unreasonable expenditures are eliminated or reduced. In addition, based upon their failure to make accurate and timely disclosures of their income and expenses, the Court concludes that this case was not filed in good faith.
For all the reasons stated above, the Court will grant the U.S. Trustee’s motion to dismiss the case unless the Debtors choose, within 20 days of the date' of this Order, to convert the case to Chapter 13.
Notes
. In determining the appropriate method for assessing the projected disposable income for below-median debtors, this Court had previously held, in
In re Rush,
. The factors the LeMaire court looked at are:
(1) the amount of the proposed payments and the amount of the debtor’s surplus;
(2) the debtor’s employment history, ability to earn and likelihood of future increases in income;
(3) the probable or expected duration of the plan;
(4) the accuracy of the plan’s statements of the debts, expenses and percentage repayment of unsecured debt and whether any inaccuracies are an attempt to mislead the court;
(5) the extent of preferential treatment between classes of creditors;
(6) the extent to which secured claims are modified;
(7) the type of debt sought to be discharged and whether any such debt is nondischargeable in Chapter 7;
(8) the existence of special circumstances such as inordinate medical expenses;
(9) the frequency with which the debtor has sought relief under the Bankruptcy Reform Act;
(10) the motivation and sincerity of the debt- or in seeking Chapter 13 relief; and
(11) the burden which the plan's administration would place upon the trustee.