In Re Burton
MEMORANDUM OF OPINION AND ORDER
This matter is before the Court on the Motion to Dismiss Case Pursuant to
This Court acquires core matter jurisdiction over this matter pursuant to
After a review of the record in this case, the following findings of fact and conclusions of law are hereby rendered.
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On November 13, 2006 (the “Petition Date”), the Debtor filed a voluntary petition for relief under Chapter 7 of Title 11 of the United States Code (the “Bankruptcy Code”). Although an evidentiary hearing was scheduled for September 20, 2007, the Trustee and the Debtor agreed to submit supplemental briefs in lieu of an evi-dentiary hearing on the sole remaining issue of whether repayment of a 401(k) loan constitutes a circumstance of the Debtor’s financial situation to be considered in determining abuse. In addition, the Debtor concurrently filed amended schedules to reflect changes to his financial circumstances.
The Debtor’s petition sets forth $459,587.75 in total liabilities that are primarily consumer debts. See Summary of Schedules. Of this amount, $70,832.77 constitutes unsecured nonpriority debt. See Schedule F. The Debtor identified $396,494.03 in assets derived predominantly from two items: a residence valued at $375,000.00; and a 401(k) valued at $17,384.03. See Schedules A and B, respectively.
Amendments to the Debtor’s Schedule J expenses include the following reductions: monthly mortgage payment reduced from $2,432.51 to $1,400.00 and the elimination of a second mortgage payment of $375.00 to $0.00. These changes result in a monthly savings of $1,407.51. Significantly, however, he also amended his monthly expenses to reflect the following increases: utilities increased from $335.00 to $461.00, food and clothing increased from $405.00 to $641.00, and transportation costs increased from $225.00 to $368.00. These modifications total $505.00.
Due to the removal of the Debtor’s income from commissions 1 , the savings made available by reductions for housing expenses were completely offset by the increased expenses reported. Therefore, Debtor’s amended Schedule J indicates that no disposable income is available after monthly expenses.
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The dispositive issue presented before this Court is whether payments on a 401(k) retirement loan are permissible exclusions from disposable income for determining whether a debtor’s financial situation is reflective of an abusive Chapter 7 bankruptcy filing under the totality of the circumstances test.
The Trustee asserts that the Debtor’s case should be dismissed because under the totality of the circumstances, granting a Chapter 7 discharge in this case would constitute an abuse pursuant to
The Debtor opposes the relief sought by the Trustee. He states that he experienced difficult changes in his circumstances surrounding his bankruptcy petition. He argues that a contentious divorce led him to file for bankruptcy. Then, within months of the Petition Date, he was relocated to Austin, Texas by his employer. Since moving to Texas, he contends that his monthly income has decreased, yet he has more expenses due to the higher cost of living there. He acknowledges that if his 401 (k) payments ceased, he would have disposable income of $342.98 per
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If the presumption of abuse does not arise or is rebutted, then the court considers the totality of the circumstances pursuant to
(b)(1) After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor’s consent, convert such a case to a case under chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions of this chapter. 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 (as that term is defined in section 548(d)(4)).
(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.
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Pursuant to
The Bankruptcy Code does not define the term “totality of the circumstances”. However, two pre-BAPCPA Sixth Circuit Court of Appeals decisions,
Behlke v. Eisen (In re Behlke),
A court would not be justified in concluding that a debtor is needy and worthy of discharge, where his disposable income permits liquidation of his consumer debts with relative ease. Other factors relevant to need include whether the debtor enjoys a stable source offuture income, whether he is eligible for adjustment of his debts through Chapter 13 of the Bankruptcy Code, whether there are state remedies with the potential to ease his financial predicament, the degree of relief obtainable through private negotiations, and whether his expenses can be reduced significantly without depriving him of adequate food, clothing, shelter and other necessities.
In re Krohn,
In determining whether the totality of the circumstances of a debtor’s financial situation demonstrates abuse pursuant to
Additionally, the Debtor is gainfully employed and has been for a period of seven years. He earns an above-median income for his family size and geographical location. Neither his age or health has been raised as a mitigating factor relative to his voluntary 401(k) participation.
See In re Mills,
Furthermore, it is widely held that, in the context of bankruptcy proceedings, a debtor cannot make voluntary payments toward a retirement savings plan in order to reduce his or her reported disposable income.
See Behlke v. Eisen (In re Behlke),
Black’s Law Dictionary defines a 401 (k) plan as “a retirement and savings plan that allows an employee to elect to have a portion of his or her pretax salary contributed to a defined contribution plan.”
Black’s Law Dictionary
564 (8th ed.2004).
A 401(k) loan is a loan from oneself to oneself. There is no meaningful difference between 401(k) loan repayment and contribution. There is an inherent unfairness in permitting a debtor to pay himself by funding his own retirement account while paying creditors only a fraction of their just claims.
In re Keating,
Having considered the totality of the circumstances in this case, including: the Debtor’s relative age, general health, above-median salary, job stability, and his 401(k) plan, the Debtor has the ability to pay a meaningful amount of his consumer debt with relative ease from future income. “Chapter 7 is not a device to be used by a debtor to secrete a meaningful stream of income to the detriment of their general unsecured creditor body.”
In re Glenn,
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Accordingly, it is hereby determined that granting the Debtor relief under Chapter 7 of the Bankruptcy Code would constitute abuse under the totality of the circumstances. Thusly, the Trustee’s Motion is granted pursuant to
IT IS SO ORDERED.
JUDGMENT
A Memorandum of Opinion and Order having been rendered by the Court in this matter, IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that granting the Debtor relief under Chapter 7 of the Bankruptcy Code would constitute abuse under the totality of the circumstances. Thusly, the Trustee’s Motion is granted pursuant to
IT IS SO ORDERED.
Notes
. The removal of the Debtor’s income from commissions results in a $373.76 difference in monthly income with an accompanying increase in tax of $184.24 for a total reduction of $558.00 in net monthly income.