In Re Calhoun
ORDER GRANTING UNITED STATES TRUSTEE’S MOTION TO DISMISS PURSUANT TO
THIS MATTER is before the Court on the United States Trustee’s (“UST”) Motion to Dismiss Case Pursuant to
Facts
1. Debtors are husband and wife and they filed a joint voluntary petitionunder chapter 7 of the Bankruptcy Code on February 27, 2008.
2. Debtors live at 208 Tennis Ranch Rd., Jackson, South Carolina. The Debtors’ home is a 4-bedroom, 3 full bath, and one office home of approximately 3,300 SF which sits on 3.5 acres of land. Debtors currently owe $206,800.00 and $92,000.00 on their mortgages, as reflected on Debtors’ Schedule D.
3. Evidence presented at trial demonstrates that Debtors lived in their home since 1981. Debtors attempted to sell their home in 2000 after their oldest child finished high school. During the two years that the property was for sale only three potential buyers looked at the property and Debtors received no offers. In 2003, convinced that they would not be able to sell their home, Debtors undertook a substantial renovation of their home to account for possible infirmity later in life. The renovations cost approximately $130,000 and required Debtors to incur substantial debt, increasing their mortgage payments.
4. Debtors’ own a lien free 1995 Ford F 150 pickup truck and lease a 2007 Honda Accord.
5. The Debtors’ income, as shown by Schedule I, comes from Mr. Calhoun’s two retirement accounts which pay him $7,313.00 monthly and his Social Security benefit which pays $1,459.00 monthly. Testimony at trial indicates that the income from the retirement accounts is fixed and will not change during Mr. Calhoun’s lifetime. Mrs. Calhoun will receive a reduced benefit in the event that Mr. Calhoun predeceases her. Mr. Calhoun retired April 1, 1997.
6. Debtors’ children are grown, but testimony established that the Debtors provide some level of care for their granddaughter, including picking her up from school and providing some evening meals.
7. Debtors’ Schedule J reports the following expenses:
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8. With the Social Security benefit Debtors have $1,592.00 in monthly net income, using Debtors expense projections.
9. Debtor’s annualized household gross income is $105,264.00. The applicable median income for a household size of two in South Carolina is $46,521.00. Because the annualized current monthly income exceeds the median income for Debtor’s household Debtors were required to complete all sections of Form B22A.
10.In Part V of Form 22A Debtor lists the following deductions:
Subpart A: Deductions under Standards of the Internal Revenue Service (IRS) Line
19 National Standards: food, clothing, household supplies, personal care, and miscellaneous. $ 925.00
20A Local Standards: housing and utilities; non-mortgage expenses. $ 426.00
22 Local Standards: transportation; vehicle operation/public transportation expense. $ 362.00
23 Local Standards: transportation ownership/lease expense; Vehicle 1. $ 478.00
24 Local Standards: transportation ownership/lease expense; Vehicle 2. $ 478.00
25 Other Necessary Expenses: taxes. $ 556.83
27 Other Necessary Expenses: life insurance. $ 439.00
31 Other Necessary Expenses: health care. $ 76.00
32 Other Necessary Expenses: telecommunication services._$ 69.00
33 Total Expenses Allowed under IRS Standards._$3,917.83
_Subpart B: Additional Expense Deductions under
34 Health Insurance. $ 286.00
40 Continued charitable contributions._$ 884,00
41 Total Additional Expense Deductions under
_Subpart C: Deductions for Debt Payment_
Future payments on secured claims.
42 a. Chase— $1,284.00
b. Wells Fargo— $ 867.00
Total $2,151.00
44 Payments on priority claims._$ 91.36
46 Total Deductions for Debt Payment._$2,242,36
_Subpart D: Total Deductions Allowed under
47 Total of all deductions allowed under
11. The UST did not object to Debtor’s calculation of the means test. A presumption of abuse pursuant to§ 707(b)(2) does not arise.
12. The parties stipulate and Schedule F reflects that Debtors’ owe approximately $106,707.00 in unsecured non-priority debt and $5,552.00 in unsecured priority debt, as demonstrated by stipulation and Schedule E.
13.Evidence presented at trial indicates that Debtors unsecured debts primarily stem from the use of credit cards. Evidence further demonstrates that Debtors’ last charge on these accounts was made in March of 2006. Debtors attribute much of their financial strain to cross default clauses of credit card agreements that increased interest rates and accelerated the growth of their credit card debt.
14. The parties stipulate that Debtors’ debts are primarily consumer debts.
15. Prior to filing chapter 7 bankruptcy, Debtors’ made payments to ClearPoint Credit Counseling Services and other creditors totaling $2,638.00 per month from April of 2006 to February 2008. Evidence presented at trial indicates that during this period Debtors did not get behind with their household expenses but did not have money for emergencies, major repairs, or contingencies.
16. Mr. Calhoun is the retired CFO of a major hospital. Prior to filing bankruptcy he researched his options and located information concerning the means test on the internet. He testified that he completed the means test and determined that he “passed the test.” Mr. Calhoun is sophisticated concerning financial matters.
CONCLUSIONS OF LAW
(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 eonsider-
(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.
(1) Whether the bankruptcy petition was filed because of sudden illness, calamity, disability, or unemployment;
(2) Whether the debtor incurred cash advances and made consumer purchases far in excess of his ability to repay;
(3) Whether the debtor’s proposed family budget is excessive or unreasonable;
(4) Whether the debtor’s schedules and statement of current income and expenses reasonably and accurately reflect the true financial condition; and
(5) Whether the petition was filed in good faith.
Id.
at 572. The
Green
court determined that a debtor’s ability to pay could not alone establish substantial abuse under chapter 7, resting the decision upon, “the
This Court previously stated “that much of the underpinning of
Green
is removed by the 2005 amendments to the Bankruptcy Code.”
In re Wolf,
Prior to the enactment of the 2005 Amendments to the Bankruptcy Code, the Courts of Appeals had adopted variations on the totality of the circumstances test.
See, e.g., In re Kelly,
In determining whether a chapter 7 case is an abuse when the presumption of abuse does not arise, other courts have looked to the totality of the debtor’s financial situation pursuant to
In the case at hand, testimony and other evidence establishes the Debtors’ ability to make a substantial payment to their creditors. The Court’s analysis must begin with Schedules I and J. Debtors admit to $133.00 per month of disposable income. The Debtors report and then subtract income from Social Security, shielding it from creditors. This is not proper. In two instances Social Security benefits are specifically excluded from income calculations by the Bankruptcy Code. Income received under the Social Security Act is excluded from “current monthly income” in computing the means test for the purpose of determining whether a presumption of abuse arises under
Having established the extent of Debtors’ income, we next look to the Debtors’ expenses reflected on Schedule J and to the testimony concerning spending habits. Prior to filing for chapter 7 relief, Debtors paid $2,638.00 per month to their unsecured creditors through payments to ClearPoint Credit Counseling Services for a period of 22 months. When pressed on cross-examination as to whether they were willing or able to make similar payments to creditors while in bankruptcy, Mr. Calhoun indicated that such payments were overly burdensome and that Debtors were able to rebut the presumption of abuse by passing the means test and therefore were not required to consider a chapter 13 repayment plan. This evidence of creditor payment over a long period of time necessitates further examination of Debtors’ financial situation.
While the underpinnings of Green have been removed, at least insofar as they relate to the insufficiency of ability to pay as a sole ground for finding abuse, Green remains useful and binding as a framework for addressing the totality of a debtor’s financial circumstances. We then turn to the Green factors. Testimony demonstrated that this case was not filed as a result of sudden illness, calamity, disability, or unemployment. While nothing in the record indicates that the Debtors’ incurred debt from cash advances, the Debtors did incur substantial debt. This includes some $130,000 for renovations to the home following Mr. Calhoun’s retirement and nearly $107,000 in unsecured nonpriority debt according to Debtors’ Schedule F.
The next factor, and one tied to the ability to repay debt, is the Debtor’s budget. Debtors’ proposed family budget is
The contention that the Debtors cannot now pay any dividend to the unsecured creditors is undermined by the fact that Debtors made a significant payment for 22 months. The Debtors paid $2,638.00 to creditors without falling behind in payment of other household expenses. This undermines the credibility of the scheduled current living expenses and suggests that the expenses are significantly over-stated.
Mr. Calhoun testified that whatever his ability to pay may be at present, his income is fixed and will be eroded by increases in expenses and the absence of cost of living increases. First, Mr. Calhoun’s calculations ignore the likelihood of future Social Security cost of living increases. Additionally, while it is true that his other retirement income will not be adjusted for inflation, the level of increase for the family’s expenses is speculative. The Debtors have a present ability to pay creditors and, while it may be diminished by future increases in the cost of living, it does not appear that the ability to pay will disappear over the next five years.
In summary the Green factors of no sudden precipitating cause for filing bankruptcy, incurring consumer debt far in excess of the ability to repay, an excessive budget, and overstating expenses all weigh against the Debtors and thus do not mitigate the finding that Debtors have an ability to pay a substantial portion of their debt. The evidence proves abuse of chapter 7 and the case should be dismissed. If a motion to convert to chapter 13 is not filed within 10 days, Debtors’ case will be dismissed pursuant to this order.
AND IT IS SO ORDERED.