In re: Christopher Dean Ng and Sheila Marie Ng
Before: PAPPAS, JURY and HOLLOWELL, Bankruptcy Judges.
OPINION
PAPPAS, Bankruptcy Judge.
Christopher Dean Ng and Sheila Marie Ng (“Debtors“) appeal the bankruptcy court‘s order dismissing their chapter 71 case under
FACTS
On June 30, 2010, the date Debtors filed a chapter 7 bankruptcy petition, Mr. Ng was employed as an electronic technician for GE International. According to Debtors’ original Schedule I, Mr. Ng received $7,439.47 as his monthly salary; he was also eligible for overtime compensation. In addition, he received a military pension of $1,439.88 per month. Mrs. Ng was not employed and had no income.
From Mr. Ng‘s monthly salary, he made a voluntary contribution of $520.74 to an employer 401(k) plan, and a $343.42 payment on a pension loan. According to their original Schedule J, Debtors’ monthly expenses totaled $5,225.00, which included a $300.00 payment on a prepetition income tax liability.
Unsecured debt listed on the Debtors’ original Schedule F was $38,261.00, which included three student loans and three credit card accounts. A priority federal tax claim was listed on Schedule E for $10,213.11. Schedule D listed secured claims totaling $484,830.70, of which Debtors suggested that $112,480.70 was unsecured because the assets securing the claims were worth less than the debts. The bankruptcy court would later find that Debtors’ primary purpose for filing for bankruptcy relief was to surrender their former residence and discharge the mortgage debt secured by the property in the amount of $464,602.18.
The United States Trustee (“the UST“) filed a motion on November 22, 2010 to dismiss the Debtors’ bankruptcy case under
The UST also argued that dismissal was in order because, as set forth in
Debtors opposed dismissal. Regarding
The bankruptcy court conducted its first hearing on the UST‘s dismissal motion on January 19, 2011. After hearing from counsel for Debtors and the UST, the court took the issues under submission.
On February 9, 2011, the bankruptcy court entered a Memorandum of Decision concerning the dismissal motion. The court denied the motion to dismiss under
On June 9, 2011, in connection with Mr. Ng‘s employment, Debtors relocated from the island of Hawaii to Maui. Since they were not reimbursed by Mr. Ng‘s employer for relocation moving expenses, Debtors disclosed to the UST in a July 17, 2011 declaration that they had terminated the monthly retirement plan contribution, and that the prepetition pension loan had been repaid.
The bankruptcy court conducted a status conference on the motion to dismiss on September 22, 2011. The UST informed the court that Debtors’ retirement contributions had stopped, and that the prepetition pension loan had been repaid. The UST also informed the court that Debtors had submitted updated pay advices to the UST indicating that Mr. Ng received a substantial increase in income over the amount reflected in Debtors’ Schedule I. The court directed Debtors to submit revised Schedules I and J and set the final hearing on dismissal under
Debtors submitted amended Schеdules I and J on October 3, 2011. Mr. Ng‘s gross monthly salary had indeed increased from $7,439.00 to $8,804.77. Even though the Debtors had advised the UST in the declaration that they had stopped making the contribution to the 401(k) plan, their amended schedule showed that they resumed pension contributions of $264.16 per month. Further, the amended schedules disclosed that Debtors had again borrowed against Mr. Ng‘s pension and were making monthly payments of $289.68 to repay that loan.
According to the amended schedules, Debtors claimed their monthly gross income from all sources was $10,295.85
The UST submitted a supplemental brief on the motion to dismiss under
On November 2, 2011, Debtors filed a further opposition to the UST‘s dismissal motion, contending that: (1) the increase in Mr. Ng‘s pay was the result of overtime hours and there was no expectation that the overtime would continue; (2) the voluntary retirement contributions are not unreasonable given Mrs. Ng‘s health problems; (3) the new retirement loan was used by Debtors to pay about $8,000.00 in moving expenses. Debtors’ declarations were offered to support these expenses and to detail Mrs. Ng‘s health issues. The declaration from Mr. Ng also provided updated pay advices through November 13, 2011, showing a decrease in his income between September 18 and Novеmber 13.
At the beginning of the second hearing on the motion to dismiss on November 16, 2011, the bankruptcy court indicated its concern with what it felt were the dilatory tactics of Debtors:
You know, I am troubled with this case. It is taken too long. The U.S. Trustee‘s office is clearly being jerked around. The facts, the arguments, everything changes on the Debtors’ side when things are raised by the Office of the United States Trustee. The case—it is a chapter 7 case. It is—it is a year and a half old. On the other hand, if we believe everything that the Debtors say, there is a certain sympathetic push on their side.
Hr‘g Tr. 2:23–3:5, November 16, 2011. After hearing arguments of counsel, the bankruptcy court ruled that Debtors “do have the ability to file a plan in chapter 13.” Id. at 23:18-20. The court granted the UST‘s motion to dismiss thе Debtors’ bankruptcy case under
The bankruptcy court entered extensive findings of fact and conclusions of law and an order dismissing the bankruptcy case on November 28, 2011. In making its decision, the court applied the criteria in Price v. U.S. Tr. (In re Price), 353 F.3d 1135, 1139-40 (9th Cir. 2004), to determine if the totality of the circumstances justified dismissal under
Nevertheless, the bankruptcy court agreed with the UST regarding the impropriety of allowing Debtors to contribute to the retirement account and access pension loans under these circumstances. In part, the court noted that it would be “unfair to creditors to allow the debtors ... to commit part of their earnings to the payment of their own retirement fund.” Conclusion of Law ¶ 30, November 28, 2011. The court observed that Mr. Ng was only 43 years old, and that he had indicated that he would not retire for at least twenty years. Moreover, the court found, the future health expenditures identified for Mrs. Ng were speculative, and that Mr. Ng had an existing military pension. Under these facts, the court concluded that the Debtors’ intent to continue monthly contributions to a second pension plan оf $264.16 was “not reasonably necessary for the support of Debtors for purposes of analyzing the Debtors’ ability to repay creditors.” Conclusion of Law ¶ 32, November 28, 2011.
Debtors filed a timely notice of appeal on December 11, 2011.
JURISDICTION
The bankruptcy court had jurisdiction under
ISSUE
Whether the bankruptcy court abused its discretion in dismissing the Debtors’ bankruptcy case under
STANDARD OF REVIEW
A bankruptcy court‘s decision to dismiss a case under
DISCUSSION
Section
§ 707 . Dismissal of a case or conversion to a case under chapter 11 or 13 ... (b)(1) After notice and a hearing, the court, on ... a motion by the United States trustee ... may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts ... if it finds that the granting of relief would be an abuse of the provisions of this chapter.... (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 paragraph (2)(A)(i) does not arise or is rebutted, the court shall consider—... (B) [whether] the totality of the circumstances ... оf the debtor‘s financial situation demonstrates abuse.
(1) Whether the debtor has a likelihood of sufficient future income to fund a Chapter 11, 12, or 13 plan which would pay a substantial portion of the unsecured claims; (2) Whether the debtor‘s petition was filed as a consequence of illness, disability, unemployment, or some other calamity; (3) Whether the schedules suggest the debtor obtained cash advancements and consumer goods on credit exceeding his or her ability to repay them; (4) Whether the debtor‘s proposed family budget is excessive or extravagant; (5) Whether the debtor‘s statement of income and expenses is misreрresentative of the debtor‘s financial condition; and (6) Whether the debtor has engaged in eve-of-bankruptcy purchases.
353 F.3d at 1139-40. Although the Ninth Circuit indicated that this list was non-exclusive, it also held that:
The primary factor defining substantial abuse is the debtor‘s ability to pay his debts as determined by the ability to fund a Chapter 13 plan. Thus, we have concluded that a “debtor‘s ability to pay his debts will, standing alone, justify a section 707(b) dismissal.”
Id. at 1140 (quoting In re Kelly, 841 F.2d 908, 914 (9th Cir. 1988)); see also Reed v. Anderson (In re Reed), 422 B.R. 214, 233 (Bankr. C.D. Cal. 2009) (debtor‘s ability to pay constitutes abuse under totality of the circumstances test of
Whether a debtor has the ability to repay creditors under
In this case, in evаluating the totality of the circumstances, the bankruptcy court examined Debtors’ income and expenditures in two general areas: (1) as proposed in the original dismissal motion of the UST, that three adjustments to income for pension contribution, loan repayment, and tax payment should be disallowed and the freed-up money be made available to creditors; and (2) at the time of rendering the court‘s final decision, the increase in Debtors’ income could be taken into consider ation by the court in determining Debtors’ net income available for payment to credi-
A. The Retirement Contribution
In analyzing a
In making this fact-intensive determination, courts should consider a number of factors, including but not limited to: the debtor‘s age, income, overall budget, expected date of retirement, existing retirement savings, and amount of contributions; the likelihood that stopping contributions will jeopardize the debtor‘s fresh start by forcing the debtor to make up lost contributions after emerging from bankruptcy; and the needs of the debtor‘s dependents.
The bankruptcy court expressly discussed the Hebbring criteria in its decision. The court first noted that Debtors already were receiving a military pension payment. The court was also cognizant of Mr. Ng‘s age (forty-three) and the details of Debtors’ income and budget. Mr. Ng had informed the UST that he would not retire for at least twenty years. The court reasoned that interrupting Debtors’ retirement contributions for the three-to-five year term of a hypothetical chapter 13 plan would have “less of an impact when the retirement will not occur for two decadеs.” Discounting the amount of retirement savings and lost contributions, the court concluded that Mr. Ng “could restart his contributions after completing payments to unsecured creditors and still set aside substantial amounts to fund a second pension fund.” This finding is not clearly erroneous.
Debtors’ primary concern about disallowance of the 401(k) plan contributions focused on the impact of the future medical bills of Mrs. Ng. Debtors had submitted the declaration of Mrs. Ng wherein she described her medical condition. However, there was no evidence submitted from any professionals providing her care. The court had evidence that Debtors had “extensive” medical insurance coverage, and that Schedule J estimated medical expenses of only $100.00 per month. The court decided that Debtors’ concerns for the future were understandable but speculative.
Considering the record, the bankruptcy court did not clearly err in finding that the voluntary contribution being made to Mr. Ng‘s 401(k) plan was not reasonably necessary for Debtors’ support, and the court did not abuse its discretion in disallowing the contribution as an adjustment to income.
B. The Pension Loan Repayment
The bankruptcy court also expressed misgivings with Debtors’ continued payment of the new pension loan. It noted that a debtor‘s borrowing from a retirement account does not give rise to a secured or unsecured claim or debt under the Bankruptcy Code, a conclusion supported in the Ninth Circuit decision in Egebjerg v. Anderson (In re Egebjerg), 574 F.3d 1045, 1049 (9th Cir. 2009).4 For this reason, the bankruptcy court aligned itself with what it described as a majority of courts, agreeing with one such court that,
Loan repayments to retirement accounts are considered “disposable income” because of their unique character; the debtor is in essence repaying a loan to himself. Thus it would be unfair to creditors to allow the debtors in the present case to commit part of their earnings to the payment of their own retirement fund.
Conclusion of Law ¶ 30, November 28, 2011, citing In re Speith, 427 B.R. 621, 625 (Bankr. N.D. Ohio 2009) (quoting In re Gonzalez, 378 B.R. 168 (Bankr. N.D. Ohio 2007)); accord In re Ziegler, 2009 WL 5943248 (Bankr. D. Colo. 2009); McVay v. Otero (In re Otero), 371 B.R. 190 (Bankr. W.D. Tex. 2007); In re Esquivel, 239 B.R. 146 (Bankr. E.D. Mich. 1999)).
The bankruptcy court concluded that Debtors’ pension loan repayment of $238.68 each month should be disallowed as an income adjustment and made available to pay unsecured debts. This ruling was not clearly erroneous. The bankruptcy court did not abuse its discretion in disallowing this payment as an adjustment tо Debtors’ income.
C. The Tax Payment
Finally, as to the $400.00 monthly payment Debtors were making to satisfy a prepetition income tax liability, the bankruptcy court earlier in the case had observed that such a payment, standing alone, was probably not abusive because the amount Debtors proposed to exclude from their income on account of the payment was only “slightly higher than the amount they would have to pay under a chapter 13 plan.” Memorandum of Decision at 11, February 9, 2011. However, the court changed its position after the final hearing on dismissal. Instead, the bankruptcy court determined that the tax debt was “a prepetition debt that would be paid in full using the Debtors’ excess income in a chapter 13 plan.” Conclusion of Law ¶ 33, November 28, 2011. If Debtors paid the tax debt through a chapter 13 plan, it could be satisfied with payments of $170.00 per month rather than the Debtors’ proposed $400.00 per month in chapter 7. Therefore, in a chapter 13 plan, Debtors would have an extra $230.00 per month that could be used to pay unsecured creditors. The bankruptcy court did not abuse its discretion in disallowing the $400.00 adjustment to income for purposes of analyzing Debtors’ ability to pay creditors.
D. Debtors’ Objections to the Disallowed Income Adjustments
Debtors challenge the bankruptcy court‘s decision to disallow the pension contribution and loan repayment. They argue that the UST failed to meet its burden of proving grounds for disallowance of these payments at the first hearing on the motion to dismiss on January 19, 2011. Specifically, Debtors cite to the bankruptcy court‘s Memorandum of Decision entered after that hearing, wherein it stated:
There is not enough evidence for me to determine whether the Craig factors5
are met. The only evidence offered by the U.S. Trustee, which bears the initial burden, is Mr. and Mrs. Ng‘s testimony that they do not anticipate retiring for about twenty years, and Mr. Ng is already receiving some retirement income from another source. Although the debtors do not bear the burden of proof, Mr. and Mrs. Ng have not provided any evidence that these contributions are reasonable and necessary for their family‘s maintenance and support.
Memorandum of Decision at 11, February 9, 2011. In their opening brief in this appeal, Debtors argue that this excerpt from thе bankruptcy court‘s decision represents a ruling by the court that the UST failed to carry its burden of proof on the pension contribution/loan payment issues because it did not offer evidence to address several of the Hebbring criteria:
No evidence was offered as to the Ngs’ then-existing retirement savings or as to whether stopping all retirement contributions for 60 months would jeopardize their ability to retire at a reasonable level of comfort.
Debtors’ Op. Br. at 29.
Of course, Debtors’ argument incorrectly assumes that the UST must submit proof concerning all the Hebbring factors to establish that pension contributions or pension loan repayments should be disallowed in a given case. Instead, the Ninth Circuit merely instructs that bankruptcy courts “should consider” the nonexсlusive list of Hebbring factors. There is no requirement that proof of all the factors be submitted.
The bankruptcy court acknowledged that it had considered the evidence offered by the UST on at least two of the Hebbring factors: Mr. Ng‘s age, and his expectations of working at least twenty more years. Although not explicitly acknowledged, the court also had before it evidence that Debtors were receiving a military pension. Debtors’ complaint that the UST had not adequately investigated the amount of their available savings is disingenuous because they provided inconsistent statements to the UST regarding those savings. And although Debtors’ original schedules I and J had indicated a loan repayment and pension contribution, they had denied that they had any retirement savings plan or pension in their original Schedule B at line 12. Dkt. No. 1 at 33.
In commenting on its decision to require Debtors to provide evidence on the reasonableness of their contributions and repayments to the retirement plan, the court observed:
What do the Debtors reasonably need to have in their retirement plan? That is the bottom line. Does the money end up in the retirement plan or does it go to the Creditors? And if they have a reasonable need for that, then maybe it is not abusive, but if they don‘t have a reasonable need for that, in light of all their circumstances, then perhaps it is abusive.
Hr‘g Tr. 5:19-25, February 23, 2011. Fairly read, the bankruptcy court‘s comments noted that, from the evidence submitted thus far, Debtors must establish a reasonable need for the pension plan contributions and loan repayments, or the bankruptcy court might consider them, in light of the totality of the circumstances, to be abusive. We consider the bankruptcy court‘s statements as an acknowledgment that the UST had established sufficient facts to shift to the debtors the burden to produce other evidence to show the reasonableness of the contributions and re-
In sum, we conclude that the bankruptcy court did not err in its decision to disallow Debtors’ pension contribution, loan repayment and tax payment6 as adjustments to income in its
E. The bankruptcy court did not abuse its discretion in considering the increased income of Debtors
The bankruptcy court also determined that Debtors’ ability to pay their unsecured creditors was further enhanced by the increases in Mr. Ng‘s income that occurred after the first hearing on dismissal. We find no abuse of discretion in this determination because, simply put, as the weight of authority instructs, the bankruptcy court may properly consider changes in Debtors’ circumstances, and events affecting their income and expenses, that occur between the time of the petition, the filing of the motion for dismissal, and the time of any decision on the
The Fifth Circuit addressed this issue in U.S. Tr. v. Cortez (In re Cortez), 457 F.3d 448, 455-56 (5th Cir. 2006). It held that the ability to repay creditors is based on the debtor‘s financial circumstances at the time of discharge. Id. This conclusion was based on the plain text of
Moreover, Debtors concede that the case law lines up against them on this issue:
The Ngs acknowledge that a majority of courts [have] held that it is appropriate to look at post-petition events affecting income and expenses in evaluating whether the granting of relief would be an abuse under section 707(b)(3). See, e.g., In re Crink, 402 B.R. 159, 170-76 (Bankr. M.D.N.C. 2009); In re Dowleyne, 400 B.R. 840, 846 (Bankr. M.D. Fla. 2008); In re Henebury, 361 B.R. 595, 607-11 (Bankr. S.D. Fla. 2007); and In re Pennington; 348 B.R. 647, 651 (Bankr. D. Del. 2006).
Debtors’ Op. Br. at 31.
In reviewing Debtors’ income and expenses, the bankruptcy court examined each of the Price factors, “in particular reviewing the Debtors’ ability to repay creditors over time.” Finding of Fact ¶ 26, November 28, 2011. In its decision, the bankruptcy court found that, even accepting Mr. Ng‘s declaration filed shortly before the last hearing showing a decrease in income for the preceding two months, Debtors’ gross monthly income from wages and his military pension totalеd $12,231.86. As it noted, even if the bankruptcy court were to allow Debtors to make the pension plan contributions and loan and tax payments opposed by the UST, Debtors would still have over $2,200.00 in net monthly income with which they could repay unsecured creditors. But, as discussed above, if those three monthly expenditures are disregarded, the court calculated that the Debtors’ monthly net income available for payment to unsecured creditors would be $3,155.17.
Given these amounts, the bankruptcy court concluded that Debtors “have the ability to repay unsecured creditors over time.” Conclusion of Law ¶¶ 34, 35, November 28, 2011. This analysis satisfied the first Price criterion, and the Panel is satisfied that it alone justifies dismissal under
Debtors’ objections to the bankruptcy court‘s consideration of their post-motion increase in income fall into two categories: (1) they object to the bankruptcy court‘s conclusion that they understated their income, and its calculation of net monthly income; and (2) they object that their increase in income was a circumstance not discussed “with particularity” in the UST‘s original motion to dismiss and, thus, the UST and bankruptcy court were precluded from considering these circumstances by
As to the court‘s conclusions regarding increases in income, the UST had provided evidence to the court that there was an increase in the Debtors’ income between
We decline to disturb the bankruptcy court‘s calculations of Debtors’ monthly net income. The UST‘s evidence showed, without contradiction, that Mr. Ng‘s earnings had substantially increased during the bankruptcy case, even excluding the summer income spike, as compared with Debtors’ proof suggesting that Mr. Ng was not expecting future overtime income. In making a choice between these two vеrsions of the facts, the bankruptcy court did not clearly err in finding that Debtors had incorrectly stated their income and expenses on their amended schedules, nor did it err in its calculations that Debtors had significant net monthly income with which to pay unsecured creditors. Where there are two permissible views of the evidence, the fact finder‘s choice between them cannot be clearly erroneous. Kekauoha-Alisa v. Ameriquest Mortg. Co. (In re Kekauoha-Alisa), 674 F.3d 1083, 1092 (9th Cir. 2012) (citing Anderson, 470 U.S. at 574).
While these factual findings are sufficient for us to affirm the bankruptcy court‘s dismissal order, we also agree with the bankruptcy court‘s decision to disallow the three adjustments to income urged by Debtors in this case. Consequently, the bankruptcy court could properly conclude that the Debtors’ monthly net income at the time of the second hearing was $3,155.17. We agree with the bankruptcy court that this sum demonstrated that the Debtors have the ability to repay unsecured creditors over time. Because the Debtors had the ability to repay their creditors, under the Price criteria, dismissal of the chapter 7 bankruptcy case under
Debtors also argue that the bankruptcy court could not take into consideration their post-bankruptcy increase in income, because it was not pleaded “with particularity” in the UST‘s original motion to dismiss. Debtors based this contention on
(e) Dismissal of an individual debtor‘s chapter 7 case, or conversion to a case under chapter 11 or 13, for abuse. The court may dismiss or, with the debtor‘s consent, convert an individual debtor‘s case for abuse under
§ 707(b) only on motion and after a hearing on notice to the debtor, the trustee, the United States trustee, and any other entity as the court directs. (1) Except as otherwise provided in§ 704(b)(2) , a motion to
dismiss a case for abuse under
§ 707(b) or(c) may be filed only within 60 days after the first date set for the meeting of creditors under§ 341(a) , unless, on request filed before the time has expired, the court for cause extends the time for filing the motion to dismiss. The party filing the motion shall set forth in the motion all matters to be considered at the hearing. In addition, a motion to dismiss under§ 707(b)(1) and(3) shall state with particularity the circumstances alleged to constitute abuse.
The language of the Rule does not support Debtors’ interpretation. The Rule requires the UST to “set forth in the motion all matters to be considered at the hearing.” The UST complied with that requirement by arguing “with particularity” in its original motion that Debtors had sufficient income to pay unsecured creditors, and that three adjustments to the amount of income advocated by Debtors were required. The hearing required by
Debtors argue in their briefs that “The Ngs respectfully suggest that Rule 1017(e)(1) generally provides a sensible and just cutoff for the consideration of post-petition events in a section 707(b)(3)(B) motion.” Reply Br. at 10. However, Debtors’ narrow reading of
All things considered, we conclude that the bankruptcy court appliеd the correct legal rules in making its rulings, and its findings were not illogical, implausible, or without support in inferences that may be drawn from the facts in the record. The bankruptcy court therefore did not abuse
CONCLUSION
We AFFIRM the decision of the bankruptcy court.
JIM D. PAPPAS
UNITED STATES BANKRUPTCY JUDGE