MEMORANDUM OPINION AND ORDER
The issue before the Court is whether the Debtor’s Chapter 7 bankruptcy should be dismissed pursuant to 11 U.S.C. § 707(b)(3)(B) for abuse. Where the Debtor did not file bankruptcy based on unforeseeable or catastrophic events, has a stable and relatively high income that includes an ability to eventually fund a Chapter 13 plan with money currently used to make 401(k) loan repayments, and thus has the ability to repay his creditors through a Chapter 13 plan, the Debtor’s case should be dismissed pursuant to § 707(b)(3)(B) because the totality of the circumstances of the Debtor’s financial situation demonstrates abuse.
Facts
The following facts are undisputed. The Debtor filed for Chapter 7 relief on September 29, 2010. He listed no secured debt and $103,291.59 in total unsecured debt. The Debtor’s debts are primarily consumer debts.
The Debtor further listed- his monthly gross income, including overtime pay, on Schedule I as $5,202.53 per month. This amount is reduced by a payroll deduction that includes a 401(k) contribution and 401(k) loan repayment in the total amount of $1,485.96. The Debtor’s 401(k) loan was borrowed on July 24, 2008 in the amount of $22,715.55 and is scheduled to be repaid on August 21, 2013. The loan payment amount is $356.61 every two weeks. With the payroll deduction in the amount of $1,485.97, the Debtor is left with a combined average monthly income of $2,741.71. The Debtor listed average monthly expenses on Schedule J as $2,775.00, leaving the Debtor negative disposable income in the amount of -$33.29.
The Debtor’s case was dismissed on October 18, 2010, but the dismissal was set aside on November 15, 2010. On November 18, 2010, the United States Trustee filed a statement that the case was presumptively abusive pursuant to 11 U.S.C. § 704(b).
On December 16, 2010, the United States Trustee filed a Motion to Dismiss
The United States Trustee and the Debtor resolved the United States Trustee’s Motion to Dismiss pursuant to § 707(b)(2) by the filing of an amended means test by the Debtor, which included information inadvertently not included in the original means test. Unable to resolve the United States Trustee’s Motion to Dismiss pursuant to § 707(b)(3)(B), the parties have stipulated that there are no disputed issues of fact, filed briefs on the issue of abuse pursuant to § 707(b)(3)(B), and submitted the matter in lieu of an evidentiary hearing for the Court’s determination.
Discussion
Section 707(b)(3) provides that it is “an abuse of the provisions of this chapter” if (a) a Debtor filed the petition in bad faith or (b) the totality of the circumstances of the Debtor’s financial situation demonstrates abuse. 11 U.S.C. § 707(b)(3). The United States Trustee makes no allegations that the Debtor filed his petition in bad faith but rather seeks dismissal of the Debtor’s Chapter 7 bankruptcy because the totality of the circumstances constitute “abuse” within the meaning of § 707(b)(3)(B).
In the Sixth Circuit, abuse may be predicated on either lack of honesty or want of need. The facts relevant to determining whether a debtor is “needy” include a debtor’s ability to repay his debts out of future earnings. This factor alone may be sufficient to warrant dismissal. See Behlke v. Eisen (In re Behlke),
One way to determine an ability to pay is to evaluate whether there is sufficient disposable income to fund a Chapter 13 plan. In re Behlke,
The Sixth Circuit in Behlke held under the pre-BAPCPA version of § 707(b)
Similarly, 401(k) loan repayments have been treated like 401(k) contributions and also considered as disposable income in the context of determining abuse under the totality of the circumstances test pursuant to § 707(b)(3). See In re Pandl,
The Debtor, while taking no issue with the case law cited herein, argues that he is in a predicament that distinguishes his situation from that of the debtors in Pandl and Felske, as well as justifies this Court deviating from the law as set forth by Sixth Circuit. The Debtor argues that he is being forced into a Chapter 13 plan with negative disposable income, causing him to propose a Chapter 13 plan that has essentially zero being paid into it until the 401(k) loan is repaid in August of 2013. The Debtor further asks for guidance by setting forth “objective criteria” that would guide debtors and their attorneys in this circumstance and would not result in penalizing the debtor for attempting to seek the most relief he is entitled to under Federal law.
The Debtor is referring to the changes brought by BAPCPA to the treatment of 401 (k) contributions in terms of a Chapter 13 plan. BAPCPA amended § 541 to add subsection (b)(7) which allows debtors to shelter contributions to their 401(k) from property of the estate up to the permitted limit of the employee benefit plan. See 11 U.S.C. § 541(b)(7); Burden v. Seafort (In re Seafort),
But the Sixth Circuit B.A.P. has recently held that income that becomes available after a 401(k) loan repayment is satisfied post-petition may be considered “disposable income” for purposes of funding a Chapter 13 plan. In re Seafort,
The Northern District of Ohio has addressed the disparate treatment of 401(k) contributions and 401(k) loan repayments
As mentioned above, the courts in Pandl and Felske reached similar conclusions. In re Pandl,
That is exactly the case herein. Once the loan expires in August of 2013, the Debtor will be able to contribute the almost $700 a month he is paying towards the 401(k) loan repayment to a Chapter 13 plan, which could result in payment to his creditors of an approximate 24% dividend over a course of three years. This is certainly a meaningful distribution to the Debtor’s unsecured creditors.
While the Court recognizes the Debtor’s predicament in that the Debtor must initially pay zero into a Chapter 13 plan if forced to convert to a Chapter 13 plan, this Court cannot ignore the plain language of the Bankruptcy Code or the clear precedent set by the Sixth Circuit in Behlke and the Sixth Circuit B.A.P. in Seafort. The Debtor has not claimed he filed for bankruptcy relief because of unforeseen or catastrophic events. The Debtor’s petition shows that he has stable employment as a project leader with a relatively high gross monthly income of $5,202.53; the Debtor therefore has an ability to repay his creditors from future earnings. Moreover, considering the fact that the 401(k) loan will be repaid in August 2013, thus enabling the Debtor to contribute an additional $700 per month to pay his unsecured creditors, the Debtor has money available to fund a Chapter 13 plan. From the standpoint of the § 707(b)(3)(B) analysis, the Debtor is not “needy” and the totality of the circumstances of the Debtor’s financial circumstances warrant a finding of “abuse.”
While this determination certainly puts the Debtor between the proverbial rock and a hard place, there is no constitutional right to a bankruptcy discharge. In re Krohn,
Conclusion
Based on the foregoing, the United States Trustee’s Motion to Dismiss is GRANTED in the event that the Debtor fails to convert his case to a case under Chapter 13 within 21 days of the date of entry of this Order.
Notes
. 11 U.S.C. § 707(b)(3) was modified by the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”). The modification made a showing of bad faith unnecessary to prevail under § 707(b)(3) and lowered the standard from a showing of "substantial abuse” to "abuse.” Despite these modifications, the pre-BAPCPA cases remain instructive to this Court.