In Re Roppo
MEMORANDUM OPINION
This matter comes before the Court on the motion filed by William T. Neary, the United States Trustee for the Northern District of Illinois (the “UST”) to dismiss this Chapter 7 case pursuant to 11 U.S.C. § 707(b)(3) filed by Vito O. Roppo (the “Debtor”). For the reasons set forth here
I. JURISDICTION AND PROCEDURE
The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. It is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (0).
II. FACTS AND BACKGROUND
The material facts and background are undisputed. The Debtor filed a voluntary Chapter 7 petition on October 6, 2009. (UST Ex. No 1.) He is married and the couple have one minor dependent child. His spouse was a debtor in her own Chapter 7 case (07 B 11704) several years ago and received a discharge. (UST Ex. No. 6.) Most of the Debtor’s debt is consumer in nature, and according to his Schedule F, most of the $55,704.53 unsecured non-priority debt is from credit cards. (UST Ex. No. 1.) The Debtor’s Schedule I listed monthly gross income of $8,643.20 with net take home pay of $5,969.31 from his employment as an assistant vice president with Bank of America. (Id.; Debtor Ex. No. 2.) His average monthly expenses itemized on Schedule J total $5,916.46 and include a $2,588 mortgage payment for a town home in Carol Stream plus related utility and other expenses such as condominium association dues of $165. (Id.) The Debtor lists a $477.84 car payment (for a 2004 Lincoln Aviator), which debt he has reaffirmed, plus insurance and transportation expenses. In addition, other expenses were listed including $42 monthly pet insurance. The difference between Schedules I and J is $52.85. The Chapter 7 trustee filed her no-asset report on November 19, 2009. Thus, unsecured creditors will not receive a dividend on their claims.
After he filed the petition, the Debtor surrendered his residence and signed a lease for the rental of a single-family home for $2,250 per month for the period January 2010 through December 2011. (UST Ex. No. 4; Debtor Ex. No. 1.) The UST contends that this reduction in expenses would produce an additional $465 per month in order to fund a significant dividend to the Debtor’s unsecured creditors under a Chapter 13 plan. 1 The Debtor filed an amended Schedule J which now shows $5,954.84 in monthly expenses. (UST Ex. No. 2; Debtor Ex. No. 3.) Although his non-debtor spouse does not work, the amended Schedule J now lists a $520 monthly payment for her vehicle (a Mercedes R350 purchased in April 2008). (Id.) That expense was not disclosed on the original Schedule J. (UST Ex. No. 1.)
The only witness who testified at trial was the Debtor. He stated that he had a post-petition job change. The Debtor testified that since July 1, 2010, he has worked for Met Life as a mortgage consultant performing essentially the same duties as when he was with Bank of America. Currently, the Debtor has a guaranteed salary of $11,000 for three months and thereafter is on a straight commission basis. (Debtor Ex. Nos. 6 & 7.) According to the Debtor, he left Bank of America because of client loss and an inability to close loans as a result of internal procedural problems. He incurs over $600 per month to advertise in the Chicago Tribune newspaper. This expense, which is not
The Debtor acknowledged that he and his spouse have a time-share interest in a property in the Bahamas for which they pay an annual fee of $675. In addition, the Debtor has a gym membership at a local park district that costs $69 per month. The Debtor testified that he has fifteen months remaining on his car payment. The income tax refunds he received in prior years were used to repay relatives. The Debtor stated that he has cut back unnecessary expenses and that his current living expenses are not unreasonable in light of his reduced commission income over the past years and the fact that his future income from his new position is uncertain. Because most of the unsecured debt was incurred when he was making over $100,000 more per year from his employment, the Debtor stated that he cannot make sufficient plan payments in a Chapter 18 case to provide a significant dividend to his unsecured creditors.
III. DISMISSAL UNDER 11 U.S.C. § 707(b)(3)
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPC-PA”), effective October 17, 2005, made sig-nifieant changes to 11 U.S.C. § 707(b). Prior to BAPCPA, the Bankruptcy Code allowed dismissal of a Chapter 7 case if it was a “substantial abuse.” BAPCPA created a presumption of abuse based on the “means test” in § 707(b)(2). In addition, § 707(b)(3) was added and allows a court to dismiss a case even if the debtor did not fail the means test. In pertinent part, § 707(b) provides as follows:
(b)(1) After notice and a hearing, the court, on its own motion or 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 ... the court shall consider—
(A) whether the 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)(1) & (3).
The UST does not challenge the Debtor’s good faith in filing the Chapter 7 petition. Rather, the UST contends that the totality of the circumstances of the Debtor’s financial situation demonstrates that this case is an abusive filing and it should be dismissed.
2
In order for the Court to dismiss the Debtor’s case under § 707(b)(3), the UST must demonstrate abuse by a preponderance of the evidence.
The Bankruptcy Code does not define the terms “abuse” or “totality of the circumstances” for purposes of this section. Even though the phrase “totality of the circumstances” in § 707(b)(3) is new under BAPCPA, the concept is not novel.
In re Zaporski,
The Seventh Circuit noted that consideration should be given to a debtor’s actual income and expenses when determining whether to dismiss a case under § 707(b)(3).
Ross-Tousey v. Neary (In re Ross-Tousey),
Section 707(b)(3) requires proof of something more than the ability to fund a Chapter 13 plan in order to avoid rendering the means test of § 707(b)(2) “mere surplusage.”
Nockerts,
Many courts have dismissed Chapter 7 cases for abuse under § 707(b)(3).
See In re Pak,
In contrast, there are several reported decisions wherein the results were favorable to debtors defending against a motion to dismiss under § 707(b)(3).
See In re Tucker,
Closer to home are recent decisions of other judges of this Court.
In re Deutscher,
IV. DISCUSSION
The UST argues that under the totality of the circumstances the case should be dismissed because the Debtor has not experienced any sudden illness, calamity, disability or unemployment. Rather, he has surrendered his town home and now has rented a much larger single-family home of 3,750 square feet with four bedrooms and a three-car garage that is approximately 150% of the IRS monthly housing expense allowance for a mortgage in DuPage County, Illinois ($1,527) and 429% of the non-mortgage housing allowance ($542). Thus, the UST maintains that the Debtor is renting a newer luxury home that far exceeds the family’s housing needs and reasonable family budget under the circumstances for purposes of § 707(b)(3)(B). In short, the UST contends that the Debtor has not tightened his financial belt. Rather, he is simply unwilling to pay anything to his unsecured creditors. The UST concludes that the Debtor’s surrender of his home effectively increased his net income in order to fund a Chapter 13 plan. This is the principal focus of the matter.
The Debtor concedes that his ability to pay may be the most relevant factor. He argues that although the petition was not filed because of sudden illness, calamity, disability or unemployment, he made the consumer purchases when he was making substantially more income, and those debts were not far in excess of his ability to pay. The Debtor further states that his Schedules and statements of current income and expenses accurately reflect his true financial condition, and his family budget is not excessive or unreasonable.
The Court finds, based upon the Debt- or’s current and past income, that he unquestionably has the ability to pay something to his unsecured creditors under a Chapter 13 plan, despite his concern that his future commissions may decrease or not materialize. Moreover, the Debtor’s petition was not filed as a result of any sudden illness, calamity, disability or unemployment. Further, it is undisputed that the Debtor’s consumer debts were incurred pre-petition when he was earning substantially more income, and there is no evidence that the debts were far in excess of his ability to pay when they were incurred. Additionally, the Debtor’s Schedules and statements of current income and expenses reasonably and accurately reflect his true financial condition. Thus, the focus turns to whether the Debtor’s proposed family budget is excessive or unreasonable.
The determination of whether a family budget is excessive or unreasonable is an “unenviable task.”
In re Johnson,
It is helpful to compare the Debtor’s amended Schedule J expense line items (UST Ex. No. 2; Debtor Ex. No. 3) with the relevant National and Local Standards used in the means test because those standards establish some bench marks to determine whether the Debtor’s budget is excessive. The IRS Local Standards for housing and utilities for a family of three living in DuPage County, Illinois is $1,527. See http://www.usdoj.gov/ust/eo/bapcpa/ meanstesting.htm (select Illinois). On the Debtor’s amended Schedule J, those monthly costs are listed on lines 1 through 2d and total $2,940. (UST Ex. No. 2; Debtor Ex. No. 3.) The IRS Local Transportation Expense Standards for the Midwest Census Region list ownership costs for a first and second car at $489 each per month or $978 total. See http://www. usdoj.gov/usVeo/bapcpa/meanstesting.htm (select Midwest Census Region). The Debtor’s amended Schedule J lists a payment of $477.84 for his Lincoln Aviator and a $520 payment for his wife’s Mercedes for a monthly total of $997.84. (UST Ex. No. 2; Debtor Ex. No. 3.) The same IRS Standards list monthly operating costs for two cars in the Chicago region at $434 and for the Midwest region at $366. See http://www.usdoj.gov/usVeo/ bapcpa/meanstesting.htm (select Midwest Census Region). The Debtor’s amended Schedule J lists a $300 transportation expense and auto insurance at $110 for a total of $410. (UST Ex. No. 2; Debtor Ex. No. 3.) In addition, the IRS National Standards for Food, Clothing and Other Items (housekeeping supplies, apparel and services, personal care products and services, and miscellaneous) for a three-person family total $1,152 per month. See http://www.usdoj.gov/usVeo/bapcpa/ meanstesting.htm. The Debtor’s amended Schedule J lists the following expenses: food $700; clothing $50; laundry and dry cleaning $40; renter’s insurance $25; pet insurance $42; and advertising expenses necessary for job $600 that total $1,457. (UST Ex. No. 2; Debtor Ex. No. 3.)
Thus, in virtually every category the Debtor’s monthly expenses are higher than the applicable standards. The Court therefore concludes that the Debtor and his family are still living an above-standard lifestyle and have not significantly tightened their financial spending habits, notwithstanding their respective bankruptcies. It is baffling why the Debtor’s wife acquired a Mercedes automobile the year following her Chapter 7 case and the Debtor failed to disclose her car payment on his original Schedule J. (UST Ex. No. 1.) Moreover, the Court is perplexed by the large size (3,750 square feet) and cost ($2,250) of the Debtor’s home. (UST Ex. No. 4; Debtor Ex. No. 1.) A debtor’s budget may be excessive or unreasonable because of high housing expenses.
In re Crink,
After a careful review of the Debtor’s expenses, most of which exceed the IRS
V. CONCLUSION
For the foregoing reasons, the UST’s motion is granted and the Debtor’s case is dismissed under § 707(b)(3)(B).
This Opinion constitutes the Court’s findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. A separate order shall be entered pursuant to Federal Rule of Bankruptcy Procedure 9021.
Notes
. The UST arrives at the $465 figure by adding the difference between the Debtor's former mortgage payment ($2,588) and the current lease payment ($2,250) of approximately $300 with the condominium association dues of $165.
. As an anecdotal aside, the Court has observed over the years that the most common response of debtors to motions to dismiss for abuse under § 707(b)(3) is to file a motion to convert to Chapter 13 pursuant to 11 U.S.C. § 706(a). Here, the Debtor has not sought to convert his case.