In Re Siler
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- Before:
- Whitley
This matter is before the Court upon the Bankruptcy Administrator’s (“BA”) Motion to Dismiss Bankruptcy Case for Abuse and the Debtor’s Response. A hearing was held on January 28, 2010.
STATEMENT OF FACTS/PARTIES’ POSITIONS
Most of the relevant facts are derived from Angel Siler’s (“Siler”) bankruptcy petition and are not in dispute.
Siler is an unmarried IT Specialist who filed a Chapter 7 bankruptcy petition in this Court on November 20, 2009. Under her Form 22A “Means Test,” Siler reports a current monthly income (“CMI”) (as defined in
After doing so, Siler reported $382.85 in monthly disposable income under § 707(b)(2), or $22,971 over 60 months. Voluntary Petition Under Chapter 7, page 38, Form 22A, Lines 50 & 51 (Docket No. 1). Since her annualized disposable income exceeds both the sum of $10,950 and 25% of Siler’s unsecured, nonpriority debts, Siler failed the Means Test.
See
On December 7, 2009, the BA filed a Statement of Presumed Abuse and subsequently this Motion to Dismiss Bankruptcy Case for Abuse. The BA maintains Siler’s Chapter 7 case must be dismissed as an “abuse” under
In response, Siler amended Form 22A to add a $63 per month furniture loan payment omitted from the original form. The BA does not oppose this amendment. Siler also seeks to rebut the presumption of abuse with three monthly expenses that she argues are “special circumstances” under
The three additional expenses exceed Siler’s amended monthly disposable income of $382.85. If deemed special circumstances, they would rebut the presumption of abuse. However, the BA argues that these expenditures do not fall within the statutory definition of “special circumstances.”
The parties’ arguments concerning the
Holding: On the facts presented, Siler has failed to demonstrate her student loan payment, retirement contribution, or 401k loan repayment expenses are “special circumstances” within the meaning of
However, because Congress has simultaneously directed that ERISA contributions and loan repayments be deductible from CMI in Chapter 13 cases, on the facts presented, such a conversion would yield no distribution to unsecured creditors. In this case, the difference in treatment causes an absurdity that is directly contrary to the congressional intent, that while debtors with an ability to repay creditors should file under Chapter 13, debtors lacking that ability are to be permitted Chapter 7 relief. On these rather unusual facts, Siler may remain in Chapter 7.
DISCUSSION
Jurisdiction over this proceeding arises under
I. Statutory Background
Prior to the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) amendments, a bankruptcy court was authorized to dismiss a case if it constituted a “substantial abuse” of Chapter 7. See 6 Collier On Bankruptcy ¶ 707.04[5][a] (15th ed. rev.2006).
The 2005 BAPCPA reforms rewrote
II.
The Means Test focuses on a debtor’s CMI, or average monthly income for the six (6) calendar months prior to the filing of the bankruptcy case.
If, as here, a presumption of abuse arises under the Means Test, the debtor must rebut the presumption by showing “special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative”.
The Bankruptcy Code does not define “special circumstances,” but merely gives two nonexclusive illustrations: a) a serious medical condition or b) “a call or order to active duty in the Armed Forces”.
One group of courts has defined “special circumstances” narrowly: “[T]he plain meaning of “special” provides some instruction to the Court that the expense or adjustment to income in question must be out of the ordinary or exceptional in some way.”
In re Delbecq,
A second line of cases holds that special circumstances need not be “extraordinary” and that a broad range of circumstances may be considered special.
In re Martin,
Under the broad view, special circumstances need not be outside of a debtor’s control.
In re Graham,
A second disagreement between bankruptcy courts exists over a court’s options if the Chapter 7 debtor fails to rebut the presumption of abuse. One line of cases treats
Other courts note inclusion of the word “may” in
Like many other BAPCPA interpretations, there are strengths and weaknesses to each of these positions. That said, however, the undersigned sides with the courts that view
Against this framework, we next consider Siler’s three claimed special circumstances. 8
A. Retirement Plan Contributions.
No reported decision has ever held a Chapter 7 debtor’s voluntary contribution to his or her retirement plan to be a special circumstance. However, several courts have rejected the assertion.
In re Tauter,
That is certainly the case here. Siler’s monthly retirement plan contributions are essentially future payments to herself. While saving for retirement may be prudent, it is generally unnecessary in bankruptcy, and particularly unnecessary for this debtor. Siler, at thirty-one (31) years old, is far from the age of retirement. Her ERISA contributions are not a special circumstance.
B. 401K Loan Payments
For similar reasons, most courts do not treat 401(k) plan loan payments as special circumstances.
Compare In re Lenton,
Again, the problem with treating these expenses as “special” is that most “retirement plan loans are neither extraordinary nor rare.”
In re Egebjerg
ERISA loan repayments are simply a means by which a retirement plan participant repays herself for a draw against savings. Under pre-BAPCPA law, such obligations were not considered necessary expenditures, but were instead treated as indicators of substantial abuse.
See In re Behlke,
It is true that in BAPCPA, Congress added a clause in § 1322(f) to overrule
Harshbarger
and to allow certain ERISA payments to be deducted from disposable income in Chapter 13.
Eisen,
In the present case, Siler has presented no facts that would suggest that her 401k loan was extraordinary in any way. Without such a showing we cannot consider her retirement loan obligation to be a “special circumstance.”
C. Student Loan Payments
The student loan question is a closer call. Silver argues that her student loan payment is a special circumstance because it is a nondischargeable debt, meaning she has no alternative but to pay it.
Some courts have treated student loan obligations as per se special circumstances for this precise reason.
In re Templeton,
However, a number of other courts have declined to afford student loan obligations “special circumstances” treatment under
Many of these cases deny such treatment based on the aforementioned rule that to be special, the expense or adjustment to income “must be out of the ordinary or exceptional in some way.”
In re Delbecq,
Further, treating student loans as special circumstances permits them to be paid
These are good reasons not to treat nondischargeable debts as per se special circumstances. If a debt need only be nondischargeable to be classified as a special circumstance, then many categories of debts, including frauds, willful and malicious injuries, drunk driving liabilities and even taxes would gain priority status not granted in § 507(a).
In re Vaccariello,
The undersigned believes the second line of cases represents the better-reasoned view. There may be certain situations where student loans can be considered special circumstances, for example where the loans were necessitated by some unforeseen injury, disability or perhaps an employer closing.
In re Pageau,
In the present case, Siler has given us no reason to think of this obligation as extraordinary in any way, so we must conclude these are not “special circumstances.”
III. Judicial Leniency, Future Expenses & Potential Chapter 13 Case Results
Anticipating that she might not be able to rebut the presumption of abuse, Siler makes several arguments why she should be permitted to stay in Chapter 7.
First, Siler asks this Court to ignore the Means Test in favor of more “accurate” figures found in Schedules I and J in her Petition. She cites § 105(a) 9 as authority for doing so. This is not an option, for two reasons.
First, it is clear that a bankruptcy court may not use its equitable powers in derogation of other bankruptcy statutes, such as
Second, the discretion that Siler invites the Court to exercise is contrary to legislative intent. Under the old “substantial abuse” test, bankruptcy judges exercised broad latitude as to Chapter 7 debtor eligibility. It was the express intention of Congress in passing the BAPCPA
Admittedly, the Means Test is an odd configuration. It seeks to provide a “snapshot” of a debtor’s present financial condition, but does so based on historical figures (the six (6) month period preceding bankruptcy). And while the Means Test purports to gauge a debtor’s ability to pay creditors, it makes that assessment upon an amalgamation of both actual and normalized expenses. It is essentially financial stew, but a stew whose ingredients are
Siler does not cite any lack of clarity in the Means Test, so this Court is obliged to enforce the test unless (1) “literal application of the statutory language at issue results in an outcome that can truly be characterized as absurd, i.e., that is so gross as to shock the general moral or common sense ....” or (2) if “literal application of the statutory language at issue produces an outcome that is demonstrably at odds with clearly expressed congressional intent....”
In re Sunterra Corp.,
Here, Siler finds traction. As she points out, the expressed intent of Congress in enacting the Means Test is to restrict Chapter 7 relief to debtors who cannot afford to make payments to unsecured creditors in Chapter 13.
In re Mravik,
Siler argues that barring her from Chapter 7 under the Means Test result is absurd because she lacks both the wherewithal and the legal obligation to fund a distribution to unsecured creditors under a Chapter 13 plan. To match facts to theory, Siler returns to her Chapter 7 Means Test result. She has a monthly disposable income of $382.85, which after the $63 additional secured payment yields $319.85.
Siler reminds the Court that in Chapter 13, both ERISA contributions and plan loan repayments are deductible from a debtor’s disposable income.
See
The Court agrees with Siler’s conclusion, if not this entire theory. First, the Court must disregard the car loan expense as mere speculation. A payment obligation cannot be considered until a liability exists. No such liability exists.
Second, the Court finds Siler’s assumption that she will be permitted to pay her monthly student loan payment in full in Chapter 13 ahead of other unsecured creditors to be misguided. Many courts, this one included, do not permit payment of a student loan at a higher rate than other unsecured debts. This discriminates unfairly against other similarly sited creditors as proscribed by § 1322(b)(1).
11
In re Groves,
However, Siler’s argument that her ERISA contributions and loan payments are deductible is well grounded. As noted above, Congress chose to exclude 401(k) loan payments and pension contributions
Where a hypothetical Chapter 13 plan would not pay a distribution to unsecured creditors, several courts have declined to dismiss a Chapter 7 case based on a Means Test violation.
See In re Skvorecz,
The Court agrees with the holdings in these two cases, if not all of their reasoning. 12 To use the Means Test to deny Chapter 7 relief to an individual, who could not pay unsecured creditors in Chapter 13 and who, as a matter of clear congressional election would not be required to do so, is absurd and contrary to the purpose of the Means Test.
IV.
The BA’s alternative theory posits that because Siler has ability to pay a substantial part of her creditors, this case must be dismissed under
The “totality of circumstances” test has its roots in pre-BAPCPA law.
In re Nockerts,
Under the Fourth Circuit’s old “totality of the circumstances test,” to be dismissed, a court must consider not just the debtor’s ability to fund a Chapter 13 plan, but other factors.
Green v. Staples,
(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.
The Means Test of
Since under the old totality of the circumstance test a showing of something more than ability to pay was required to warrant dismissal, that would appear to remain the case under
Apart from a potential ability to pay, there are no other factors in the record indicative of abuse. Even this potential ability to pay is founded on this Court
V. Conclusion
For the reasons stated above, the BA’s motion to dismiss is DENIED.
SO ORDERED.
Notes
. There is an exception from the Means Test under
. Based upon a gross monthly income of $4,887.90, a net income of $3,140.58 and monthly expenses of $3,054. Voluntary Petition Under Chapter 7, page 19-22, Schedules I & J (Docket No. 1).
. The BA’s calculation ignores the $84.06 surplus from Schedules I & J, and assumes that the student loan payment is permitted in Chapter 13.
. A few courts define the term special so broadly that “any legitimate expense that is out of the ordinary for an average family and leaves the debtor with no reasonable alternative but to incur the expense” qualifies. 6
Collier on Bankruptcy
¶ 707.05[2][d];
In re Batzkiel
. Or converted to Chapter 13, if the debtor is amenable.
. "... the court ... may dismiss a case.”
. However, even these courts acknowledge that the bankruptcy judge’s discretion in this area is limited and "should not be exercised lightly”.
In re Mravik,
.A debtor claiming special circumstances is required to provide itemized documentation of his expenses or a detailed explanation of the special circumstances, which justifies the expenses for which there is no reasonable alternative. Siler has provided only a bare statement of these expenses, but the BA has not objected. Therefore, the Court will let the lack of information go towards the evidentia-ry issue.
. Section 105 authorizes a bankruptcy judge to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title."
. The length of a Chapter 13 plan.
. Section 1322(b)(10) permits the payment of interest on such a nondischargéable claim, but only to the extent that all other allowed unsecured claims are paid.
. At least one of these cases casts this situation as a reason to treat