DECISION AND ORDER
This cause comes before the Court after a Hearing on the Motion of the United States Trustee to Dismiss Case Pursuant to 11 U.S.C. § 707(b)(1). At the conclusion of the Hearing, the Court took the matter under advisement so as to afford time to thoroughly consider the issues raised by the Parties. The Court has now had this opportunity, and finds, for the reasons now explained, that the Motion of the United States Trustee should be Granted subject to the limitation set forth herein.
DISCUSSION
Under § 707(b)(1), a court may dismiss a Chapter 7 case filed by an individual debtor whose debts are primarily consumer debts if it finds that the granting of relief would be “an abuse.” This paragraph was added to the Bankruptcy Code on October 17, 2005, with the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act. A primary purpose of this Act, which is otherwise known as BAPCPA, was to curb perceived abuses within the bankruptcy process.
In re King,
First, § 707(b)(1) makes the standard for dismissal less stringent; prior to BAPCPA, a case could only be dismissed for “substantial abuse,” as opposed to now for simply “abuse.” Congress also eliminated in BAPCPA what had otherwise been a safeguard for the debtor: under the former § 707(b) there existed a pre
In addition to these changes, Congress also prescribed two alternative standards through which the existence of “abuse” is to be gauged for purposes of § 707(b)(1). First, in § 707(b)(2), Congress provided that, under a “means test” formula, abuse may be presumed in instances where an ability to pay threshold is exceeded. Second, § 707(b)(3) was added to the Code by BAPCPA to provide that, even if no presumption of abuse arises, a court could still dismiss a case based upon the particular circumstances of the case.
In its Motion to Dismiss, the UST, although it cited to both standards, 1 limited its arguments at the Hearing to just that of § 707(b)(3). In particular, the UST relied on the “totality of the circumstances” test set forth subparagraph (B) § 707(b)(3) which provides:
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 consider—
(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.
As a determination of dismissal under this provision directly involves the ability of a debtor to receive a discharge and directly affects the creditor-debtor relationship, this matter is a core proceeding over which this Court has the jurisdictional authority to enter final orders. 28 U.S.C. §§ 157(b)(2)(J)/(0); 1334.
This Court has observed, as have others, that the “totality of the circumstances” test under § 707(b)(3) is best understood as a codification of pre-BAPCPA case law.
2
Under pre-BAPCPA law, a
As support for this position, the UST pointed out that the Debtor’s unsecured debts are relatively small in amount, totaling between $6,000.00 and $16,000.00 depending on the existence and/or amount of any deficiency claim that may arise as the result of the Debtor having surrendered his residence. In addition, the UST questioned the budgetary figures submitted by the Debtor which show that his household budget has a deficiency of $40.00 per month. (Doc. No. 1). In bringing into question the propriety of the Debtor’s monthly budget, the UST did take issue with the income side of the equation whereby, after taking deductions for taxes, child support for one child and union dues, the Debtor set forth a net monthly household income of $2,702.00. Rather, the UST argued that, in setting forth a total of $2,742.00 in necessary monthly expenses, the Debtor took three impermissible deductions: an $852.00 payment for a home mortgage; an allocation of $150.00 for home maintenance; and a $250.00 expense for recreation.
According to the UST, the first two expenses are excessive for the simple reason that they no longer exist — with the Debtor having surrendered his home through the bankruptcy process. In greater detail, it is the position of the UST that any “needs” based determination under § 707(b)(3) should be based upon a housing expense of $550.00, representing what the Debtor presently pays in rent. For the latter expense, it is the position of the UST that it is improper for someone such as the Debtor, who asserts an inability to pay their unsecured debt, to allocate $250.00 per month toward recreation.
When determining a debtor’s need (or lack thereof) for Chapter 7 relief, the question before the Court is normally one of the debtor’s ability to repay his or her debts. The function served here goes to the core of bankruptcy; debtors who have the ability to pay their debts should. An often utilized yardstick in this respect is the amount of “disposable income” the debtor would have available in a hypothetical Chapter 13 case to repay his or her creditors.
Behlke v. Eisen (In re Behlke),
Disposable income is defined as that income received by a debtor which is not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor.
In re Pier,
This does not mean that such an expense is
per se
improper. Bankruptcy law does not require that a debtor live a monastic lifestyle.
In re Fulbright,
But even discounting the recreation expense, the Court cannot ascertain, on the part of the Debtor, any actual “need” for Chapter 7 relief. By his own accounting, he has sufficient disposable income available to pay 100% of his unsecured debt. As set forth above, the Debtor, having surrendered his home, is no longer required to devote $852.00 for the payment of a mortgage; nor is the Debtor required to allocate $150.00 per month for home maintenance. Instead, the Debtor now pays a flat rental fee of $550.00 per month.
Resultantly, the Debtor has, without making any other adjustments to his monthly budget, an additional $452.00. Against this available income, the figures submitted by the Debtor show that his unsecured debts are relatively small in amount, totaling between $6,000.00 and $16,000.00 depending on the existence and/or amount of any deficiency claim that may arise from the surrender of his residence. Thus, even without making any other adjustments to his monthly budget, the Debtor has sufficient income at his disposal to fully pay his creditors. Taken over 36 months, the availability of $452.00 per month yields $16,272.00, an amount greater than the upper limit of the Debt- or’s total unsecured debt. Therefore, it is difficult to discern how the Debtor, having the ability to repay most if not all of his unsecured debts, has any “need” for Chapter 7 relief.
The Debtor’s lack of need for Chapter 7 relief is also buttressed by another relevant factor: The Debtor enjoys a stable source of future income, and is unlikely to soon experience any precipitous decline in his income.
In re Krohn,
The Debtor, however, seeks to put his financial circumstances in a different light. According to him, a review of his budgetary expenses, including those against which the UST takes issue, demonstrate that he does not live an “extravagant lifestyle.” (Doc. No. 27, at pg. 6). For example, he points out that he owns just one vehicle for his personal use, “a 12 year-old Jeep with over 150,000 miles on it.” Id.
The Debtor’s position brings to light what is often a typical paradigm in an action brought under § 707(b): a debtor seeking to maintain, at the expense of his or her creditors, an extravagant lifestyle.
Kornfield v. Schwartz (In re Kornfield),
Notwithstanding, the Debtor also contends that he is entitled to Chapter 7 relief because, having passed the “means test” of § 707(b)(2), it should be “presumed that he does not have the ability to pay a substantial portion of his debts.” (Doc. No. 27, at pg. 5). This argument, however, whereby a debtor’s ability to repay his debts plays a diminished role in a “totality of circumstances” analysis under § 707(b)(2), has been rejected by the Court. First, in the ease of In re Robert/Sherrie Haar, it was explained:
[I]t is difficult to see how, as the Debtors argue, the ‘means test’ of § 707(b)(2) would be rendered ‘meaningless’ if a case could be dismissed under § 707(b)(8) based solely upon a debtor’s ability to pay. Sections 707(b)(2) and 707(b)(8) serve entirely different functions. On the one hand, the ‘means test’ of § 707(b)(2) is a rigid, mechanical formula which, under certain conditions, gives rise to a presumption of abuse which the debtor may then rebut. By comparison, § 707(b)(3) is an equitable test, with it being incumbent upon the movant to sustain a showing that the necessary conditions exist to warrant dismissal.
Even in the absence of any presumption of abuse arising under § 707(b)(2), the following paragraph, § 707(b)(3), provides that a court may still dismiss a case based upon the particular circumstances of the case. This basis for dismissal is completely independent from § 707(b)(2); thus simply because no presumption arises according to the ‘means test,’ does not insulate a debtor from a finding of abuse.
Other courts have generally come to the same conclusion. For example, in
In re Mestemaker,
another case out of this division, the Honorable Mary Ann Whipple rejected the debtors’ contention that “the means test calculation is conclusive evidence regarding their ability (or inability) to pay their unsecured creditors.”
Consequently, as the Debtor has been unable to satisfactorily rebut those considerations which show that he has the ability to repay his debts, this case must be dismissed as an abuse of the bankruptcy process within the meaning within the meaning of §§ 707(b)(1) and (b)(3). In
In reaching the conclusions found herein, the Court has considered all of the evidence, exhibits and arguments of counsel, regardless of whether or not they are specifically referred to in this Decision.
Accordingly, it is
ORDERED that the Clerk, United States Bankruptcy Court, is directed to prepare for presentation to the Court an order of dismissal under 11 U.S.C. § 707(b)(1) if, at the opening of business, on Friday, July 27, 2007, this case is still proceeding under Chapter 7 of the United States Bankruptcy Code.
IT IS FURTHER ORDERED that, subject to the Debtors’ election to convert this case, the Motion of the United States Trustee to Dismiss under 11 U.S.C. § 707(b)(1) and § 707(b)(3), be, and is hereby, GRANTED.
Notes
. In citing to § 707(b)(2) as one of the grounds for dismissal, the UST took the position that, since the Debtor was surrendering his residence, he could not expense that property under the provision’s “means test” formula. (Doc. No. 23, at pg. 6). Previously, in the case of
In re Haar,
. In
In re Oot,
this Court stated that for "purposes of their application, the two grounds for dismissal under § 707(b)(3) are best understood as a codification of pre-BAPCPA case law, with there existing an abundance of reported cases wherein, prior to the passage of BAPCPA, courts dismissed Chapter 7 cases based upon both a debtor's 'bad faith’ and where the ‘totality of circumstances’ revealed that the debtor was undeserving of Chapter 7 relief.”
Other courts applying pre-BAPCPA case law to § 707(b)(3) include:
In re McGillis,
The seminal Sixth Circuit cases are:
In re Krohn,
. See Census Bureau Median Family Income By Family Size available at www.usdoj.gov/ usVeo/bapcpa/20060213/meanstesting.htm.