In re Rudler

• Decision Date: 05 August 2009
• Docket Number: No. 08-9007.,08-9007.
• Citation: 576 F.3d 37
• Parties: In re Glen H. RUDLER, Debtor. Phoebe Morse, United States Trustee, Appellant, v. Glen H. Rudler, Appellee.
• Court: U.S. Court of Appeals — First Circuit

576 F.3d 37

In re Glen H. RUDLER, Debtor Phoebe Morse, United States Trustee, Appellant, v. Glen H. Rudler, Appellee.

No. 08-9007.

United States Court of Appeals, First Circuit.

Heard January 5, 2009.

Decided August 5, 2009.

Teal Luthy Miller, with whom Phoebe Morse, United States Trustee for the Districts of Maine, Massachusetts, New Hampshire and Rhode Island; Ramona D. Elliott and P. Matthew Sutko, Executive Office for United States Trustees, U.S. Department of Justice; Geraldine Karonis and Ann Marie Dirsa, Office of the United States Trustee, District of New Hampshire; Gregory G. Katsas, Assistant Attorney General; and William Kanter, Attorney, Appellate Staff, Civil Division, were on brief, for appellant.

Scott W. LaPointe, with whom Brown & LaPointe, P.A. was on brief, for appellee.

Before LYNCH, Chief Judge, BOUDIN and LIPEZ, Circuit Judges.

LIPEZ, Circuit Judge.

This bankruptcy appeal requires us to resolve a question of statutory construction that has divided bankruptcy courts and has not yet been addressed by any other circuit: whether the means test for identifying an abusive Chapter 7 petition allows a debtor to deduct from his income the installment payments due for property he plans to surrender in the bankruptcy. See 11 U.S.C. § 707(b)(2). Both the bankruptcy court and the Bankruptcy Appellate Panel ("BAP") held that such a deduction is permitted because, at the time the disposable income calculation is performed, such payments remain—in the words of the statute—"scheduled as contractually due." We agree, and therefore affirm.

I.

A. Applicable Law

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") was enacted in response to an upward trend in consumer bankruptcy filings and concerns that bankruptcy relief was "too readily available" and "sometimes used as a first resort, rather than a last resort." H.R.Rep. No. 109-31(I), at 4 (2005), reprinted in 2005 U.S.C.C.A.N. 88, 90. Of particular concern was the pursuit of Chapter 7 liquidations instead of Chapter 13 debt repayment plans by consumer debtors who could afford to repay some of their debts. See 151 Cong. Rec. S2459, 2468-70 (daily ed. Mar. 10, 2005) (Statement of Sen. Hatch); In re Hardacre, 338 B.R. 718, 720 (Bankr.N.D.Tex.2006) (citing 151 Cong. Rec. at 2469-70).

The BAPCA was designed to lessen the resort to Chapter 7 filings by, among other measures, amending section 707(b) of the Bankruptcy Code to relax the standard for dismissing a Chapter 7 case as abusive. See, e.g., In re King, No. 08-41975, 2009 WL 62252, at *3 (Bankr. E.D.Tex. Jan. 6, 2009). Previously, a showing of "substantial abuse" was required, and "[t]here was a presumption in favor of granting the relief sought by the debtor." Id. As amended by the BAPCA, section 707(b) drops the qualifying word "substantial," permitting a bankruptcy court to dismiss a Chapter 7 proceeding brought by an individual debtor who has mostly consumer debts "if [the court] finds that the granting of relief would be an abuse." 11 U.S.C. § 707(b)(1). In order to "ensure that debtors repay creditors the maximum they can afford," the BAPCPA established a mathematical formula, known as a "means test," by which some Chapter 7 cases are deemed presumptively abusive. See H.R.Rep. No. 109-31(I), at 1, reprinted in 2005 U.S.C.C.A.N. at 89 (describing the "income/expense screening mechanism" as "[t]he heart of the bill's consumer bankruptcy reforms"); 11 U.S.C. § 707(b)(1), (2); see also Ross-Tousey v. Neary (In re Ross-Tousey), 549 F.3d 1148, 1151 (7th Cir.2008) ("The purpose of the means test is to distinguish between debtors who can repay a portion of their debts and debtors who cannot.").¹

Only those debtors whose monthly income exceeds the state median for their family size are subject to means testing. 11 U.S.C. § 707(b)(7). The formula calculates the debtor's average monthly disposable income, over a sixty-month period.² by deducting statutorily prescribed expenses from current monthly income. See id. at § 702(b)(2)(A)(ii)-(iv). If the resulting income figure exceeds a threshold amount specified in the statute—$167 per month at the time relevant here—the bankruptcy case is presumptively abusive. 11 U.S.C. § 707(b)(2)(A)(i).³ Upon motion by the United States Trustee, the bankruptcy court may either dismiss such a case or, with the debtor's consent, convert it into a Chapter 13 proceeding. 11 U.S.C. § 707(b)(1).

The deductible expenses under the means test include standard living expenses prescribed by the Internal Revenue Service, see, e.g., id. at § 707(b)(2)(A)(ii)(I); certain "reasonably necessary" actual expenses (such as for health and disability insurance), id.; and other actual expenses up to a maximum allowable deduction (for example, expenses for the education of a minor child "not to exceed" $1650 per year), id. at § 707(b)(2)(A)(ii)(IV). At issue here is the allowable deduction "on account of secured debts," such as mortgage or car payments. Id. at § 707(b)(2)(A)(iii)(I). The critical language describes the deductible amount of such debts to be "the total of all amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the petition," divided by 60. Id.⁴ The resulting amount is the debtor's average monthly expense for secured debt.

Debtors submit their calculations under the means test on Form B22A ("Chapter 7 Statement of Current Monthly Income and Means-Test Calculation"), one of the documents a debtor must file with a Chapter 7 bankruptcy petition. See 11 U.S.C. § 707(b)(2)(C); Fed. R. Bankr.P. 1007(b)(4).⁵ Debtors also must file "a schedule of current income and current expenditures," known as Schedules I and J, respectively, and a Statement of Intention that discloses plans to retain or surrender the properties that are securing the debts listed on a separate schedule of assets and liabilities. See 11 U.S.C. § 521(a)(1)(B)(ii); id. at § 521(a)(2)(A); Fed. R. Bankr.P. 1007(b)(1), (2).

The type of dispute that underlies this case arises when a debtor announces an intention to surrender certain property— here, a house that secures two mortgages—but includes future mortgage payments in calculating the amount of secured debt to be deducted from monthly income on Form B22A. Given that the property will be surrendered and the mortgage will no longer be paid, the question is whether such payments are "scheduled as contractually due ... in each month of the 60 months following the date of the petition."

B. Factual Background

Appellee Glen H. Rudler filed a Chapter 7 bankruptcy petition in August 2006. Since his monthly income at the time of the filing exceeded the applicable state median for his family size, Rudler was subject to the means test to determine if his bankruptcy case should be categorized as presumptively abusive. In a Statement of Intention, Rudler reported that he intended to surrender his home, which was secured by two mortgages with a combined monthly payment of approximately $4,000. Despite his plans to give up the house, Rudler deducted the $4,000 in mortgage payments when calculating his monthly disposable income on Form B22A. That calculation produced a monthly disposable income of negative $2,376, avoiding the presumption of abuse.

If Rudler were unable to deduct the mortgages, he instead could claim a statutorily prescribed housing allowance of $1,439.⁶ In that event, his monthly disposable income under the formula would be $1,461, far in excess of the $167 monthly amount that triggers the presumption of abuse.⁷ Based on these figures, the United States Trustee moved under section 707(b)(1) to dismiss Rudler's Chapter 7 case as abusive, arguing that Rudler should not have included the mortgage debt in his calculation of secured debt because he intended to surrender the property and, consequently, would not be making payments on the mortgages.

The bankruptcy court denied the motion to dismiss, concluding that Rudler was entitled to deduct the mortgage payments under the means test notwithstanding his intention to surrender the property. The Trustee appealed the decision to the Bankruptcy Appellate Panel ("BAP") for the First Circuit, which affirmed. The BAP held that the means test calculation is meant to be "a `snap-shot' of the debtor's situation as of the petition date," rather than a "`forward-looking'" consideration of "only those payments that will actually be made." In re Rudler, 388 B.R. 433, 438 (1st Cir. BAP 2008). On appeal to this court, the Trustee reiterates her contention that section 707(b)(2) does not permit a debtor to deduct payments on debts secured by property the debtor intends to surrender.

II.

We briefly address the threshold issue of whether we have jurisdiction to review the BAP's decision. Circuit courts have jurisdiction over "all final decisions, judgments, orders, and decrees" issued by a bankruptcy appellate panel on appeal from a bankruptcy court. 28 U.S.C. § 158(d)(1). To be final, "a bankruptcy order need not resolve all of the issues in the proceeding, but it must finally dispose of all the issues pertaining to a discrete dispute within the larger proceeding." Perry v. First Citizens Fed. Credit Union (In re Perry), 391 F.3d 282, 285 (1st Cir.2004). "`Finality' is given a flexible interpretation in bankruptcy" because "bankruptcy cases typically involve numerous controversies bearing only a slight relationship to each other." In re Northwood Props., LLC, 509 F.3d 15, 21 (1st Cir.2007) (quotation marks and citation omitted); see also Ross-Tousey, 549 F.3d at 1152 ("Finality does not require the termination of the entire bankruptcy proceeding; rather, an adjudication by the bankruptcy court `is definitive because it cannot be affected by the resolution of any other issue in the proceeding, and therefore no purpose would be served by postponing the appeal to the proceeding's conclusion.'") (quoting In re Oakley, 344 F.3d 709, 711 (7th...