Hebbring v. U.S. Trustee

• Decision Date: 11 September 2006
• Docket Number: No. 04-16539.,04-16539.
• Citation: 463 F.3d 902
• Parties: Lisa R. HEBBRING, Appellant, v. U.S. TRUSTEE, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 902

463 F.3d 902

Lisa R. HEBBRING, Appellant, v. U.S. TRUSTEE, Appellee.

No. 04-16539.

United States Court of Appeals, Ninth Circuit.

Submitted May 19, 2006.^*

Filed September 11, 2006.

COPYRIGHT MATERIAL OMITTED

Christopher P. Burke, Reno, NV, for the debtor-appellant.

Nicholas Strozza, William B. Cossitt, Office of the U.S. Trustee, U.S. Department of Justice, Reno, NV; Donald F. Walton, P. Matthew Sutko, Mark A. Redmiles, Executive Office for U.S. Trustees, U.S. Department of Justice, Washington, DC, for the trustee-appellee.

Appeal from the United States District Court for the District of Nevada, Howard D. McKibben, District Judge, Presiding. D.C. No. CV-03-00612-HDM.

Before RYMER and WARDLAW, Circuit Judges, and JAMES WARE,^** District Judge.

WARDLAW, Circuit Judge.

We must decide whether a debtor seeking protection under Chapter 7 of the Bankruptcy Code may ever include voluntary contributions to a retirement plan as a reasonably necessary expense in calculating his disposable income. We hold that the Bankruptcy Code does not disallow such contributions per se, but rather requires courts to examine the totality of the debtor's circumstances on a case-by-case basis to determine whether retirement contributions are a reasonably necessary expense for that debtor. In this case the bankruptcy court did not clearly err in finding that Lisa Hebbring's voluntary retirement contributions are not a reasonably necessary expense based on her age and financial circumstances, and thus that she has sufficient disposable income to repay her creditors. We therefore affirm the district court's decision affirming the bankruptcy court's dismissal of Hebbring's petition on the ground that allowing her to proceed under Chapter 7 would be a substantial abuse of the Code.¹

I

Lisa Hebbring filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the District of Nevada on June 5, 2003, seeking relief from $11,124 in consumer credit card debt. Her petition and accompanying schedules show that Hebbring owns a single-family home in Reno, Nevada valued at $160,000, on which she owes $154,103; a 2001 Volkswagen Beetle valued at $14,000, on which she owes $18,839; and miscellaneous personal property valued at $1,775. Hebbring earns approximately $49,000 per year as a customer service representative for SBC Nevada. Her petition reports monthly net income of $2,813 and monthly expenditures of $2,897, for a monthly deficit of $84. In calculating her income, Hebbring excluded a $232 monthly pre-tax deduction for a 401(k) plan and an $81 monthly after-tax deduction for a retirement savings bond. When she filed for bankruptcy Hebbring was thirty-three years old and had accumulated $6,289 in retirement savings.

The United States Trustee ("Trustee") moved to dismiss Hebbring's petition for substantial abuse, see 11 U.S.C. § 707(b), arguing that she should not be allowed to deduct voluntary retirement contributions from her income and that her recent paystubs showed that her gross income was higher than she had claimed. As a result, the Trustee contended, Hebbring's monthly net income was actually $3,512, leaving her $615 per month in disposable income, sufficient to repay 100% of her unsecured debt over three years.

Opposing the Trustee's motion, Hebbring argued that her recent paystubs were not representative of her monthly income because they included overtime and premium wages received during a one-time sales promotion. She further stated that her petition mistakenly omitted veterinary expenses and homeowner's association and insurance fees, and under-reported her monthly food expense by $200 to $250. She included receipts to corroborate these claims, but she never amended her expense schedule.

The bankruptcy court granted the Trustee's motion to dismiss, stating in relevant part:

[Hebbring's retirement contributions] wouldn't be meaningful if she owed fifty thousand dollars. But she doesn't owe that much. . . . She only owes a small amount of money. . . . She's not an older person. She's a young person. . . . I have consistently held that putting away money in 401[k]'s is inconsistent with what you're trying to do. . . . You can't be looking after yourself and saving money at the expense of your creditors.. . . [S]he has disposable income that she's otherwise trying to save through different plans; [a]nd she is also using part of her money to support her animals; [a]ll of which, I think she can pay something on account of her creditors . . . . I think it would be an abuse of Chapter 7 for her to be able to discharge all these debts and not pay something to these creditors . . . . [a]nd so I am going to grant the motion to dismiss unless within thirty days she files a Chapter 13 and agrees to pay . . . a meaningful amount to the creditors.

Hebbring appealed the dismissal to the Ninth Circuit Bankruptcy Appellate Panel. The Trustee transferred the appeal to the United States District Court for the District of Nevada, which affirmed the bankruptcy court. Hebbring filed this appeal challenging, inter alia, the bankruptcy court's finding that her contributions to her 401(k) plan and savings bond are not a reasonably necessary expense.

II

We have jurisdiction pursuant to 28 U.S.C. § 158(d). On appeal from a district court's affirmance of a bankruptcy court decision, we independently review the bankruptcy court's decision, without giving deference to the district court. In re Cossu, 410 F.3d 591, 595 (9th Cir.2005). We review a bankruptcy court order dismissing a Chapter 7 case for abuse of discretion; legal conclusions are reviewed de novo, and factual findings are reviewed for clear error. In re Price, 353 F.3d 1135, 1138 (9th Cir.2004). We review for clear error a bankruptcy court's fact-intensive determination that an expense or property interest is not reasonably necessary for a debtor's support. See In re Bernard, 40 F.3d 1028, 1033 (9th Cir.1994).

III

The purpose and structure of the Bankruptcy Code, as well as our precedent, compel the conclusion that voluntary contributions to a retirement plan may be a reasonably necessary expense for some debtors. Courts must therefore conduct a fact-specific inquiry to determine whether a debtor who saves for retirement at the expense of his creditors may nevertheless proceed under Chapter 7. The bankruptcy court erred in suggesting that voluntary retirement contributions are per se not reasonably necessary. However, the bankruptcy court's alternative finding that Hebbring's retirement contributions are not reasonably necessary based on her age and financial circumstances, and that she is therefore capable of paying her unsecured debts, is not clearly erroneous; nor did it abuse its discretion in dismissing her Chapter 7 petition. We therefore affirm.

A

At the time Hebbring filed her petition, 11 U.S.C. § 707(b) provided that a court "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 a substantial abuse of the provisions of this chapter." In determining whether a petition constitutes a substantial abuse of Chapter 7, we examine the totality of the circumstances, focusing principally on whether the debtor will have sufficient future disposable income to fund a Chapter 13 plan that would pay a substantial portion of his unsecured debt. Price, 353 F.3d at 1139-40; see also In re Kelly, 841 F.2d 908, 914 (9th Cir.1988) ("[A] debtor's ability to pay his debts will, standing alone, justify a section 707(b) dismissal."). To calculate a debtor's disposable income, we begin with current monthly income and subtract amounts "reasonably necessary to be expended . . . for the maintenance or support of the debtor or a dependent of the debtor." 11 U.S.C. § 1325(b)(2).

Neither the Bankruptcy Code nor the Code's legislative history defines "reasonably necessary." Some courts, including the Third and Sixth Circuits, have employed a per se rule that voluntary contributions to retirement plans are never a reasonably necessary expense. See, e.g., In re Anes, 195 F.3d 177, 180-81 (3d Cir. 1999); In re Harshbarger, 66 F.3d 775, 777 (6th Cir.1995); In re Mendoza, 274 B.R. 522, 524-25 (Bankr.D.Ariz.2002); In re Cavanaugh, 175 B.R. 369, 373 (Bankr.D.Idaho 1994). These courts typically emphasize that allowing debtors to exclude retirement contributions from disposable income at the expense of unsecured creditors is unfair. See, e.g., In re Merrill, 255 B.R. 320, 324 (Bankr.D.Or. 2000). In contrast, other courts, including the Second Circuit, have adopted a case-by-case approach, under which contributions to a retirement plan may be found reasonably necessary depending on the debtor's circumstances. See, e.g., In re Taylor, 243 F.3d 124, 129-30 (2d Cir.2001); In re Bell, 264 B.R. 512, 516-17 (Bankr. S.D.Ill.2001); In re Mills, 246 B.R. 395, 401-02 (Bankr.S.D.Cal.2000), as amended.

We believe this latter approach better comports with Congress's intent, as expressed in the language, purpose, and structure of the Bankruptcy Code. By not defining the phrase "reasonably necessary" or providing any examples of expenses that categorically are or are not reasonably necessary, see 11 U.S.C. § 1325(b)(2), the Code suggests courts should examine each debtor's specific circumstances to determine whether a claimed expense is reasonably necessary for that debtor's maintenance or support. See In re Davis, 241 B.R. 704, 709 (Bankr. D.Mont.1999). We find no evidence that Congress intended courts to employ a per se rule against retirement contributions, which may be crucial for debtors' support upon retirement, particularly for older debtors who have little or no savings. See, e.g., In re King, 308 B.R. 522, 532 (Bankr. D.Kan.2004); Mills, 246 B.R. at 402. Where Congress intended courts to use a per se rule rather than a case-by-case approach in classifying financial interests or...