In re Arndt

• Decision Date: 06 November 2017
• Docket Number: Case No. 17-30226
• Parties: In Re: Melissa A. Arndt Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

In Re: Melissa A. Arndt Debtors.

Case No. 17-30226

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO WESTERN DIVISION

November 6, 2017

The court incorporates by reference in this paragraph and adopts as the findings and analysis of this court the document set forth below. This document has been entered electronically in the record of the United States Bankruptcy Court for the Northern District of Ohio.

Chapter 7

JUDGE JOHN P. GUSTAFSON

MEMORANDUM OF DECISION RE UNITED STATES TRUSTEE'S MOTION TO DISMISS CHAPTER 7 CASE FOR ABUSE UNDER SECTION 707(b)

This case comes before the court on the Motion of the United States Trustee ("the UST") to Dismiss for Abuse Pursuant to 11 U.S.C. Section 707(b)(1), (b)(2), and (b)(3) ("Motion") [Doc. #19]. Debtor Melissa A. Arndt ("Debtor") filed a Response and Request for Hearing ("Response") [Doc. #26]. Debtor's Response was filed by attorney John A. Brikmanis ("Debtor's Counsel"). An Order for Evidentiary Hearing was entered on May 8, 2017, setting a trial date of July 18, 2017. [Doc. #21].

The court held an evidentiary hearing on the Motion that Debtor, Debtor's Counsel, and Counsel for the UST attended in person. At the hearing, the parties presented testimony and other evidence in support of their respective positions.

The district court has jurisdiction over this Chapter 7 case pursuant to 28 U.S.C. §1334(a) as a case under Title 11. Wellness Int'l Network, Ltd. v. Sharif, 135 S.Ct. 1932, 1939, 191 L.Ed.2d

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911, 918 (2015); Harper v. The Oversight Comm. (In re Conco), 855 F.3d 703, 709 (6th Cir. 2017); In re Norenberg, 554 B.R. 480, 483 (Bankr. D. Mont. 2016). It has been referred to this court by the district court under its general order of reference. 28 U.S.C. §157(a); General Order 2012-7 of the United States District Court for the Northern District of Ohio. Proceedings to determine a motion to dismiss under §707(b) are core proceedings that this court may hear and decide. 28 U.S.C. §157(b)(1), (b)(2)(J) and (O); In re Norenberg, 554 B.R. at 482; In re Floyd, 534 B.R. 729, 731 (Bankr. N.D. Ohio 2015); In re Rooney, 436 B.R. 454, 455 (Bankr. N.D. Ohio 2010).

Having considered the motion, the response and arguments of counsel, and having reviewed the record in this case, for the reasons that follow the court will grant the UST's motion and dismiss the Debtor's Chapter 7 case unless the Debtor elects to convert the case to a proceeding under Chapter 13.

BACKGROUND

Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code on January 31, 2017, stating that her debts were primarily consumer debts. [Doc. #1, p. 6, Part 6, Q. 16a; p. 8, Part 4, Q. 7]. Debtor's Schedule D shows total secured debt in the amount of $282,249.07. [Doc. #1, p. 19]. Debtor's secured debt total includes $213,243.00 secured by residential real estate in Elmore, Ohio, which was valued at $226,000.00 on Schedule D. [Doc. #1, p. 18]. A 2015 Chevrolet Silverado, valued at $35,302.00, was listed as serving as collateral for a loan of $47,106.07. [Doc. #1, p. 19]. Two recreational vehicles were listed, a 2015 Polaris Assault snowmobile, subject to a secured debt of $12,900.00, and a 2015 Polaris Sportsman 850 SP ATV, subject to a secured debt of $9,000. [Doc. #1, pp. 18-19].

Debtor stated her intention to reaffirm the debt on a 2015 Chevrolet Silverado pick up truck [Doc. #1, p. 38]. A reaffirmation agreement on that motor vehicle does not appear to have been filed yet. The Statement of Intention reflects that the other property that serves as collateral is being surrendered, including: 1) Debtor's former residence in Elmore, Ohio; 2) the 2015 Polaris 800 Assault Snowmobile; and, 3) the 2015 Polaris Sportsman 850 SP ATV. [Doc. #1, p. 37].

Debtor's bankruptcy schedules reflect unsecured priority debt in the amount of $0. [Doc. #1, p. 8, Part 2: Q. 3 & pp. 20-22]. Debtor's schedules show unsecured nonpriority debts in the amount of $21,025.35 [Doc. #1, p. 8, Part 2: Q. 3; pp. 20-22]. The non-priority unsecured debt may be increased by deficiency claims after the liquidation of the surrendered secured property - the Elmore

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residence and the two recreational vehicles.

Debtor is a pipe fitter, and a union member working for a large corporate employer. She testified that her financial difficulties started when she was demoted from a higher paying position with supervisory duties in April of 2016. She had a reduction in pay of approximately $10 per hour, she lost the use of a company vehicle and a company cell phone, and her opportunities for overtime were reduced. Because of the corresponding reduction in pay, her recently purchased home became unaffordable, and she moved in with her mother. Debtor filed her Chapter 7 bankruptcy on January 31, 2017.

Debtor testified that after filing, local work for her employer dried up. To avoid having to take unemployment, Debtor took an offer to work in North Carolina for her same employer.

For the type of job Debtor does, her employer does not provide reimbursement for expenses, such as lodging and transportation. Thus, Debtor had additional expenses, such as driving to and from the out-of-state worksite, and the expense of maintaining a separate place to stay. On the other side of the ledger, Debtor's income was substantially increased during her time in North Carolina.

One week before the hearing on the U.S. Trustee's Section 707(b) Motion, the out-of-town assignment ended. As of the date of the Hearing, Debtor had been out of work approximately a week and testified that she was pessimistic about the hours she would receive in the future.

Much of the testimony presented by the UST was about the expenses incurred by the Debtor while she worked in North Carolina. Debtor's attorney argued that receipts showed that there was no excess income based on receipts from the trip that had been provided to the UST. The Debtor's expenses reflected a mixture of frugality and indulgence. Food expenses were very high (even crediting that the meal receipts often were actually for two meals - one eaten there, and one "to go" for the next day), and the U.S. Trustee asserted that the amount spent on golf would be sufficient to fund a Chapter 13 Plan. On the other hand, Debtor testified about how she had saved money by renting a trailer for much less than it would have cost to stay in a hotel.

There was no dispute that Debtor's Statement of Intention states that the home that she had purchased before her job demotion was being surrendered. [Doc. #1, p. 18]. The arrangement with her mother was for rent of $300 per month, plus an additional $200 per month for the propane used for heat, and about $100 a month for her share of the electric bill. Debtor is also surrendering the ATV and snowmobile that were subject to security interests. The contractually due monthly

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payments for those two recreational vehicles are included as deductions, along with the house payment, on Debtor's Means Test. [Doc. #1, p. 47].

Testimony was presented regarding the necessity of Debtor's diesel pick up truck. The monthly payment for that vehicle is listed as $873 per month. [Pl. Ex. 1, p. 1-28]. It would be a fair characterization of Debtor's testimony to describe the truck's fuel mileage as "poor". Even when Debtor works "locally", she testified that she generally has to drive about an hour to an hour and a half to her job sites. Although it is not part of the Line 39 "monthly disposable income" Means Test calculation, Debtor lists $1,028 for "Vehicle operating expenses" under "Special Circumstances"¹ in Part 4 of her Means Test. [Pl. Ex. 1, p. 1-49]. While the truck is expensive, the testimony of the Debtor regarding its necessity was credible. As a pipe fitter, Debtor is required to carry her equipment with her to her job sites. That equipment includes welding equipment, which is heavy and would not fit in a car.

LAW AND ANALYSIS

Where debts are primarily consumer debts, as in this case, the court may, after notice and a hearing, dismiss a Chapter 7 petition "if it finds that the granting of relief would be an abuse of the provisions of [Chapter 7]." 11 U.S.C. §707(b)(1). Under §707(b)(2) and (3), Congress provided two methods by which a party may prove abuse.

Section 707(b)(2)(A) sets forth an extensive "Means Test" calculation to determine whether there is a presumption of abuse. The Means Test calculation permits a debtor to subtract certain allowed deductions from the debtor's "current monthly income". Where the Means Test calculation results in sufficient disposable income such that a presumption of an abusive filing arises, a debtor may rebut that presumption by demonstrating "special circumstances" as set forth in §707(b)(2)(B). Whether the presumption does not arise, or arises and is rebutted, the court may still dismiss a case for abuse under §707(b)(3).

Under §707(b)(3), in determining whether granting relief would be an abuse, the court is

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required to 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)(3)(A) and (B). These provisions were added as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA").

Before BAPCPA, courts considered whether to dismiss a case for "substantial abuse" under §707(b) based on the "totality of the circumstances." See, e.g., In re Krohn, 886 F.2d 123, 126 (6th Cir. 1989); In re Price, 353 F.3d 1135, 1139 (9th Cir. 2004). The Sixth Circuit explained that "substantial abuse" could be predicated upon either a lack of honesty or want of need, to be determined by the totality of the circumstances. Krohn, 886 F.2d at 126. Congress incorporated this judicially created construct in §707(b)(3). Although pre-BAPCPA case law applying these concepts is still helpful in determining abuse under §707(b)(3), Congress lowered the standard for dismissal in changing the test...