In re Booker

• Decision Date: 23 January 2009
• Docket Number: No. 08-42466-drd-7.,08-42466-drd-7.
• Parties: In re Sylvester Everett BOOKER and Ella Mornett Booker, Debtors.
• Court: U.S. Bankruptcy Court — Western District of Missouri

Page 662

399 B.R. 662

In re Sylvester Everett BOOKER and Ella Mornett Booker, Debtors.

No. 08-42466-drd-7.

United States Bankruptcy Court, W.D. Missouri.

January 23, 2009.

COPYRIGHT MATERIAL OMITTED

Jason C. Amerine, Castle Law, Kansas City, MO, for Booker.

MEMORANDUM OPINION

DENNIS R. DOW, Bankruptcy Judge.

This matter comes before the Court on the motion of the United States Trustee to dismiss this case pursuant to 11 U.S.C. § 707(b)(3). The Court has jurisdiction over this motion pursuant to 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1). This is a core proceeding which this Court may hear and determine, pursuant to 28 U.S.C. § 157(b)(2)(A). The United States Trustee argues this case should be dismissed based both upon the totality of the Debtors' financial circumstances and on the grounds that the filing was made in bad faith. The following constitutes my Findings of Fact and Conclusions of Law in accordance with Rule 52 of the Federal Rules of Civil Procedure made applicable to this proceeding by Rules 7052 and 9014(c) of the Federal Rules of Bankruptcy Procedure. For the reasons set forth below, the Court grants the U.S. Trustee's motion to dismiss the case and will enter an order dismissing the case unless, within 20 days of the date of this order, the Debtors elect to convert the case to a proceeding under Chapter 13.

I. FACTUAL AND PROCEDURAL BACKGROUND

On June 19, 2008, Debtors filed a petition for relief under Chapter 7 of the Bankruptcy Code. The original Schedule I showed joint net monthly income of $3,989.63. Debtors' original Schedule J reflected expenses of $3,982.00. On August 1, Amended Schedules I and J were filed with the Court. The amended Schedule I shows monthly net combined income of $5,898.35. The difference is attributable to an additional $700.00 scheduled by Debtor Ella Booker for her part-time employment and $1,200.00 in monthly Social Security benefits received by Debtor Sylvester Booker. The Schedule J was also amended upward to show total expenses of $5,884.00. A final amendment to Schedule J was made on October 20, 2008 showing total expenses of $5,894.00 for a net disposable income of $4.35. As noted above, a portion of the income received by the Debtors each month, the sum of $1,200.00, derives from Social Security benefits. Among the listed deductions and expenses, many of which were not included on the original Schedule J, include $196.67 in monthly contributions to the Debtors' 401k retirement plans, $1,610.00 in monthly housing expense, a $1,268.00 monthly payment on a 2006 Lexus, a $198.00 payment on a debt secured by the Debtors' interest in a timeshare, a $350.00 contribution the Debtors make to their incarcerated son, $200.00 in cell phone expenses and $210.00 in miscellaneous personal and household expenses.

II. DISCUSSION AND ANALYSIS

A. Dismissal Under Totality of the Circumstances

1. General Considerations

Section 707(b)(1) provides that, after notice and a hearing, the Court may dismiss a case filed by an individual whose debts are primarily consumer debts if it finds that granting relief would be an abuse of the provisions of Chapter 7. In some cases, abuse is presumed, although that presumption is subject to being rebutted by a demonstration of special circumstances. 11 U.S.C. § 707(b)(2). In this case, the U.S. Trustee does not rely upon the presumption of abuse, but argues instead that the case should be dismissed pursuant to § 707(b)(3) both on the grounds that the totality of the Debtors' financial circumstances warrants finding that granting relief would be an abuse and also on the grounds that the case was filed in bad faith. Prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the Court could only dismiss a Chapter 7 proceeding if it found that granting relief would be a substantial abuse. The Court now need only find that the granting of relief would be an abuse of the provisions of Chapter 7. In addition, the presumption in favor of granting relief to the debtor has been deleted from the Code. The movant bears the burden of proof to demonstrate abuse. In re Cribbs, 387 B.R. 324 (Bankr. S.D.Ga.2008). The provision upon which the U.S. Trustee relies states that:

(3) 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 —

(A) whether the debtor filed the petition in bad faith; or

(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.

In this case there is no question but that the debts are primarily consumer debts. The Debtors checked the appropriate box on the petition so indicating and have not suggested otherwise during the course of these proceedings.

Prior to BAPCPA, the courts in the Eighth Circuit had taken the position that the debtors' ability to pay was a primary consideration, possibly determinative, in deciding whether the granting of relief under Chapter 7 would constitute a substantial abuse. See In re Praleikas, 248 B.R. 140, 145 (Bankr.W.D.Mo.2000) (citing Stuart v. Koch (In re Koch), 109 F.3d 1285, 1286 (8th Cir.1997)); see also, In re Walton, 866 F.2d 981, 984-85 (8th Cir. 1989); In re Bicsak, 207 B.R. 657, 662 (Bankr.W.D.Mo.1997); In re Regan, 269 B.R. 693, 696 (Bankr.W.D.Mo.2001). The Eighth Circuit also made clear, however, that the Court could consider the debtors' good faith in assessing whether dismissal was appropriate. Walton, 866 F.2d at 983. In so doing, the Court observed that the bankruptcy court thus had the flexibility to consider whether relief should be denied based on the debtors' lack of need or the debtors' lack of honesty. Id. The detailed screening process, embodied in the means test, through which debtors seeking relief under Chapter 7 are required to pass after BAPCPA prompted an initial debate in the academic literature with regard to whether ability to pay continued to be an appropriate consideration for the court in deciding whether the granting of a relief would be an abuse under § 707(b)(3). See Hon. Eugene R. Wedoff, Means Testing in the New § 707(b), 79 Am. Bankr.L.J. 231 (Spring 2005) and Marianne B. Culhane & Michaela M. White, Catching Can-Pay Debtors: Is the Means Test the Only Way?, 13 Am. Bankr.Inst. L.Rev. 665 (Winter 2005) (suggesting means test exclusive test in determining ability to pay). Notwithstanding this dispute, the vast majority of the courts considering the question has determined that ability to pay continues to be an appropriate consideration in requests for dismissal pursuant to § 707(b)(3). In re Lenton, 358 B.R. 651, 662-63 (Bankr.E.D.Pa.2006) (collecting cases); In re Pak, 343 B.R. 239 (Bankr. N.D.Cal.2006); In re Paret, 347 B.R. 12 (Bankr.D.Del.2006); In re Simmons, 357 B.R. 480 (Bankr.N.D.Ohio 2006). Some courts continue to hold that it is a potentially dispositive consideration. In re Freis, 2007 WL 1577752 (Bankr.W.D.Mo.2007); In re Fisher, 2007 WL 2079781 (Bankr. N.D.Ohio) (may consider ability to repay debts out of future earnings which alone is sufficient to warrant dismissal); In re Parada, 391 B.R. 492, 2008 WL 126626 (Bankr.S.D.Fla.2008) (determination of abuse should focus solely on debtor's financial situation).

This Court agrees with the majority and believes that consideration of the debtors' ability to pay is appropriate for several reasons. First, the statute clearly authorizes and directs the Court to consider the totality of the debtors' circumstances when ruling on a motion brought under § 707(b)(3). Not only that, the statute specifically refers the Court to the totality of the circumstances of the debtor's financial situation. Clearly, the debtors' income and expenses, and resulting ability to pay, are part of the totality of the debtors' circumstances and are central to an assessment of the debtors' financial situation. Accordingly, the clear language of the statute warrants consideration of the debtors' ability to pay in making this analysis. Second, to decline to consider the debtors' actual ability to pay is not only unfaithful to the language of the statute but would grant debtors a safe harbor which is unwarranted. By its terms, the statute authorizes the Court to dismiss a case for abuse notwithstanding the fact that the presumption may not arise or arises and is rebutted. In such cases then the results of the means test are not dispositive. In making this analysis therefore, the Court is not bound by the calculation of the debtors' current monthly income, which is not based on the debtors' actual income at the time the Court is determining the propriety of relief. Nor is it bound by the itemization of expenses which the debtors are entitled to deduct from that current monthly income pursuant to § 707(b)(2), which incorporates applicable Internal Revenue Service Standards — objective measures unrelated to the debtor's actual expenses. Accordingly, this Court believes that post-BAPCPA, a debtor's actual ability to pay is a primary and potentially dispositive consideration in assessing whether the case constitutes an abuse of the provisions of Chapter 7 of the Bankruptcy Code.

Courts considering the effect of the amendments made by BAPCPA have held that the precedents setting forth the framework for analysis of the substantial abuse question and identifying factors for consideration remain helpful when considering motions to dismiss under the new statutory provisions. See, e.g., In re Mestemaker, 359 B.R. 849 (Bankr. N.D.Ohio 2007); In re Pfeifer, 365 B.R. 187 (Bankr.D.Mont.2007); In re Sullivan, 370 B.R. 314 (Bankr.D.Mont.2007); In re Mondragon, 2007 WL 2461616 (Bankr. D.N.M.). While those decisions retain some relevance,...