In re Buoy
| Decision Date | 26 July 2017 |
| Docket Number | Case No. 16-33780 |
| Parties | In Re: John Kevin Buoy, Jr. and Sarah Marie Buoy Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
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.
MEMORANDUM OF DECISION RE MOTION TO DISMISS
This case comes before the court on the United States Trustee's ("the UST") motion to dismiss Debtors John Kevin Buoy and Sarah Marie Buoy's ("Debtors") Chapter 7 case ("Motion") for abuse pursuant to 11 U.S.C. § 707(b)(1) and (3) [Doc. #11] and Debtors' response ("Response") [Doc. #14]. Debtors' Response was filed by attorney Patti Baumgartner-Novak ("Debtors' Counsel"). An Order for Evidentiary Hearing was entered on March 9, 2017, setting a trial date of May 23, 2017. [Doc. #12]. A Motion to Continue the Hearing on the UST's Motion was filed on April 10, 2017 [Doc. #21], and the evidentiary hearing was rescheduled for June 7, 2017. [Doc. #23].
The court held an evidentiary hearing on the Motion that Debtors, Debtors' Counsel, Counsel for the UST, and bankruptcy auditor for the UST Katherine Lowman 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 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 a case 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 Debtors' Chapter 7 case unless they convert the case to a proceeding under Chapter 13.
Debtors filed a petition for relief under Chapter 7 of the Bankruptcy Code on December 7, 2016, stating that their debts are primarily consumer debts. [Doc. #1, p. 6, Part 6, Q. 16a; p. 8, Part 4, Q. 7; UST Ex. 2]. Debtors' Schedule D shows total secured debt in the amount of $34,321.00. Debtors' secured debt total includes $16,080.00 secured by a 2013 Subaru W2X Empreza, which was valued at $15,400.00 on the Schedules. It also includes a second vehicle, a 2011 BMW 328i, that is subject to a secured debt of $18,241.00, and which was valued at $11,520.00 on the Debtors' Schedules. [Doc. #1, pp. 17-18; UST Ex. 2]. Debtors stated an intention to reaffirm the debts on both motor vehicles [Doc. #1, p. 49; UST Ex. 2], and reaffirmation agreements on both motor vehicles have been entered into and filed with the court in this case. [Doc. ##10, 15].
Debtors' bankruptcy schedules reflect unsecured priority debt in the amount of $4,900. [Doc. #1, p. 8, Part 2: Q. 3 & pp. ##19-20; UST Ex. 2]. Debtors' schedules show unsecured nonpriority debts in the amount of $195,705.00, which includes a mortgage deficiency of $123,000.00 [Doc. #1, p. 23; UST Ex. 2], and student loan debt in the amount of $18,983.00. [Doc. #1, p. 29; UST Ex. 2].
Debtor-Husband is a supervisor at JB Hunt, with listed gross income of $4,038.48 per month. [Doc. #1, p. 36; UST Ex. 2]. He has been employed in his present position for 3 months. [Id.] Debtor-Wife is a registered nurse who has worked for the State of Ohio for 5 years, with listed gross income of $6,761.60 per month. [Id.]. Debtors' combined net income, after deductions for taxes, medicare, social security, insurance and mandatory retirement contributions, was listed as $7,874.12 per month. [Doc. #1, p. 37; UST Ex. 2].
Debtors' Schedule J shows five dependent children living in the household, with ages of 4, 10, 12, 17 and 20. [Doc. #1, p. 38; UST Ex. 2]. Expenses listed on Schedule J total $7,458.00. [Doc. #1, p. 40; UST Ex. 2]. Subtracting expenses of $7,458.00 from net income of $7,874.12, the Debtors list "Monthly Net Income" of $416.12. [Id.].
On the Form 122A-1, the Chapter 7 "Means Test", the income of the Debtor-Husband was lower, reflecting a period of unemployment during the six month period prior to filing. Gross wages for Mr. Buoy on the Means Test are listed as $1,608.08. [Doc. #1, p. 51; UST Ex. 2]. Gross wages for the Debtor-Wife are listed as $7,131.15. [Id.]. The second part of the Means Test was not filled out because, based on the income information and the family size, Debtors were below the median income level by a total of $2,334.24 a year, or $194.52 a month. [Doc. #1, p. 40; UST Ex. 2].
At the Hearing on the UST's Motion, the Debtors presented testimony that their expenses were even higher than those listed on Schedule J. The amount for home maintenance was stated to be $100 a month on their rented housing, not $35 per month. Medical expenses that had been listed at $150 per month were increased to $300 per month, in part because of an extra $100 per month for braces for one of the children. Child care was increased $50 per month, from $450 to $500.1 The Debtors had also, post-Petition, purchased a $2,000 vehicle for the use of their son after his car's engine seized up. There is a payment of approximately $250 a month associated with that vehicle. This would increase the monthly expenses on Schedule J by over $600.
Those expenses include $580 for telecommunications services (such as cable services, internet, telephone and cell phones), three monthly car payments totaling $1,371, $408 per month for vehicle insurance, transportation expenses of $580 per month, $1,600 for food and housekeeping supplies, $85 for cigarettes, and $200 for "extracurricular fees/expenses". It also includes a deduction of $174 per month for student loans.
The United States Trustee offered the testimony of Catherine Lowman ("Lowman"), employed as a bankruptcy auditor by the U.S. Trustee. She testified that, based on her review, the Debtors' income was understated.2 Instead of using a true monthly calculation, income on I and J had been calculated by simplydoubling the bi-weekly amounts of Debtors' gross pay, as if they were paid semi-monthly. In other words, the income on Schedule I was calculated as if the Debtors each would receive 24 paychecks per year, instead of 26 paychecks per year.
In 2015, both Debtors (filing separately) received substantial federal refunds, $3,732 for Debtor-Wife [UST Ex. #5, p. 2] and $1,823 for Debtor-Husband [UST Ex. #4, p. 2]. The 2016 joint federal return reflects a refund of $2,395 [UST Ex. #6, p. 2].
Lowman testified about several different methods of calculating Debtors' disposable income, using the higher monthly income figures arrived at by using a bi-weekly calculation. Essentially, Lowman's testimony was that if the proper income figures were used, there would be substantial funds available to pay creditors, even assuming the higher expense figures were allowed, under either an I and J analysis, or a Chapter 7 Means Test that used the Debtor-Husband's current income as the basis for the joint income calculation (rather than the six month look-back period that was lower because he was only employed for approximately three months before filing).
Lowman testified that her review of the pay advices [UST Ex. #3] reflected that the gross income figures on Schedule I were understated by approximately $337 per month for the Debtor-Husband, and by between $500 and $600 per month for the Debtor-Wife. Even subtracting additional expenses for taxes of approximately 25%, Lowman testified that there would still be additional income dropping to the "bottom line" of between $600 and $675.
Even with all of the expenses, including the increases in expenses the Debtors testified to at the Hearing, there would still be approximately $400 per month available to pay creditors using income figures that were calculated based upon the Debtors being paid bi-weekly, rather than semi-monthly.
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)(3), in determining whether granting relief would be an abuse, the court is 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). This provision was 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...
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