In re Camp

• Decision Date: 04 September 2009
• Docket Number: No. 08-41290.,08-41290.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Eastern District of Texas
• Parties: In re Ted B. CAMP and Susan M. Camp, Debtors.

416 B.R. 304

In re Ted B. CAMP and Susan M. Camp, Debtors.

No. 08-41290.

United States Bankruptcy Court, E.D. Texas, Sherman Division.

September 4, 2009.

Robert A. Simon, Barlow Garsek & Simon, LLP, Fort Worth, TX, for Debtors.

Christopher Moser, Linda Larue, Quilling, Selander, Cummiskey & Lownds, PC, Dallas, TX, Phillip P. Sauder, Dallas, TX, Janna L. Countryman, Plano, TX, for Trustee.

Marcus Salitore, U.S. Trustee Office, Tyler, TX, for U.S. Trustee.

MEMORANDUM OPINION

BRENDA T. RHOADES, Bankruptcy Judge.

This matter is before the Court on the Motion to Dismiss filed by the United States Trustee (the "Trustee") pursuant to 11 U.S.C. § 707(b) and Federal Rule of Bankruptcy Procedure ("Bankruptcy Rule") 1017(e). The Motion to Dismiss was timely filed and properly served on the Debtors, Ted and Susan Camp. The Court heard the Motion to Dismiss on November 20, 2008, at which time the parties presented argument and evidence. At the conclusion of the hearing, the Court scheduled the matter for a later ruling.

JURISDICTION

This contested matter arises under 11 U.S.C. § 707(b) and is a core proceeding under 28 U.S.C. § 157(b)(2). This Court, therefore, has jurisdiction to enter a final order pursuant to 28 U.S.C. §§ 157(a) and 1334. This Memorandum Opinion constitutes the Court's findings of fact and conclusions of law.¹

BACKGROUND

A.

Section 707(a) governs the dismissal of all bankruptcy filings when adequate "cause" has been shown. This provision was enacted as part of the Bankruptcy Reform Act of 1978 (the "1978 Act"). See Pub.L. No. 95-598, 92 Stat. 2549 (codified as amended at 11 U.S.C. § 707(a)). Several years later, Congress added subsection (b) through the Bankruptcy Amendments and Federal Judgeship Act of 1984 (the "1984 Act"). See Pub.L. No. 98-353, 98 Stat. 333 (codified as amended at 11 U.S.C. § 707(b)). Congress enacted § 707(b) as part of a package of consumer credit amendments in response to perceived abuses by consumer filers. See 6 COLLIER ON BANKRUPTCY, ¶ 707.LH[2] (15th ed. rev. 2005).

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the "BAPCPA"), which became fully effective on October 17, 2005, significantly amended § 707(b). One goal of the BAPCPA was "to address what Congress perceived to be certain abuses of the bankruptcy process. Among the abuses identified by Congress was the easy access to [C]hapter 7 liquidation proceedings by consumer debtors, who if required to file under [C]hapter 13, could afford to pay some dividend to their unsecured creditors." In re Hardacre, 338 B.R. 718, 720 (Bankr.N.D.Tex.2006) (citing 151 CONG. REC. S2459, 2469-70 (Mar. 10, 2005)). "The principal method implemented to steer debtors away from Chapter 7 and into Chapter 13 is the new version of § 707," which is usually referred to as the "means test." In re Singletary, 354 B.R. 455, 458-59 (Bankr.S.D.Tex.2006).

Prior to the enactment of the BAPCPA, § 707(b) of the Bankruptcy Code provided for the dismissal of a case when "the granting of relief would be a substantial abuse of the provisions of this chapter." There was a presumption in favor of granting the relief sought by the debtor (i.e., a discharge), and the burden of proof and production rested on the party seeking dismissal. See generally 6 COLLIER ON BANKRUPTCY ¶ 707.04[5][a] (15th ed. rev.2009). The BAPCPA altered the circumstances under which a case may be dismissed by removing the "substantial" qualifier and providing for "abuse" to be determined pursuant to either the new § 707(b)(2) or the new § 707(b)(3). When a debtor's disposable income exceeds fixed amounts (i.e., when the debtor fails the "means test"), the new § 707(b)(2) creates a presumption of abuse. When the presumption of abuse does not arise, the new § 707(b)(3) looks to the debtor's intent in filing the bankruptcy petition and the totality of the circumstances to determine abuse.

The present case involves both grounds for dismissal. The Trustee contends that the Debtors fail the means test, and a presumption of abuse arises, because their obligations regarding a home they surrendered after filing for bankruptcy should not be considered when calculating disposable income. The Trustee alternatively contends that the Debtors have an ability to repay a portion of their indebtedness outside of Chapter 7 with reasonable adjustments to their standard of living. Thus, the Trustee argues that this case should be dismissed because "the totality of the circumstances ... of the [Debtors'] financial situation demonstrates abuse," 11 U.S.C. § 707(b)(3)(B)

B.

The Debtors initiated this bankruptcy case by filing a petition for relief under Chapter 7 of the Bankruptcy Code on May 22, 2008 (the "Petition Date"). A meeting of creditors was held on June 20, 2008, pursuant to § 341 of the Bankruptcy Code. On June 25, 2008, the Trustee filed a statement that the Debtors' case should be presumed abusive. The Trustee filed the Motion to Dismiss less than thirty days later. The Debtors opposed the Motion to Dismiss, filing a response on August 10, 2008.

Mr. Camp has been employed as a pilot for American Airlines for more than 18 years. In 1998, he married his wife, Susan, who is also a debtor in this case. At some point after their marriage, Mrs. Camp ceased working outside the home.

Prior to August 2007, the Debtors and their daughter lived near Orlando, Florida. Mr. Camp co-piloted a regular monthly schedule of international flights from New York City to London. In addition to Mr. Camp's employment as a pilot, the Debtors incorporated TSA Golf in 2003 in the state of Florida and, through that corporation, operated a golfing franchise known as Golf USA. In 2006, the Debtors refinanced their home so that they could invest some of their equity into their golfing business.

In addition to their home in Florida, the Debtors purchased a fractional ownership in a property located in Hilton Head, South Carolina, in May 1998. The Debtors are currently paying $380.26 each month for the mortgage on their time-share interest in the property, and the Debtors also must pay an annual fee to the homeowners' association in the total amount of $3,600. Mr. Camp testified that he would like to keep the time share so that he, his wife, and his daughter can continue to enjoy annual vacations in Hilton Head with his extended family. Mr. Camp testified that an additional benefit of the time share is that he can play golf at reduced fees at certain private clubs throughout the country.

In or around March 2007, the Debtors decided to move to McKinney, Texas, so that Mr. Camp would be closer to the hub of American Airline's operations in Dallas/Fort Worth. Mr. Camp planned to continue to co-pilot his regular monthly schedule of international flights from New York City, but he hoped that moving to Texas would increase his chances for promotion to captain. The Debtors also believed that moving to McKinney, Texas, would allow them to put their young daughter into a better public school system.

In March 2007, the Debtors signed a contract to complete the construction of a new home in McKinney. The house was scheduled to be finished in September 2007. The Debtors placed their Florida home on the market and decided to sell their golfing business in order to facilitate their move to Texas. The Debtors believed at the time that they had approximately $80,000 in equity in their Florida home. With respect to their golfing business, Mr. Camp testified that they had invested $115,000 in TSA Golf and hoped to recover their investment plus a small profit.

The Debtors originally attempted to sell their golfing business for approximately $550,000 based on an estimated value they had received from a business broker in Florida. They had been operating their golfing business for three years at that point. They ultimately sold the business on November 6, 2007, for a gross sales price of $437,375.² Mr. Camp testified that they received approximately $40,000 in net sales proceeds after repaying certain investors and that only about $15,000 of this amount remained after he paid the balance owing on his business credit card. He testified that he used the $15,000 to pay several business vendors and to make several mortgage payments on his Florida house. Mr. Camp estimated that he and his wife lost $115,000-$120,000 through their investment in TSA Golf.

The Debtors placed their Florida home on the market for $500,000. Mr. Camp testified that their home was appraised for $530,000 in 2006, so they believed it was priced to sell quickly. The Debtors moved to Texas in August 2007 and rented an apartment. The Debtors' paid for their moving expenses with a credit card, which had a balance of $17,826.63 when the Debtors filed for bankruptcy. The Debtors closed on their new home on October 31, 2007.

The Debtors' former home in Florida did not sell quickly. Mr. Camp testified that his monthly mortgage payment was $2,500 and that he was required to pay an additional $300 each month for homeowners' association fees. The Debtors began renting their Florida home to a tenant in November or December 2007 for $1,750 per month.

The monthly mortgage payment for the Debtors' home in Texas is $3,361.71, which includes real estate taxes and property insurance. The Debtors' home consists of more than 3,500 square feet and includes four bedrooms, an office, a family room, a media room, and a game room. The media room includes a built-in projection television, which the Debtors paid for as part of the purchase price of their new home. The documentary evidence reflects Debtors used their credit to purchase furniture and appliances for their new home in October 2007 and November 2007. In November 2007, among other purchases, the Debtors used their credit to purchase a large, flat screen television and ceiling-mounted speakers for the family room.

According to Mr. Camp, money began "getting tight" immediately after he and his family...