In re Fowler

• Decision Date: 11 September 2006
• Docket Number: No. 06-10207 (MFW).,06-10207 (MFW).
• Citation: 349 B.R. 414
• Parties: In re Jean FOWLER, Debtor.
• Court: U.S. Bankruptcy Court — District of Delaware

349 B.R. 414

In re Jean FOWLER, Debtor.

No. 06-10207 (MFW).

United States Bankruptcy Court, D. Delaware.

September 11, 2006.

Vivian A. Houghton, Esquire, Wilmington, DE, for the Debtor.

William K. Harrington, Esquire, Office of the United States Trustee, Wilmington, DE.

Montague S. Claybrook, Wilmington, DE, Chapter 7 Trustee.

MEMORANDUM OPINION¹

MARY F. WALRATH, Bankruptcy Judge.

Before the Court is the Motion of the United States Trustee (the "UST") to Dismiss the chapter 7 case of Jean Fowler (the "Debtor") pursuant to section 707(b)(2) and (b)(3). The Debtor opposes the Motion. At the hearing on the Motion, the parties asked the Court to address the following discrete issue: whether the Debtor, for purposes of section 707(b)(2)(A)(ii)(I), may take the ownership deduction specified in the IRS Local Transportation Expense Standards for a car she owns which is not collateral for any debt. For the reasons stated below, the Court concludes that the Debtor may take the deduction.

I. BACKGROUND

The Debtor filed her voluntary petition under chapter 7 on March 8, 2006. The Debtor filed her Schedules and Statement of Financial Affairs on that same date. Amended Schedules B and C were filed March 16, 2006. The Debtor's Schedules demonstrate that she has general unsecured debt of $48,776.72. The Debtor admits her debt is primarily consumer debt.

On May 12, 2006, the UST filed a Motion to dismiss the case. The Debtor filed an Amended Form B 22A (Statement of Current Monthly Income and Means Test Calculation) on May 16, 2006, and responded to the UST's Motion on May 17, 2006.

A hearing was held on the Motion on June 16, 2006, at which time the parties advised that, although there were other disputes regarding the Debtor's claimed expenses, there would be no presumption of abuse under section 707(b)(2) if the Court determines the Debtor may take the deduction for ownership of her car. Therefore, the parties presented oral argument and post-hearing briefs on that issue. The matter is ripe for decision.

II. JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 & 157(b)(2)(A) & (O).

III. DISCUSSION

The UST seeks dismissal of the Debtor's case under section 707(b) of the Bankruptcy Code. Section 707(b)(1) provides that the Court "may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or with the debtor's consent, convert such a case to a case under chapter 11 or 13 of this title if it finds that the granting of relief would be an abuse of the provisions of this chapter." Id.

Section 707(b)(2), commonly known as the "means test," was added by Congress in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). It provides, in pertinent part:

(2)(A)(i) In considering under paragraph (1) whether the granting of relief would be an abuse of the provisions of this chapter, the court shall presume abuse exists if the debtor's current monthly income reduced by the amounts determined under clauses (ii), (iii), and (iv), and multiplied by 60 is not less than the lesser of —

(I) 25 percent of the debtor's nonpriority unsecured claims in the case, or $6,000, whichever is greater; or

(II) $10,000.

11 U.S.C. § 707(b)(2)(A)(i).

The Debtor's. Amended Form B 22A demonstrates that the Debtor does not have sufficient net monthly income for the presumption of abuse to arise under section 707(b)(2). The UST asserts, however, that the Form is erroneous because it includes a deduction of $471 for owning a car even though the Debtor does not have a monthly car payment.

The Debtor argues that she is entitled to the deduction under the plain language of section 707(b)(2)(A)(ii)(I), which provides in relevant part that:

The debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor's actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides, as in effect on the date of the order for relief....

Id. (emphasis added).

A. The National and Local Standards

The National and Local Standards, to which section 707(b)(2)(A)(ii)(I) refers, are the Collection Financial Standards used by the Internal Revenue Service (the "IRS") to determine a taxpayer's ability to pay a delinquent tax liability.² Based primarily on data from the United States Census Bureau and the Bureau of Labor Statistics Consumer Expenditure Survey, the "National Standards" set, as objectively reasonable, amounts for five expenses: (1) food, (2) housekeeping supplies, (3) apparel and services, (4) personal care products and services, and (5) miscellaneous.³ The National Standards are based on the taxpayer's gross income and family size.

The "Local Standards" set, as objectively reasonable, separate amounts for (1) housing and utilities, and (2) transportation. The former are based on the taxpayer's family size and location. The transportation Standards include two distinct components: (1) "Ownership Costs," which are based only on the number of cars owned by the taxpayer; and (2) "Operating Costs & Public Transportation Costs," which are based on the number of cars owned by the taxpayer and on the taxpayer's location.

The Financial Analysis Handbook contains "instructions for analyzing the taxpayer's financial condition" to help IRS field agents "determine appropriate case resolution" (e.g., collect, compromise, or report as uncollectible). IRM at 5.15.1.1 ¶¶ 1-3. To determine what portion of the taxpayer's income should be available for repayment of delinquent taxes, the Handbook allows deductions from the taxpayer's gross income in the amounts specified in the National and Local Standards, as well as deductions for reasonable amounts of "Other Expenses" that are "necessary to provide for a taxpayer's and his or her family's health and welfare and/or production of income." Id. at 5.15.1.7 ¶¶ 1, 2, & 5.

Under the Financial Analysis Handbook, the taxpayer is allowed the full amount of the National Standards deductions, regardless of his actual expenses. Id. at 5.15.1.8 ¶ 2.

The IRM makes it clear that the total applicable expense allowance of the National Standards is to be given to each taxpayer, regardless of the taxpayer's actual expenditures in any of the individual National Standards categories or the taxpayer's actual total expenditures in the combined categories. Thus, even hypothetical taxpayers living in a Garden of Eden, with cost-free satisfaction of all their basic needs, would still be allowed a deduction from income in the total amount set out in the National Standards.

Hon. Eugene R. Wedoff, Means Testing in the New World, 79 Am. Bankr.L.J. 231, 254 (Spring 2006) (footnote omitted).

For the Local Standards, however, under the IRM "[t]he taxpayer is allowed the local standard or the amount actually paid, whichever is less." IRM at 5.15.1.7 ¶ 4 (emphasis added).

B. Plain Language of the Statute

The Debtor argues that the plain language of section 707(b)(2)(A)(ii)(I) which allows the "debtor's applicable monthly expense amounts specified under the National Standards and Local Standards" permits the Debtor to take the Local Standards deduction for ownership of one car, or $471 per month. 11 U.S.C. § 707(b)(2)(A)(ii)(I).

The UST argues that, while the Debtor owns a car, she has no car payment.⁴ Therefore, the UST contends that under the plain language of the statute, she has no "applicable" monthly expense for car ownership and is not entitled to take the Local Standards deduction. The Debtor counters that the term "applicable" simply means the number of vehicles owned by a Debtor, the Local Standards allowing different deductions depending on the number of vehicles owned.

The UST refers to the IRM to support its interpretation that the Debtor is entitled to a deduction only if she has a car payment. The Debtor responds that the IRM is not applicable to the Bankruptcy Code. Under section 707(b)(2)(A), the Local Standards are used not as a cap, but as the actual deductions to which the Debtor is entitled. In contrast, for IRS purposes, the Local Standards are used as a cap for expenses to which the taxpayer may be entitled. Id. at 5.15.1.7 ¶ 4.

The Court agrees with the Debtor. In interpreting BAPCPA, "we begin, as always, with the language of the statute." Duncan v. Walker, 533 U.S. 167, 172, 121 S.Ct. 2120, 150 L.Ed.2d 251 (2001). The plain language of section 707(b)(2)(A)(ii)(I) provides that "[t]he debtor's monthly expenses shall be the debtor's applicable monthly expense amount specified under the ... Local Standards." 11 U.S.C. § 707(b)(2)(A)(ii)(I). There is no reference in that language to the use of the Local Standards as a cap. In contrast, the IRM expressly provides that "The taxpayer is allowed the local standard or the amount actually paid, whichever is less." IRM at 5.15.1.7 ¶ 4 (emphasis added). The fact that Congress did not use language similar to the IRM evidences that it did not intend the Local Standards to apply as a cap.

Further evidence of Congress' intent is seen from the fact that in the same sentence of section 707(b)(2)(A)(ii)(I), Congress expressly stated that a debtor would be entitled to "actual monthly expenses" for Other Necessary Expenses. The use of "actual" with respect to Other Necessary Expenses and "applicable" with respect to the National and Local Standards must mean that Congress intended two different applications. See Duncan, 533 U.S. at 173, 121 S.Ct. 2120 (citation omitted) (noting that "where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acted intentionally and purposely in the disparate inclusion or exclusion"); In re Demonica, 345 B.R. 895, 902 (Bankr.N.D.Ill.2006) (concluding that "...