In re Fredman

Decision Date31 May 2012
Docket NumberNo. 11–40791.,11–40791.
Citation471 B.R. 540
PartiesIn re David B. FREDMAN, Sheila V. Fredman, Debtor(s).
CourtU.S. Bankruptcy Court — Southern District of Illinois


Douglas A. Antonik, Mt. Vernon, IL, for Debtors.


LAURA K. GRANDY, Bankruptcy Judge.

In a matter of first impression in this District, the Court is asked to decide whether above-median chapter 7 debtors, in performing the means test, may deduct mortgage payments on real estate that they intend to surrender. In this case, the United States Trustee (UST) is challenging the debtors' decision to proceed in a chapter 7 case as an abuse of the Bankruptcy system as defined in 11 U.S.C. §§ 707(b)(1), (b)(2) and (b)(3) of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The Court must decide first whether the debtors may include mortgage payments on scheduled-for-surrender real estate when calculating their average monthly payments on account of secured debts set forth in § 707(b)(2)(A)(iii). If the Court finds in the debtors' favor on the issue of the to-be-surrendered real estate, an evidentiary hearing will be scheduled to determine if there has been abuse as defined in § 707(b)(3).

The relevant facts, taken from the record of this case, are not in dispute. The debtors resided in a home in Englewood, Colorado from October 2001 until August 2009. The home was encumbered by a first mortgage of $232,479.15 held by Chase Home Finance LLC, with monthly payments of $1,782.08, and a second mortgage of $68,886.29 held by BAC Home Loans Servicing LP, with monthly payments of $191.15. After Mr. Fredman suffered the loss of a lucrative employment situation and eventually settled in a lower-paying position, the debtors ceased making mortgage payments for this home in December 2010. No payments were made on the home after that date.

Approximately six months later, on June 7, 2011, when they filed a chapter 7 petition for relief, the debtors were living in a home that they owned in Marion, Illinois. With a current monthly income 1 of $8,242.06, the debtors were considered to be above the median income for a family of their size in Illinois. 11 U.S.C. § 707(b)(7). The Marion home was encumbered by a mortgage held by Chase Home Finance LLC for $48,789.19, with monthly payments of $546.32. The debtors listed both the Colorado and the Marion homes on Schedules A and D. The debtors' Statement of Intention, filed on the petition date, declared “under penalty of perjury” that they intended to surrender the Colorado home. Their intent to surrender the Colorado home was expressed further by a solitary mortgage payment for the Marion home appearing as an expense on Schedule J, signaling that the debtors were not making payments on the Colorado home. In addition, their intent to surrender the Colorado home was reflected by the absence of mortgage payments for the Colorado home on line 20B(b) of the B22A form,2 calling for “Average Monthly Payment for any debts secured by your home, if any, as stated in Line 42” and by their claim of a homestead exemption for the Marion home.

Nonetheless, on line 42 of the B22A form, entitled “Future payments on secured claims,” the debtors included payments for the first and second mortgages on the to-be-surrendered Colorado home along with the mortgage payment for the Marion home. The inclusion of the Colorado mortgage payments on lines 42(a) and (c) allowed the debtors to include $1,973.23 in phantom monthly debt payments in the figure of $8,469.39 that they placed on line 47 of the B22A form, constituting the [t]otal of all deductions allowed under § 707(b)(2).” After further computation, the inclusion of the phantom Colorado mortgage payments resulted in the debtors having a negative “60–month disposable income under § 707(b)(2) of-$13,639.80.3 Since this figure was less than the $7,025 figure provided for comparison at line 52 of the B22A form, the debtors found that the presumption of abuse did not arise and that they were entitled to proceed in a chapter 7 case.

Among other concerns, the treatment of the Colorado mortgages described above prompted the UST to file a statement of presumed abuse on July 27, 2011, followed on August 26, 2011, by the instant motion to dismiss the debtors' case. Then, Chase Home Finance LLC filed a motion for relief from the automatic stay, due to the debtors' default under its mortgage(s) 4 on the Colorado home. An order lifting the automatic stay was entered, without objection, on November 29, 2011.

With the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), 11 U.S.C. § 707(b) was amended to add a screening mechanism, known as the “means test.” The purpose of the means test is to weed out chapter 7 debtors who are capable of funding a chapter 13 case. 5 The issue before the Court today centers on a provision of the means test that allows a debtor to take deductions for certain secured debts. This provision states:

(iii) The debtor's average monthly payments on account of secured debts shall be calculated as the sum of—

(I) the total of all amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the filing of the petition; and

(II) any additional payments to secured creditors necessary for the debtor, in filing a plan under chapter 13 of this title, to maintain possession of the debtor's primary residence, motor vehicle, or other property necessary for the support of the debtor and the debtor's dependents, that serves as collateral for secured debts;

divided by 60.

11 U.S.C. § 707(b)(2)(A)(iii).

In particular, the parties in the instant case call upon the Court to find the meaning of the phrase “scheduled as contractually due to secured creditors in each month of the 60 months following the date of the filing of the petition,” which phrase appears in § 707(b)(2)(A)(iii)(I). The UST contends that the phrase in question prevents the Fredmans from deducting the mortgage payments on the Colorado home that they will be surrendering because they have not shown the payments as contractually due on their schedules. Rather, according to the UST, the debtors' schedules show that they will not make the payments during the 60–month period following the date of the filing of the bankruptcy petition. The Fredmans counter that the phrase permits such a deduction because the Colorado mortgages remained contractually due on the petition date despite the debtors' expressed intention to surrender the home to the lenders. Their dispute centers upon two points: (1) the meaning of the term “scheduled as” and (2) whether the phrase at issue demands a mechanical, snap-shot approach taken on the petition date or a realistic, forward-looking approach that takes into account the inevitable surrender of the home.

The tenets of statutory construction require the Court to begin with the plain language of a statute in an effort to parse its meaning. United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). However, where that meaning is ambiguous or leads to a senseless result, the Court should examine the text with the goal of uncovering the legislative purpose behind the words. Lamie v. United States, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004). In United States v. Balint, 201 F.3d 928, 932–33 (7th Cir.2000), the Court of Appeals for this Circuit outlined the rules of construction that allow departure from the plain meaning rule when literal interpretation leads to an outcome that is patently contrary to congressional intent or that produces an absurd result. The Balint court stated:

When we interpret a statute, we look first to its language. Pittway Corp. v. United States, 102 F.3d 932, 934 (7th Cir.1996). If that language is plain, our only function is ‘to enforce it according to its terms.’ United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) (quoting Caminetti v. United States, 242 U.S. 470, 485, 37 S.Ct. 192, 61 L.Ed. 442 (1917)). The plain meaning of a statute is conclusive unless ‘literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.’ Ron Pair, 489 U.S. at 242, 109 S.Ct. 1026 (quoting Griffin v. Oceanic Contractors, 458 U.S. 564, 571, 102 S.Ct. 3245, 73 L.Ed.2d 973 (1982)). Therefore, our interpretation is guided not just by a single sentence or sentence fragment, but by the language of the whole law, and its object and policy. See Grammatico v. United States, 109 F.3d 1198, 1204 (7th Cir.1997) (citing United States v. Heirs of Boisdore, 49 U.S. (8 How.) 113, 12 L.Ed. 1009 (1849)). Further, we may adopt a restricted rather than a literal meaning of a word where acceptance of the literal meaning would lead to absurd results. See Chicago Transit Auth. v. Adams, 607 F.2d 1284, 1289–90 (7th Cir.1979); see also Commissioner v. Brown, 380 U.S. 563, 571, 85 S.Ct. 1162, 14 L.Ed.2d 75 (1965).United States v. Balint, 201 F.3d at 932–33 (parallel citations omitted). With these rules in mind, this Court turns to an analysis of the statutory language at issue here.

The Meaning of “Scheduled As”

The debtors' interpretation of the phrase “scheduled as” follows the meaning adopted by the majority of courts. These courts interpret the words “scheduled as” in § 707(b)(2)(A)(iii)(I) by their ‘common, dictionary-defined meaning’ ... as ‘planned for a certain date.’ In re Rudler, 576 F.3d 37, 47 (1st Cir.2009) (quoting In re Hayes, 376 B.R. 55, 61 (Bankr.D.Mass.2007)). Courts taking this position have held that the statutory phrase asks only for a list of debts secured by property without regard to whether the debtors intend to retain the property or to surrender it. E.g., id. at 47. They conclude that the plain meaning of the text allows a debtor to deduct all secured payments owed at the time of the bankruptcy filing. E.g., id. at 47–48. The explanation is...

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