In re Hamilton

• Decision Date: 02 July 2014
• Docket Number: No. 13–51213.,13–51213.
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Middle District of North Carolina
• Parties: In re Linda Sue Teaster HAMILTON, Debtor.

513 B.R. 292

In re Linda Sue Teaster HAMILTON, Debtor.

No. 13–51213.

United States Bankruptcy Court,

M.D. North Carolina,

Winston–Salem Division.

Signed July 1, 2014.

Filed July 2, 2014.

Thomas Anderson, for Debtor.

W. Joseph Burns, Winston–Salem, NC, Trustee

MEMORANDUM OPINION AND ORDER GRANTING MOTION TO DISMISS

CATHARINE R. ARON, Bankruptcy Judge.

This matter came before the Court on April 2, 2014 upon the Bankruptcy Administrator's timely-filed Motion for Dismissal of Case Pursuant to Sections 707(b)(1),(2), and 707(b)(3). Appearing before the Court were Thomas Anderson, attorney for the Debtor, and Robert E. Price, Jr., for the Office of the United States Bankruptcy Administrator (the “BA”). The Court makes the following findings of fact and conclusions of law.

JURISDICTION

This Court has jurisdiction over the subject matter of this proceeding pursuant to 28 U.S.C. §§ 151, 157, and 1334 and Local Rule 83.11 of the United States District Court for the Middle District of North Carolina. This is a core proceeding under 28 U.S.C. § 157(b)(2) which this Court may hear and determine.

FACTS

Linda Sue Teaster Hamilton (the “Debtor”) filed an individual petition for relief under Chapter 7 of Title 11 of the United States Code (“Bankruptcy Code”) on October 1, 2013. “Individuals who file for bankruptcy relief under Chapter 7 liquidate their nonexempt assets, rather than dedicate their future income, to repay creditors. See11 U.S.C. §§ 704(a)(1), 726.” Ransom v. FIA Card Services, N.A., 562 U.S. 61, 131 S.Ct. 716, 722 n. 1, 178 L.Ed.2d 603 (2011). Among the secured debts that the Debtor listed on the form used for reporting such debts (Schedule D) are a first mortgage in the amount of $59,098.10, held by BB & T Mortgage, and a second mortgage in the amount of $60,976.39, held by Allegacy Federal Credit Union. Both debts are secured by the Debtor's residence.

The Debtor did not assert intent either to surrender or to retain her home, although required to do so by law. 11 U.S.C. § 521(a)(2)(A).¹ The Debtor also did not claim the residence as exempt under 11 U.S.C. § 522, which would have rendered it “not liable during or after the case for any debt of the debtor that arose ... before the commencement of the case.” 11 U.S.C. § 522(c). On the form used for reporting monthly expenses (Schedule J), the Debtor listed combined monthly mortgage payments of $1,493 as among her current expenditures. The parties stipulate that both prior to and after filing her petition, the Debtor sought a mortgage modification. The parties further stipulate that the Debtor's last full mortgage payments were in April 2013 (on the first mortgage) and March 2013 (on the second mortgage). Since the filing of the petition, there has been no indication that the Debtor has made additional mortgage payments, nor that the Debtor explicitly has surrendered the property, nor that the creditors have in any manner forgiven the debts.

Pursuant to the requirements of 11 U.S.C. § 707(b)(2)(C), the Debtor included with her petition a statement of “current monthly income” (“CMI”) and a calculation commonly referred to as the “means test.” As used here, CMI is a defined term meaning “the average monthly income from all sources that the debtor receives ... derived during the 6–month period ending on ... the last day of the calendar month immediately preceding the date of the commencement of the case.” 11 U.S.C. § 101(10A). The Debtor lists a CMI of $5,923.58.

The means test uses a debtor's CMI as a component of a statutory formula that prescribes when the court must presume a filing to be an abuse of the provisions of Chapter 7. 11 U.S.C. § 707(b)(2).² A court must dismiss an abusive filing or, if the debtor consents, convert it to a case under Chapter 13. 11 U.S.C. § 707(b)(1). While the Bankruptcy Code contemplates circumstances under which the presumption of abuse may be rebutted, the parties stipulate that none are present in this case. See§ 707(b)(2)(B). Finally, “[i]n cases where the presumption does not arise or is rebutted, the court still must determine whether granting a debtor relief would be [abusive] by considering ‘whether the debtor filed his petition in bad faith’ and/or by considering ‘the totality of the circumstances ... of the debtor's financial situation.’ ” Calhoun v. U.S. Trustee, 650 F.3d 338, 341 (4th Cir.2011) (citing 11 U.S.C. § 707(b)(3)).

A presumption of abuse arises under § 707(b)(2)(A)(i) if “the debtor's [CMI] reduced by the amounts determined under [subsequent] clauses (ii), (iii), and (iv), and multiplied by 60” equals or exceeds $12,475.³ In this case, among the “amounts determined under clauses (ii), (iii), and (iv)” that the Debtor has deducted from her CMI are those that she contends fall under § 707(b)(2)(A)(iii): “the debtor's average monthly payments on account of secured debts.” First, pursuant to subsection (I) of that provision, the Debtor purports to properly deduct a $1,493 combined monthly mortgage payment as comprising “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,” divided by sixty. 11 U.S.C. § 707(b)(2)(A)(iii)(I).

Second, pursuant to subsection (II) of § 707(b)(2)(A)(iii), the Debtor purports to deduct a $182.93 combined monthly mortgage cure payment as comprising “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,” divided by sixty. 11 U.S.C. § 707(b)(2)(A)(iii)(II). Ultimately, the Debtor lists expenses totaling $5,825. Using these figures, the Debtor applies the means test prescribed in § 707(b)(2)(A) as follows: the Debtor's CMI of $5,923.52 reduced by purportedly permissible expenses of $5,825 equals $98.52; that amount multiplied by sixty equals $5,911.20, which does not exceed $12,475. As such, the Debtor submits that her case cannot be dismissed based on presumptive abuse.

On December 12, 2013, the BA filed a motion to dismiss under § 707(b), alleging that the Debtor intends to surrender the home and that the mortgage and mortgage cure deductions are therefore improper.⁴ The BA contends that those amounts should instead be included in the Debtor's income and that she should take what would be, by the parties' stipulation, the applicable IRS Housing and Utility standard deduction—$867. The BA correctly notes that if the Debtor were to take the standard deduction and move either or both of her claimed mortgage deduction amounts to her income, her recalculated sixty-month disposable income would exceed $12,475. In that event, the Debtor's filing would be presumptively abusive and it would have to be dismissed or converted to a case under Chapter 13.

The BA contends that precedent of the United States Supreme Court and of the Court of Appeals for the Fourth Circuit establishes that, in implementing the Chapter 7 means test, mortgage payments on real property which a debtor intends to surrender do not qualify as “amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the filing of the petition.” Likewise, the BA contends that mortgage cure payments on real property which a debtor intends to surrender do not qualify as “additional payments to secured creditors necessary for the debtor, in filing a plan under chapter 13 of [title 11], to maintain possession of the debtor's primary residence.”

Acknowledging that the Debtor's “Statement of Intention” under § 521(a)(2)(A) does not indicate intent to surrender the residence, the BA contends that such intent is revealed in four ways. First, the BA points to the following exchange between the BA and the Debtor at the meeting of creditors held pursuant to 11 U.S.C. § 341:

MR PRICE: ... Are you planning to keep your house?

MS. HAMILTON: Probably not, sir, because I have developed asthma. I can't do the yard work, and I certainly can't afford to pay anyone to do it for me. And there are—there—there's just upkeep I can't do anymore.

* * * *

MR PRICE: So it sounds to me like what you are saying is that with—with—with regret you have made a decision to most likely give up your house and—

MS. HAMILTON: Probably.

MR. PRICE: Probably—and that you are looking for another place to live. But of course, you got a little bit of time—

MS HAMILTON: Right

Memorandum of the BA in Support of Motion to Dismiss at 2–3.

Second, the BA points to the Debtor's failure to claim the property as exempt. Third, the BA points to the fact—stipulated by the parties—that approximately one month after the petition was filed, and absent opposition from the Debtor, this Court granted a motion filed by BB & T for relief from stay as to the property. Finally, the BA points to BB & T's representation, in its motion for relief from stay, that the Debtor was at that time six months in arrears on mortgage payments. Relatedly, the BA points to the fact that, according to the Debtor's Statement of Financial Affairs, filed pursuant to 11 U.S.C. § 521(a)(1)(B)(iii) and Fed. R. Bankr.P. 1007(b)(1), the Debtor made no payments to BB & T in the ninety days preceding the filing of her petition.

The Debtor has two responses. First, the Debtor argues that the evidence the BA offers is insufficient to prove that the Debtor intended to or intends to surrender the real property. What is more, the Debtor next argues, the Bankruptcy Code does not grant this Court discretion to stray from what the Debtor contends § 707(b)(2)(A)(iii) commands: that where she remains contractually obligated to pay mortgage and mortgage cure payments, she categorically may deduct those expenses in the means test calculation, irrespective of whether or not she intends to surrender the home. To the Debtor, the phrase “scheduled as contractually due” is the operative phrase of § 707(b)(2)(A)(iii). In support of her position, the Debtor...