In re Harris

• Decision Date: 13 October 2006
• Docket Number: No. 05-87033.,05-87033.
• Citation: 353 B.R. 304
• Parties: In re Robert Lewis HARRIS and Joanna Ray Harris, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Oklahoma

Page 304

353 B.R. 304

In re Robert Lewis HARRIS and Joanna Ray Harris, Debtors.

No. 05-87033.

United States Bankruptcy Court, E.D. Oklahoma.

October 13, 2006.

Jimmy L. Veith, Ardmore, OK, for Debtors.

ORDER

TOM R. CORNISH, Bankruptcy Judge.

On this day the United States Trustee's Motion to Dismiss Pursuant to 11 U.S.C. 707(b)(1) Based on Presumption of Abuse Arising Under 11 U.S.C. 707(b)(2) with Authority in Support, and Objection to Motion to Dismiss and Brief, filed by the Debtors, came before this Court for consideration. The Parties submitted a Stipulation in Lieu of Evidentiary Hearing and filed additional supporting briefs. After review, this Court does hereby enter the following findings and conclusions in conformity with Rule 7052, Fed. R. Bankr.P., in this core proceeding.

Debtors filed for relief under Chapter 7 of the Bankruptcy Code on December 9, 2005. Debtors listed no priority debt in their schedules and nonpriority unsecured debt totaling $26,286.30. As provided in the Stipulation, Debtors are individuals whose debts are primarily consumer debts, therefore they are subject to the requirements of 11 U.S.C. § 707(b). The Debtors indicated on their Amended Statement of Current Monthly Income and Means Test Calculation form ("Form B22A") that the presumption of abuse does not arise. A Statement of Presumed Abuse was filed by the United States Trustee (the "UST") on March 31, 2006. The UST filed its Motion to Dismiss on April 28, 2006.

Line 13 on Debtors' Form B22A shows an annualized current monthly income for purposes of 11 U.S.C. § 707(b)(7) of $64,804.92. The applicable median family income for a family of four in Oklahoma is $49,881.00.

A homestead subject to first and second mortgages is listed in Debtors' Schedule A, and Schedule B lists a 2002 Chevrolet Blazer. Debtors' Statement of Intent indicates their intent to surrender the homestead and Blazer. Following the filing of their bankruptcy, Debtors surrendered the house and Blazer and no longer make payments on these loans. Debtors are also in possession of a 1990 Chevrolet Pickup and are not making payments on this vehicle.

The UST contends that Debtors cannot include monthly payments for secured debt in their means test calculation when the Debtors' intent is to surrender the corresponding, collateral. The UST also argues that Debtors cannot include ownership/lease expenses for the 1990 Chevrolet Pickup since they do not make payments on the vehicle.

This Court must therefore determine whether the Debtors can deduct secured debt payments when they intend to surrender the collateral, and whether the Debtors can deduct the ownership expense for vehicles on which they do not make periodic payments.

Section 707(b)(1) provides that, after notice and a hearing, the Court may dismiss a case filed by an individual whose debts are primarily consumer debts if it finds that granting relief would be an abuse of the provisions of Chapter 7. 11 U.S.C. § 707(b)(1). Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), the means test determines whether a presumption of abuse arises in a debtor's bankruptcy case using debtor's current monthly income and certain allowed deductions. Section 707(b)(2)(A)(i) provides:

In considering under paragraph (1) whether the, granting of relief would be an abuse of 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), 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). This presumption may be rebutted by the Debtors by presenting evidence of special circumstances. 11 U.S.C. § 707(b)(2)(B).

Section 707(b)(2)(A)(ii)(I) provides, in part:

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, for the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent. Such expenses shall include reasonably necessary health insurance, disability insurance, and health savings account expenses for the debtor, the spouse of the debtor or the dependents of the debtor. Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.

11 U.S.C. § 707(b)(2)(A)(ii).

Debtors are allowed to deduct average monthly payments for secured debts. 11 U.S.C. § 707(b)(2)(A)(i) & (iii) Section 707(b)(2)(A)(iii) provides that:

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 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).

Thus, for above-median debtors, the five general categories of allowable expenses under the statute are as follows: (1) expenses under the IRS' National Standards, e.g. food, clothing, household supplies, personal care, and miscellaneous expenses; (2) expenses under the IRS' Local Standards, which include housing and transportation; (3) actual expenses for items the IRS categorizes as "Other Necessary Expenses," including such items as taxes, mandatory payroll deductions, health care, and telecommunication services; (4) actual expenses, with limitations, for certain other expenses specified by the Bankruptcy Code; and (5) payments on secured and priority debts. In re Oliver, 350 B.R. 294, 299-300 (Bankr.W.D.Tex. 2006).

In interpreting a statute, "the starting point is always the language of the statute itself. If the language is clear and unambiguous, the plain meaning of the statute controls. A statute is ambiguous when it is capable of being understood by reasonably well-informed persons in two or more different senses." United States v. Quarrell, 310 F.3d 664, 669 (10th Cir.2002) (quotation omitted). A court should "give[] effect to every clause and word of [the] statute." Negonsott v. Samuels, 507 U.S. 99, 106, 113 S.Ct. 1119, 122 L.Ed.2d 457 (1993).

This Court will first address whether Debtors may include ownership expenses for vehicles on which they do not make payments. The UST argues that allowing the ownership expense deductions would be contrary to the purpose of § 707(b)(2). Debtors argue that the plain meaning of the statute allows Debtors to deduct the ownership expenses on both vehicles. Debtors also argue that allowing the ownership expense only to debtors who make car payments would have a disparate impact on the debtors in the greatest need of repairing or replacing their vehicles.

The IRS Local Standards apply to transportation costs, which are divided into two parts: ownership expenses and operating expenses. In examining whether ownership expenses can be deducted for a vehicle owned free and clear, courts have found guidance from the IRS publications regarding the application of its standards. Oliver, 350 B.R. 294 (holding that a debtor who owned his vehicle free and clear could not claim ownership expense); In re Barraze, 346 B.R. 724 (Bankr.N.D.Tex.2006) (holding that a debtor cannot take ownership deduction for a vehicle that is neither financed nor leased); In re Hardacre, 338 B.R. 718 (Bankr.N.D.Tex.2006) (holding in a Chapter 13 that debtor cannot deduct ownership expense for vehicle owned free and clear); In re McGuire, 342 B.R. 608 (Bankr.W.D.Mo.2006) (holding that, in the context of a Chapter 13 bankruptcy, a debtor cannot deduct ownership expense when debtor is not incurring expenses for the purchase or lease of a vehicle); In re Carlin, 34E B.R. 795 (3ankr.D.Cr2006) (agreeing with Hardacre and McGuire in concluding that the statute does not allow the ownership expense deduction to free and clear owners). According to the guidelines, a taxpayer cannot claim an IRS ownership expense for a vehicle the taxpayer owns free and clear. McGuire, 342 B.R. at 612-13.

The statue itself provides that a "debtor's monthly expenses shall be the debtor's applicable monthly expense amounts" under the Standards. In examining the language of the statute, the McGuire court noted that if a debtor is not incurring ownership expenses for a vehicle, then the ownership expense is not "applicable" to that debtor. Id. at 613.

[W] The disparate impact argument urged by the Debtors was rejected by the court in Barraza, which noted Congress' apparent conclusion that "debtors who own vehicles outright have a greater ability to commit funds to repay unsecured creditors than debtors who have financed or leased vehicles." Barraza, 346 B.R. at 729. Further, Debtors do not have a constitutional right to a bankruptcy discharge, nor do they have a constitutional right to file under Chapter 7 rather than Chapter 13. Id. at 728.

The Bankruptcy Court for the District of Delaware held in a recent opinion that `a debtor may take the ownership deduction for a car on which the debtor is not making payments. In re Fowler, 349 B.R. 414 (Bankr.D.Del.2006). The court examined 11 U.S.C. § 707(b)(2) and the IRS Standards, and reasoned that Congress did not intend the Standards to apply as a cap. Id. at 417-18. The court also noted that allowing only debtors...