In re James

• Decision Date: 05 September 2008
• Docket Number: No. 07-40455.,07-40455.
• Citation: 414 B.R. 901
• Parties: In the matter of Janice E. Banks JAMES, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Georgia

414 B.R. 901

In the matter of Janice E. Banks JAMES, Debtor.

No. 07-40455.

United States Bankruptcy Court, S.D. Georgia, Savannah Division.

September 5, 2008.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Judson C. Hill, Gastin & Hill, Savannah, GA, for Debtor.

Matthew E. Mills, Office of The U.S. Trustee, Savannah, GA, for U.S. Trustee.

MEMORANDUM AND ORDER ON MOTION OF THE UNITED STATES TRUSTEE TO DISMISS PURSUANT TO § 707(b)

LAMAR W. DAVIS, JR., Bankruptcy Judge.

FINDINGS OF FACT

Debtor's case was filed on March 28, 2007. On June 25, 2007, the United States Trustee filed a Motion to Dismiss. The United States Trustee argues that Debtor's Chapter 7 case constitutes an abuse of provisions of Chapter 7, contending that an unrebutted presumption of abuse arises under § 707(b)(2)(A)(i) or abuse has been shown under § 707(b)(3)(B) and its totality of circumstances test. Following discovery, the parties entered into a lengthy stipulation which is incorporated herein verbatim.

1. On December 14, 1999, the debtor obtained a disaster relief loan from the U.S. Small Business Administration ("SBA") in the amount of $109,500.00. The proceeds of the loan were used to repair flood damage to the debtor's home at 217 Wesley Street in Savannah. Since ABN Amro Mortgage held the first position mortgage against the 217 Wesley Street property, the SBA took a second position mortgage against it.

2. In the years after the SBA loan proceeds were used to repair the house on 217 Wesley Street, additional flood damage occurred on the premises which ultimately rendered the home uninhabitable.

3. In October 2006, the debtor abandoned her home at 217 Wesley Street. At that time, she moved into a house at 119 Alpine Drive in Savannah that is owned by her estranged husband. Around the same time, the debtor ceased making mortgage payments to ABN Amro Mortgage and the SBA. Prior to the petition date in this case, the SBA accelerated the loan obligation that was owed by the debtor.

4. With respect to the house where she now lives (119 Alpine Drive), the debtor does not pay any rent to her estranged husband, does not make the monthly mortgage payment, does not pay for homeowner's insurance, and does not pay the real estate taxes. The debtor currently has no plans to move out of the house at 119 Alpine Drive.

5. On March 21, 2008, the SBA issued a letter to the debtor advising that the SBA intended to garnish the debtor's wages in 60 days if she did not pay the outstanding balance owed to the SBA in full. See Exhibit A (the SBA letter).

6. The debtor filed a voluntary chapter 7 bankruptcy petition on March 28, 2008. Along with her petition, the debtor filed, inter alia, bankruptcy schedules, a statement of financial affairs, a statement of intention, and a Chapter 7 Statement of Current Monthly Income and Means-Test Calculation (the "Means Test Form"). See Exhibit B (petition and related filings).

7. The debtor filed an amended Means Test Form on May 14, 2007. See Exhibit C (amended means test form).

8. Shortly following the petition date, the debtor's vehicle, a 1998 Ford Contour, broke down and was no longer driveable.

9. The debtor's estranged husband, who lives in a suburb of Atlanta, purchased a new 2007 Ford Fusion for the debtor to drive. The debtor's husband is the title owner of the vehicle, but the debtor agreed to make all the payments on it. The purchase contract requires payments of $526.79 per month for 60 months beginning May 7, 2007. See Exhibit D (vehicle purchase contract for the Ford Fusion).

10. The debtor and her estranged husband are living apart for reasons other than to evade the requirements of § 707(b)(2)(A) of the Bankruptcy Code. The debtor and her husband have been living apart from one another since the mid-1990's.

11. In November 2007, the debtor suffered a serious gastrointestinal illness which required surgery. She has since gone back to work full time at the U.S. Postal Service.

12. The debtor is 51 years old and has worked at the U.S. Postal Service for 32 years. The debtor earned $50,457.36 in gross wages during calendar year 2007 and has no dependents. The debtor and her estranged husband keep their own separate bank accounts and do not commingle their funds. The debtor's estranged husband pays for all of his own separate living expenses without contribution from the debtor. The debtor has a household size of one person for means test purposes.

13. The debts at issue in this case are primarily consumer debts.

14. Shortly after the petition date, ABN Amro Mortgage obtained relief from the automatic stay and foreclosed on the property at 217 Wesley Street.

15. The SBA filed a timely proof of claim on October 29, 2007, asserting a claim in the amount of $97,987.58 secured by the debtor's real property at 217 Wesley Street.

See Exhibit E (SBA's original proof of claim).

16. On February 8, 2008, the debtor filed an objection to the SBA's proof of claim. See Exhibit F (debtor's objection).

17. On March 4, 2008, the SBA filed an amended proof of claim, modifying its claim from secured to unsecured status. See Exhibit G (SBA's amended proof of claim).

18. On March 10, 2008, the SBA filed a response to the debtor's objection. See Exhibit H (SBA's response to debtor's objection). The Court scheduled a hearing on the objection for April 8, 2008.

19. On March 28, 2008, the debtor withdrew her objection to the SBA's amended proof of claim. The SBA's amended proof of claim is an allowed unsecured claim in this case.

20. Attached hereto as Exhibit I is a spreadsheet showing both the debtor's and the UST's means test analysis. The spreadsheet illustrates the line entries that the parties assert to be correct on the means test form at two different points in time: (a) the petition date, and (b) April 30, 2008—the date set for the evidentiary hearing in this matter. The parties agree that the numbers appearing on the spreadsheet are accurate. The issues in dispute as to the means test are (1) whether the debtor is entitled to the IRS standard deduction for a mortgage/rent expense on Line 20B of the means test form, and (2) whether the debtor is entitled to deduct certain future payments on secured claims on Lines 42 and 43 of the means test form.

21. Attached hereto as Exhibit J are stipulated Schedules I and J showing the debtor's income and expenses as of the petition date. The parties agree that the numbers appearing on these schedules are accurate.

22. Attached hereto as Exhibit K are stipulated Schedules I and J showing the debtor's income and expenses as of April 30, 2008. The parties agree that the numbers appearing on these schedules are accurate.

In her Means Test calculation, Debtor claimed two deductions that the United States Trustee disputes. First. Debtor claimed a Local Standard expense deduction under 11 U.S.C. § 707(b)(2)(A)(ii)(1) for "mortgage/rent" in the amount of $693.00 on Line 20B of the Form B22A of her means test form. Second. Debtor claimed a $2,033.50 secured debt deduction on the 217 Wesley Street property on Lines 42 and 43. The issues are (1) whether Debtor is entitled to the IRS standard deduction for a mortgage/rent expense on Line 20B even if she does not actually make a mortgage or rent payment; and (2) whether Debtor is entitled to deduct certain future payments on secured claims on Lines 42 and 43 for payments on collateral that she intended to surrender at the time of filing the petition.

Debtor argues that the plain language of the statute does not require a debtor to reaffirm the secured debt in order to deduct the payment. On the petition date, the payments on the surrendered collateral were "scheduled as contractually due" to the secured creditor in some or all of the sixty months following the petition date. Debtor urges this Court to hold that as long as she was contractually obligated at the petition date to make these payments in some or all of the sixty months subsequent to the petition date, she is allowed to deduct the average of those payments in Lines 42 and 43 of the means test form. Debtor's Brief, Dckt. No. 67 (June 19, 2008).

The United States Trustee argues that "because the debtor (1) abandoned that home to live elsewhere approximately five months prior to filing her bankruptcy petition, (2) ceased making payments to the secured creditors when she moved out, and (3) filed a statement of intent disclosing that she intends to surrender her home," the mortgage debt should not be considered "scheduled as contractually due" on her bankruptcy petition's schedules or otherwise, over the subsequent 60-month period after the date of her petition. United States Trustee's Reply Brief, Dckt.No. 71 (July 21, 2008).

CONCLUSIONS OF LAW

I. Presumption of Abuse under § 707(b)(2)

Section 707(b)(2)(A) states that this Court shall presume that a debtor's case is an abuse of Chapter 7 if the debtor's current monthly income, less the amounts deductible under § 707(b)(2)(A)(ii)(iii), and (iv), over a 60-month period, equals or exceeds $167.00 ($10,000/60).¹ Debtor's Amended Form B22A shows that her monthly income is $5,275.00 and her monthly deductions total $8,625.56. That negative number falls well below the $10,000.00 threshold. If the deductions claimed by Debtor are disallowed, the presumption of abuse will arise.

However, only the second issue, whether the $2,033.50 secured debt deduction on the 217 Wesley Street property on Lines 42 and 43 should be allowed, is dispositive of whether the presumption of abuse arises in this case. Regardless of whether this Court allows the deduction of $693.00 on Line 20B, the presumption will or will not arise solely based on whether this Court allows the secured debt deduction on the 217 Wesley Street property.

The United States Trustee focuses on § 707(b)(2)(A)(iii) which provides:

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...