In Re John T. Rooney

• Citation: 436 B.R. 454
• Decision Date: 28 June 2010
• Docket Number: No. 10-30676.,10-30676.
• Parties: In re John T. ROONEY and Canda S. Rooney, Debtors.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio

436 B.R. 454

In re John T. ROONEY and Canda S. Rooney, Debtors.

No. 10-30676.

United States Bankruptcy Court,N.D. Ohio,Western Division.

June 28, 2010.

Kyle A. Silvers, Toledo, OH, for Debtors.

MEMORANDUM OF DECISION AND ORDER REGARDING MOTION TO DISMISS

MARY ANN WHIPPLE, Bankruptcy Judge.

This case is before the court on the United States Trustee's (“the UST”) motion to dismiss Debtors' Chapter 7 case for abuse under 11 U.S.C. § 707(b)(1) and (3) [Doc. # 15] and Debtors' response [Doc. # 23]. The court held a hearing on the motion that Debtors, their counsel and counsel for the UST attended in person and at which the parties presented testimony and other evidence in support of their respective positions.

The district court has jurisdiction over this Chapter 7 case pursuant to 28 U.S.C. § 1334(a) as a case under Title 11. It has been referred to this court by the district court under its general order of reference. 28 U.S.C. § 157(a); General Order 84-1 of the United States District Court for the Northern District of Ohio. Proceedings to determine a motion to dismiss a case under § 707(b) are core proceedings that this court may hear and determine. 28 U.S.C. § 157(b)(1), (b)(2)(J) and (O).

Having considered the briefs and arguments of counsel and having reviewed the record in this case, for the reasons that follow, the court will grant the UST's motion and dismiss Debtors' Chapter 7 case unless they convert it to Chapter 13 or to Chapter 11 if not eligible to be debtors under Chapter 13. See 11 U.S.C. § 109(e).

BACKGROUND

Debtors are married. John Rooney (“Rooney”) is fifty-three years old and has one dependent child and three adult children from a previous marriage. He has a thirteen percent equity interest in Blanchard Family Physicians where he has worked as a family practice physician since completing his residency in 2002. He also “moonlights” at an urgent care facility where he sets his hours according to his family practice work schedule. Canda Rooney is forty-three years old and has three dependent children from a previous marriage. She is employed by Chase Bank where she has worked for three years as a bank teller.

Debtors filed a previous Chapter 7 case in March 2009 that was converted to a Chapter 13 case in response to a motion to dismiss filed by the United States Trustee. [ See Case No. 09-31451, Doc. 30, 47 & 53]. ¹ Debtors' Chapter 13 case was dismissed on January 6, 2010, for failure to make the required payments under their Chapter 13 plan. [ Id., Doc. # 116].

On February 12, 2010, Debtors filed this Chapter 7 case, stating that their debts are primarily consumer debts. Debtors' Schedule D shows total secured debt in the amount of $865,035. Their secured debts include $507,850, which represents the amount owed on a construction loan used to build their home located on Eagle Drive in Findlay, Ohio (“Eagle Drive Property”).

Rooney testified that, although the home is habitable and they are living in the home, it is only 85% complete and will cost another $25,000 to complete. He testified that the value of the home in its present state is between $270,000 and $280,000 and estimated its value when fully completed to be approximately 60% of the amount owed on the construction loan. The construction loan, which, according to Rooney, has matured but has not been refinanced, is secured by Debtors' Eagle Drive Property as well as their rental property located on Olympic Drive in Findlay, Ohio, which they value at $240,000. [ See Doc. # 10, Exs. A1, A2, B1, & B2]. Although Debtors are approximately $50,000 in interest payment arrears, they have stated an intention to reaffirm this debt. Nevertheless, their secured creditor has sought and the court has granted relief from the automatic stay with respect to the Eagle Drive Property. Additional secured debts include $242,000 that is also secured by the Olympic Drive rental property, and a business loan in the amount of $95,370.48, which appears to be secured either by assets of Blanchard Family Physicians or Rooney's interest in the medical practice. ² Although Debtors have stated an intention to reaffirm both of these debts, Rooney testified that they have surrendered or will surrender the Olympic Drive rental property, and there is no payment for that property appearing on their Amended Schedule J.

Debtors' Schedule D also shows a debt in the amount of $19,813 that is secured by a second mortgage on a condominium in which Rooney's ex-wife is entitled to, and does, live pursuant to their divorce decree and which is titled in her name. Although Debtors include the Quail Lake Road property on Schedule A as property owned by Rooney, the court granted a motion in Debtors' prior bankruptcy case allowing Rooney to transfer title to his ex-wife so that she could refinance the first mortgage on the property. [Case No. 09-31451, Doc. # 92]. At the hearing on the Motion, Rooney testified that the deed to the property is in fact in his ex-wife's name. Thus, it appears that this debt is actually an unsecured debt in this case. See 11 U.S.C. § 506(a)(1) (providing that an “allowed claim of a creditor secured by a lien on property in which the estate has an interest ... is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property ... and is an unsecured claim to the extent that the value of such creditor's interest ... is less than the amount of such allowed claim”).

Debtors' Schedule E shows unsecured priority debt in the amount of $14,636. Their Schedule F shows unsecured nonpriority debt in the amount of $566,942, which includes student loan debt of approximately $307,708 incurred for both his and his children's education, $147,883 owed on credit cards and lines of credit, and $31,325 owed to subcontractors who have provided goods and/or services in connection with the construction of Debtors' home on Eagle Drive. Debtors' unsecured debt also includes approximately $53,299 in deficiency balances owed on a 2005 Gulf Stream camper, 2004 Chevrolet Suburban and a 2002 Oldsmobile, all of which were surrendered by Debtors before they commenced this bankruptcy case.

Debtors' Amended Schedule I shows combined gross monthly income $15,558. This amount includes $10,833 earned by Rooney at his medical practice and $2,950 earned by him at the urgent care facility. Rooney testified that he took a $30,000 cut in pay in 2008 as a result of significant increases in his family practice overhead expenses and malpractice insurance premiums. He nevertheless predicts that his annual income earned at Blanchard Family Physicians going forward will be $130,000. Although his hours vary somewhat, he estimates his annual income from the urgent care facility to be approximately $45,000, for a total income of $175,000. Debtors' combined gross monthly income also includes $1,575 earned by Canda Rooney plus $200 received by her in child support payments.

Debtors' payroll deductions, as shown on Amended Schedule I, total approximately $4,435.33. Deductions from Rooney's pay include approximately $1,458 for child support and $108 as a 401(k) contribution. Rooney testified that he decreased his 401(k) contribution to the minimum contribution required to maintain the plan for the benefit of other employees of Blanchard Family Physicians. Debtors' monthly income after their stated payroll deductions as shown on Schedule I totals approximately $11,123.

Debtors' Amended Schedule J shows total monthly living expenses of $10,916. Their monthly expenses include, among other things, a home mortgage expense of $3,851, alimony in the amount of $1,570, a house insurance expense of $172, home maintenance expense of $300, which amount does not include their home completion costs, and student loan payments of $1,600. Rooney testified, however, that he has been making student loan payments of only approximately $500 per month and that Debtors have not made their home mortgage payments for over a year. ³ According to Rooney, those funds have instead been used to purchase carpeting for their Eagle Drive home and to pay for work that is necessary to complete their home.

In addition to the expenses included on their Amended Schedule J, Rooney also makes the second mortgage payment on his ex-wife's Quail Lake Road condominium in the amount of $150 per month. He also makes a $450 payment on his twin daughters' student loans. Both of his daughters have recently graduated from college and are currently employed. Nevertheless, Rooney testified that he is obligated by a divorce decree to pay for their education.

Debtors' Form B22A calculating the means test shows that their annualized current monthly income at the time of filing this case was above the median income for a household the size of Debtors in Ohio. According to Debtors' means test calculation, no presumption of abuse arose under 11 U.S.C. § 707(b)(2). Instead, the UST is proceeding on his motion to dismiss for abuse solely under § 707(b)(3) based on the totality of the circumstances.

LAW AND ANALYSIS

Where debts are primarily consumer debts, as in this case, the court may, after notice and a hearing, dismiss a Chapter 7 petition “if it finds that the granting of relief would be an abuse of the provisions of [Chapter 7].” 11 U.S.C. § 707(b)(1). Under § 707(b)(3), in determining whether granting relief would be an abuse, the court is required to consider “(A) whether the debtor filed the petition in bad faith; or (B) the totality of the circumstances ... of the debtor's financial situation demonstrates abuse.” 11 U.S.C. § 707(b)(3)(A) and (B). This provision was added by Congress in 2005 as a part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). Before BAPCPA, courts considered whether to dismiss a case for “substantial abuse” under § 707(b) based on the “totality of the circumstances.” See, e.g., In re Krohn, 886 F.2d 123, 126 (6th Cir.1989); In...