In re Lenton

• Decision Date: 15 December 2006
• Docket Number: No. 06-10520DWS.,06-10520DWS.
• Citation: 358 B.R. 651
• Parties: In re Kenneth LENTON, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

358 B.R. 651

In re Kenneth LENTON, Debtor.

No. 06-10520DWS.

United States Bankruptcy Court, E.D. Pennsylvania.

December 15, 2006.

COPYRIGHT MATERIAL OMITTED

Scott F. Waterman, Black, Stranick and Waterman, LLP, Media, PA, for Debtor.

OPINION

DIANE WEISS SIGMUND, Chief Judge.

Before the Court is the Motion of the United States Trustee (the "Trustee") to Dismiss the above-captioned bankruptcy case pursuant to 11 U.S.C. § 707(b) (the "Motion"). At issue is whether Debtor may deduct $836 from his current monthly income to account for payments on two loans from Debtor's 401(k) plan and therefore avoid or, if not avoided, rebut the presumption of abuse under the means test in 707(b)(2)(A). For the reasons that follow, I find that Debtor may not use the loan payments to avoid the presumption of abuse, but that he has rebutted the presumption by demonstrating "special circumstances" that allow him to deduct the loan payments. As a result, the Trustee bears the burden of proving that granting Debtor relief under Chapter 7 would be an abuse under 707(b)(3), a burden that I find has been met here. The Motion will therefore be granted.

UNCONTESTED FACTUAL AND PROCEDURAL BACKGROUND¹

Debtor is fifty-four years old, divorced, and has no dependents. He has been an employee of Sunoco, Inc. ("Sunoco") for 18 years and participates in Sunoco's ERISA-qualified 401(k) Plan, the Sunoco, Inc. Capital Accumulation Plan (the "SunCAP Plan").² Participation in the SunCAP Plan is voluntary.³ Prior to filing the instant Chapter 7 bankruptcy case, Debtor obtained two 401(k) loans from the SunCAP Plan, one on October 5, 2002 in the amount of $24,000 (the "First Loan") and the second on November 20, 2004 in the amount of $18,500.00 (the "Second Loan" and collectively, the "Loans").⁴ Debtor used the proceeds of the Loans to pay credit card debt. Debtor is currently repaying the Loans through bi-weekly payroll deductions which approximate $836 on a monthly basis (the "Monthly Loan Payment").⁵

Both the Sunoco Human Resources Director and SunCAP Plan administrator state that the payroll deductions for the Monthly Loan Payment are mandatory until the Loans are repaid.⁶ If, however, Debtor were terminated, took a leave of absence, or was in any situation where payroll deductions could not be taken, he would have to affirmatively make the Monthly Loan Payments or be in default. A default would treat the balance of the Loans as a distribution from his retirement account, subject to all tax consequences.⁷ At the current repayment rate, the First Loan will be paid in full on or about July 30, 2007 and the Second Loan will be paid in full on August 24, 2009.⁸

Debtor filed his Chapter 7 petition on February 7, 2006. The only scheduled claims are unsecured nonpriority claims representing credit card debt of $45,330.⁹ Debtor owns no real property and his Schedule B indicates his largest personal asset is his SunCAP account, which is valued at $119,406.¹⁰ Also included among Debtor's listed personalty are two vehicles, a 1991 Buick. Century with 60,000 miles valued at $1,000 and a 1985 Buick Regal with 130,000 miles valued at $500. The parties have stipulated that Debtor will need to obtain a replacement vehicle within the next five years.

DISCUSSION

Because Debtor filed bankruptcy after October 17, 2005, his case is subject to the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub.L. No. S 256, 109-8, 119 Stat. 23 (2005) ("BAPCPA"). Since the enactment of BAPCPA, both practitioners and the courts have been trying to interpret many less than clear provisions of the new law, often with little in the nature of legislative history to assist them. This contested matter presents such a challenge for me.

I begin with basic rules of statutory interpretation by which this Court is bound. First and foremost, "[i]t is axiomatic that statutory interpretation begins with the language of the statute itself." Government of Virgin Islands v. Knight, 989 F.2d 619, 633 (3d Cir.1993). "A statutory language analysis must precede any resort to legislative history or case law as `there is, of course, no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes.'" In re Paret, 347 B.R. 12, 14-15 (Bankr.D.Del. August 01, 2006) (quoting United States v. Am. Trucking Ass'ns, 310 U.S. 534, 543, 60 S.Ct. 1059, 84 L.Ed. 1345, (1940)). "It is a cardinal principle of statutory construction that the statute ought, upon the whole to be so construed that, if it can be prevented, no clause, sentence or word shall be superfluous, void, or insignificant." TRW Inc. v. Andrews, 534 U.S. 19, 31, 122 S.Ct. 441, 449, 151 L.Ed.2d 339 (2001). See also Conn. Nat'l Bank v. Germain, 503 U.S. 249, 253, 112 S.Ct. 1146, 1149, 117 L.Ed.2d 391 (1992) ("[C]ourts should disfavor interpretations of statutes that render language superfluous."); United States v. MacEwan, 445 F.3d 237, 243 n. 6 (3d Cir.2006). Indeed, when statutory construction involves two statutory provisions, it is important to have a construction that carries out Congress' goals by harmonizing both provisions, if possible. See, e.g., In re Handel, 253 B.R. 308, 311 (1st Cir. BAP 2000) (each part or section of a statute should be construed with every other part or section so as to produce a harmonious whole).

A court should look to legislative history only when the statute is ambiguous or when the application of the statute's plain meaning produces a result demonstrably at odds with the intention of the drafters. In re Edmunds, 350 B.R. 636, 642-43 (Bankr.D.S.C.2006) (citing United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989)). To the extent that a court examines legislative history for guidance, "the authoritative source for finding the Legislature's intent lies in the Committee Reports on the bill, which `represen[t] the considered and collective understanding of those Congressmen involved in drafting and studying proposed legislation.' . . . [The Supreme Court has] eschewed reliance on the passing comments of one Member [of Congress], . . . and casual statements from the floor debates." Garcia v. United States, 469 U.S. 70, 76, 105 S.Ct. 479, 483, 83 L.Ed.2d 472 (1984) (internal citations omitted). With these precepts in mind, I examine the statutory provisions at issue.

I. The Presumption of Abuse

As amended by BAPCPA, section 707(b)(1) provides that a Chapter 7 case filed by an individual debtor whose debts are primarily consumer may be dismissed, or with a debtor's consent converted to Chapter 13 or 11, if the Court determines that granting the debtor relief would constitute an abuse of Chapter 7.¹¹ BAPCPA also added subsection 707(b)(2), referred to as the "means test." This statutory formula requires the court to presume that granting bankruptcy relief would be an abuse if:

the debtor's current monthly income reduced by the amounts determined under clauses (ii), (iii), 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).¹² Debtor filed with his petition Form B22A, "Statement of Current Monthly Income and Means Test Calculation", which is the official form approved by the Judicial Conference of the United States to perform the means test. Debtor's Form B22A indicates current monthly income of $5,607.68 from which he deducted a total of $5,559.18 in expenses he viewed appropriate under § 707(b)(2)(A)(ii). Debtor included as an expense the $836 Monthly Loan Payment. As a result, Debtor's Form B22A indicates monthly disposable income of $48.50. This disposable income, when multiplied by 60 is less than $6,000, the minimum amount necessary before a presumption of abuse can arise.

However, if the Monthly Loan Payment is excluded from Debtor's deductions, his disposable income increases to $884.50. Multiplied by sixty, his 60 month disposable income under § 707(b)(2) will be $53,070, well in excess of the amount necessary for a presumption of abuse to arise. Debtor's ability to deduct the Monthly Loan Payment determines whether the presumption of abuse applies here.

The expenses a debtor may use to reduce current monthly income are largely set forth in § 707(b)(2)(A)(ii),¹³ which provides in relevant part:

The debtor's monthly expenses shall be the debtor's monthly expense amounts specified under the National Standards and Local Standards, and the debtor's actual monthly expenses specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides . . .

Id. Debtor asserts that the Monthly Loan Payment falls under the "other necessary expense" category. The parties agree that the applicable Internal Revenue Service standards are found in the Internal Revenue Manual (the "Manual"). The relevant provision of the Manual states:

other expenses may be considered, if they meet the necessary expense test — they must provide for the health and welfare of the taxpayer and/or his or her family or they must be for the production of income. This is determined based on the facts and circumstances of each case.

I.R.M. § 5.15.1.10 ("Other Expenses"). Included in this section is a list of examples of "other expenses" that would pass the necessary expense test. One of those is "involuntary deductions," which qualify only "if it is a requirement of the job; i.e., union dues, uniforms, work shoes." Id. The Monthly Loan Payment is not a condition of Debtor's job, but rather a condition of his Loans. There is no evidence that failure to repay the loan will have any consequence on his employment. Rather the SPD makes clear that the participant suffers only an economic penalty for any failure to restore the voluntary contributions. As such, it cannot be held to be a ...