In re Linton
| Decision Date | 15 December 2020 |
| Docket Number | Case No.: 19-33609 |
| Parties | In Re: Tyler J. Linton and Amanda M. Linton Debtor(s). |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
The court incorporates by reference in this paragraph and adopts as the findings and orders of this court the document set forth below. This document has been entered electronically in the record of the United States Bankruptcy Court for the Northern District of Ohio.
Hon. Mary Ann Whipple
MEMORANDUM OF DECISION AND ORDER REGARDING MOTION TO DISMISSThis 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 (b)(3) [Doc. # 17] and Debtors' response [Doc. # 20]. The court held a hearing on the motion that Debtors, their counsel and the United States Trustee attended virtually1 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 2012-7 of the United States District Court for the Northern District of Ohio. Proceedings to determine a motion to dismiss under § 707(b) are core proceedings that this court may hear and decide. 28 U.S.C. § 157(b)(1), (b)(2)(J) and (O).
Having considered the evidence presented, the 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 timely convert it to a case under Chapter 13.
Debtors are married and have two dependent children, a son age 12 and a daughter age 16. Tyler Linton is thirty-eight years old. He is employed by Materion as an electrician and has worked there for the past six years. Materion is a beryllium production facility. Prior to 2019, Mr. Linton received regular overtime and occasional bonuses. During the latter part of June 2020, Mr. Linton was laid off for two weeks.
Amanda Linton is also thirty-eight years old. She is self-employed, having operated a dog grooming business for the past six years. Her business was affected by the public health emergency caused by COVID-19 and she was forced to close it for a time.
On November 7, 2019, Debtors filed a petition for relief under Chapter 7 of the Bankruptcy Code, stating that their debts were primarily consumer debts. [UST Ex. 2]. Debtors' Schedule D shows total secured debts in the amount of $392,535.40. These debts include $289,644.00 secured by a first mortgage on their home located in Gibsonburg, Ohio, as well as $73,185.00 secured by a first mortgage on property located in Rocky Ridge Ohio ("Rocky Ridge property"). Additional secured debts include $3,862.70 on a 2014 Chrysler Town and Country, $1,844.70 on a 2018 Ford F-150, and $23,989.00 on a 2018 Chrysler Pacifica. The debt on the 2018 Pacifica has been reaffirmed. [Doc. # 16]. Debtors' bankruptcy schedules also show unsecured nonpriority debts in the amount of $39,595.82.
The Rocky Ridge property is Debtors' former residence. They purchased that property in 2016 directly from National Bank of Oak Harbor. The Rocky Ridge property was in foreclosure and National Bank of Oak Harbor gave Debtors a purchase money mortgage loan, without an appraisal, for $86,000.00. National Bank of Oak Harbor was taken over by Croghan Colonial Bank. Debtors' monthly mortgage payment for the Rocky Ridge property is approximately $485.00. But Debtors moved out of the house due to the area and the poor condition of the property. They stopped making the mortgage payments on it because they could no longer afford to make two mortgage payments after they moved into their new home in Gibsonburg. In July 2019, Croghan Colonial Bank sued Debtors on the promissory note and obtained a default money judgment less than two months later. Debtors' Exhibit C shows that Croghan Colonial Bank commenced proceedings in aid of execution against Tyler Linton, and it appears that it has a judgment lien on their home in Gibsonburg, [Dors Ex. D].
Tellingly, the bank did not seek to foreclose its mortgage on the Rocky Ridge property. The Lintons' testimony credibly showed that they are stuck in financial no-man's land with an un-livable, currently un-rentable house (at least without expensive repairs and remodeling) that the bank unloaded on them once and apparently does not want to get stuck with again. Further, it will not work with them on the property to get it sold.
Debtors' Schedule I shows a combined gross monthly income in the amount of $6,841.47. [UST Ex. 2, pp. (2-32)-(2-33)]. Mr. Linton's monthly gross income is listed as $5,827.47. Payroll deductions include voluntary contributions to Mr. Linton's 401(k) plan, which are dependent on his amount of wages received. Mrs. Linton's monthly gross income is listed as $1,014.00. Debtors' net monthly wages after payroll deductions reflect a combined total amount of $5,855.64. Debtors' Schedule J shows total monthly expenses in the amount of $6,398.00. [UST Ex. 2, pp (2-34)-(2-35)]. This amount includes a monthly mortgage payment on their new home of $2,074.00 and monthly payments on three vehicles in the combined amount of $1,062.00. According to Debtors' Schedules I and J, at filing they had a monthly spending deficit of $542.36.
Following the meeting of creditors, the Chapter 7 Trustee on June 15, 2020, filed a "no asset" report indicating there is no property available for distribution from the estate to unsecured creditors.
Debtors' Official Form 122A-1, at part 2, determines whether the means test applies. It shows that their annualized current monthly income at the time of filing this case was $76,716.00. The median income in Ohio for a family the size of Debtors' family is $91,580.00. As there was no statutory presumption of abuse arising under § 707(b)(2), the UST timely filed a motion to dismiss for abuse under § 707(b)(1) and (3).
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 adopted by Congress in 2005 as 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 re Price, 353 F.3d 1135, 1139 (9th Cir. 2004). The Sixth Circuit explained that "substantial abuse" couldbe predicated upon either a lack of honesty or want of need, to be determined by the totality of the circumstances. Krohn, 886 F.2d at 126. Congress incorporated this judicially created construct in § 707(b)(3). Although pre-BAPCPA case law applying these concepts remains helpful in determining abuse under § 707(b)(3), under BAPCPA Congress has lowered the standard for dismissal in changing the test from "substantial abuse" to "abuse." In re Mestemaker, 359 B.R. 849, 856 (Bankr. N.D. Ohio 2007). As the movant, the UST carries the overall burden of demonstrating, by a preponderance of the evidence, that Debtors' case should be dismissed. In re Weixel, 494 B.R. 895, 901 (B.A.P. 6th Cir. 2013).
At the evidentiary hearing, the UST confirmed he was not seeking dismissal of Debtors' Chapter 7 petition as being filed in bad faith and argued only that the totality of Debtors' financial circumstances demonstrates they are not needy and that granting them a discharge would be therefore be an abuse of the provisions of Chapter 7. Evaluation of the totality of the circumstances allows the court to consider both prepetition and post-petition circumstances of Debtors. See U.S. Trustee v. Cortez (In re Cortez), 457 F.3d 448, 455 (5th Cir. 2006) (); In re Mestemaker, 359 B.R. at 855-56; In re Haar, 373 B.R.493, 502-03 (Bankr. N.D. Ohio 2007).
Debtors are "needy" when "[their] financial predicament warrants the discharge of [their] debts" in a Chapter 7 case. Behlke v. Eisen (In re Behlke), 358 F.3d 429, 434 (6th Cir. 2004). Factors relevant to determining whether a debtor is "needy" include the ability to repay debts out of future earnings, which alone may be sufficient to warrant dismissal under some circumstances. Krohn 886 F.2d at 126; In re Meehean, 611 B.R. 574, 580 (Bankr. E.D. Mich. 2020), aff'd, 619 B.R. 371 (E.D. Mich. Aug. 18, 2020). Other factors include "whether the debtor enjoys a stable source of future income, whether he is eligible for adjustment of his debts through Chapter 13 of the Bankruptcy Code, whether there are state remedies with the potential to ease his financial predicament, the degree of relief obtainable through private negotiations, and whether his expenses can be reduced significantly without depriving him of adequate food, clothing, shelter and other necessities." In re Bender, 373 B.R. 25, 30 (Bankr. E.D. Mich. 2007); In re Burge, 377 B.R. 573, 577 (Bankr. N.D. Ohio 2007); see Krohn, 886 F.2d at 126.
Debtors' counsel argues that a debtor's ability to pay debts out of future earnings cannot be the only factor supporting...
To continue reading
Request your trial