In re Mastroeni

• Decision Date: 20 December 1985
• Docket Number: Bankruptcy No. 85 B 20368.
• Citation: 56 BR 456
• Parties: In re Thomas N. MASTROENI, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of New York

56 B.R. 456 (1985)

In re Thomas N. MASTROENI, Debtor.

Bankruptcy No. 85 B 20368.

United States Bankruptcy Court, S.D. New York.

December 20, 1985.

Martin Druyan, New York City, for debtor.

DECISION ON MOTION TO DISMISS PURSUANT TO § 707(b)

HOWARD SCHWARTZBERG, Bankruptcy Judge.

The court on its own motion issued a notice to Thomas N. Mastroeni, the above named debtor, to show cause why his petition for relief under Chapter 7 of the Bankruptcy Code should not be dismissed pursuant to 11 U.S.C. § 707(b) on the ground that the granting of relief would be a substantial abuse of the provisions of this chapter. The facts giving rise to the dismissal issue came to the attention of the court during the course of the hearing of a motion made by a creditor, the Manufacturers Hanover Trust Company, for relief from the automatic stay so that it might exercise an asserted right to set-off an amount owed to it by the debtor against several IRA accounts the debtor maintains with the bank.

FINDINGS OF FACT

1. The debtor filed his Chapter 7 petition with this court on July 25, 1985. He is presently employed as an officer of an international oil trading company and receives an annual salary of $73,000 per year.

2. The debtor's schedules reflect that he owes $110,850 in unsecured debts. These obligations arose out of borrowings from six banks. The funds were used by the debtor to finance his stock market trading and to meet his personal needs.

3. The debtor's listed assets total $14,485.00, consisting of a 1981 Audi automobile valued at $4,500; two IRA accounts totalling $9,500; cash on hand in the sum of $10; furniture valued at $300; books valued at $50 and clothing estimated to be worth $150.

4. The debtor's financial difficulties stem from substantial speculative stock market trading that continued until 1983. In that year the debtor not only lost large amounts in stock market trading, but he also lost his former job as an officer of a corporation engaged in international oil trading transactions. The debtor was divorced from his wife in 1983 after four years of marriage. There were no children from this marriage although his former wife had a teenage daughter from her previous marriage.

5. The debtor received approximately $116,000 from his pension plan in 1983 at the time that he was dismissed from his former job. He used the funds to make a $35,000 lump sum settlement with his former wife and finance his stock market transactions.

6. For the period between 1979 and July of 1985, the debtor made interest payments to his bank creditors in an average amount of $17,000 per year, for a total of approximately $90,000. He testified that he was emotionally drained by his financial burdens with the result that he filed for relief under Chapter 7 on July 25, 1985.

7. The debtor testified that in May or June of 1985 he received a $10,000 federal income tax refund with respect to the 1983 tax year. The debtor promptly spent all of the funds before he filed his Chapter 7 petition the following July. He testified that approximately $1700 from the tax refund money was used to repair his 1981 Audi automobile. He also used the funds for personal needs, including purchases of furniture and air conditioners for his rented apartment.

8. The debtor's schedule of current income and expenditures reflects a net take-home pay of $4,000 per month. His current expenditures, which total $3980, are listed as follows:

                    (1) Rent or home mortgage payment
                          (include lot rental for trailer)        $1,000.00
                    (2) Utilities (Electricity $150.00)
                         Heat $-      Water $-  Telephone
                         $100.)                                      250.00
                    (3) Food & Household Supplies                    600.00
                    (4) Clothing                                     300.00
                    (5) Laundry and cleaning                         125.00
                    (6) Newspapers, periodicals, and
                         books (including school books)              100.00
                    (7) Medical and drug expenses &amp
                         Dental                                      150.00
                

                    (8) Insurance (not deducted from
                          wages)
                          (a) Auto $100.00 (b) Other
                          $50.00                                     150.00
                    (9) Transportation Train $105, Gas
                          $100, Parking $150                         355.00
                   (10) Recreation                                   700.00
                        *       *     *     *     *     *
                   (16) Other (specify)
                         Auto Repair & Maintenance                   200.00
                                                                   ________
                          Total                                   $3,930.00
                

DISCUSSION

This case presents yet another foray into a bankruptcy court's attempt to apply the "substantial abuse" test as expressed in 11 U.S.C. § 707(b). This amendment to the Bankruptcy Code was enacted as a result of the Bankruptcy Amendments and Federal Judgeship Act of 1984 and is applicable to cases filed on or after October 8, 1984. The unusual circumstances of this case arise out of the fact that this Chapter 7 debtor's obligations exceed the maximum amounts permitted for Chapter 13 relief under 11 U.S.C. § 109(e), whereas his assets, exclusive of his postpetition salary are unattractively minimal, so that a liquidation under either Chapter 7 or Chapter 11 of the Bankruptcy Code would not be regarded by his creditors as an acceptable alternative.

A partial repayment of the debtor's consumer obligations is feasible only under a Chapter 13 plan because 11 U.S.C. § 1306(a)(2) treats postpetition earnings of a Chapter 13 debtor as property of the estate. Earnings from services performed by an individual debtor after the commencement of a case under either Chapter 7 or Chapter 11 are expressly declared in 11 U.S.C. § 541(a)(7) not to be property of the estate and are not required to be available for repayment purposes under either Chapter 7 or Chapter 11. In this case the debtor earns $73,000 a year as the treasurer of a corporation engaged in the oil trading business. He is financially capable of partially repaying his consumer creditors over a period of years. Indeed, he managed to repay approximately $90,000 over approximately five years until reaching a point where he felt that he was emotionally drained by the debt burden and he decided to seek financial relief and the potential fresh start afforded under Chapter 7 of the Bankruptcy Code.

The debtor's monthly estimated expenses in his schedule of current income and expenses are obviously inflated. His estimated monthly electricity bill of $150 for a three room apartment does not appear to be realistic. Food and household supplies of $600 per month and recreation expenses of $700 per month for one person do not appear to be in line. This point was noted as a reason for dismissal under 11 U.S.C. § 707(b) in In re Bryant, 47 B.R. 21 at 26, 12 B.C.D. 565 at 567 (Bankr.W.D.N.C.1984):

In like measure, the Debtor claims expenses of $100.00 per month for dining out and for going to movies. He claims another $65.00 per month for cable television. Even if these amounts are accurate, the Court has serious questions about their appropriateness for a Debtor in Chapter 7. While Congress intended to give the debtors relief in such cases, it was not the design of the Bankruptcy laws to allow the Debtor to lead the life of Riley while his creditors suffer on his behalf.

The debtor disposed of a $10,000 income tax refund received shortly before he filed his bankruptcy petition in order to pay approximately $1700 to repair his 1981 Audi automobile and to acquire furniture for his apartment. Similarly, in In re Grant, 51 B.R. 385, 13 B.C.D. 303 (Bankr.N.D.Ohio 1985) the debtors listed $450 per month for entertainment expenses; $890 per month as the cost of operating a 1982 Mercedes automobile; $625 per month as the cost of food for the debtor, his wife and two children; and a $9000 loan obtained shortly before filing the Chapter 7 petition was used primarily for Christmas gifts. The debtors in that case had a joint income of $65,000 per year. The court dismissed the Chapter 7 petition pursuant to 11 U.S.C. § 707(b) and said:

This piling up of cash advances and consumer purchases on their credit cards far in excess of their ability to repay those debts, and their failure to propose even a reasonable family budget in either of their schedules is evidence of their bad faith. The court will not permit these overextended debtors to use this court as an "escape hatch" when in the long run they can well afford to meet their obligations to a substantial degree.

In re Grant, 51 B.R. at 394, 13 B.C.D. at 309. It should be noted that the debtors in the Bryant and the Grant cases, unlike the debtor in the instant case, were eligible for relief under Chapter 13 in accordance with...