In re Mundy

• Decision Date: 01 March 2007
• Docket Number: No. 1-06-BK-00875MDF.,1-06-BK-00875MDF.
• Parties: In re Melvin G. MUNDY, Debtor. Kelly Beaudin Stapleton, United States Trustee, Movant, v. Melvin G. Mundy, Respondent.
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Middle District of Pennsylvania

363 B.R. 407

In re Melvin G. MUNDY, Debtor Kelly Beaudin Stapleton, United States Trustee, Movant, v. Melvin G. Mundy, Respondent.

No. 1-06-BK-00875MDF.

United States Bankruptcy Court, M.D. Pennsylvania.

March 1, 2007.

Lawrence V. Young, CGA Law Firm, York, PA, for Debtor.

ORDER

MARY D. FRANCE, Bankruptcy Judge.

After notice and hearing, and for the reasons set forth in the accompanying Opinion, the Motion of the United States Trustee to dismiss the chapter 7 bankruptcy case of Melvin G. Mundy is DENIED.

OPINION

Procedural and Factual History

Before me is the motion of the United States Trustee ("UST") to dismiss the bankruptcy petition of Melvin Mundy ("Debtor"). The UST's motion invokes § 707(b)(2) of the Bankruptcy Code as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Publ. No. 109-8, 119 Stat. 37 ("BAPCPA"). Under § 707(b), the bankruptcy court must presume that granting relief under chapter 7 will constitute an abuse of the chapter if a debtor's "current monthly income" exceeds allowable expenses in a sufficient amount to enable a debtor to pay a specified amount of debt over a sixty-month period. This mathematical calculation is referred to as the "means test" and is performed by the completion of Official Form 22A, "Statement of Current Monthly Income and Means Test Calculation (Chapter 7)," ("Form B22A").¹

Debtor filed a petition under chanter 7 on May 5, 2006. On June 2, 2006, he filed an amended Form B22A that, according to the calculations on the form, indicated that the presumption of abuse did not arise.² On line 42 of Form B22A, Debtor included payments for a first and second mortgage to HSBC Mortgage Services in a total amount of $1,118.12. The Statement of Intention filed with Debtor's petition stated that Debtor had surrendered or would be surrendering the residence securing these mortgages.³ Debtor also reported that his annualized current monthly income was $44,659.92,⁴ which exceeded the applicable median family income.

After reviewing Debtor's schedules, statements and other materials, the UST filed the statement required under 11 U.S.C. § 704(b)(1)(A) indicating that Debtor's case should be presumed to be an abuse of chapter 7 under § 707(b)(2)(A)(i). The UST's determination considered several factors, but relied primarily on Debtor's Statement of Intention, which provided for surrender of the residence. Debtor admits that he does intend to surrender the home and, in the future, will not necessarily incur monthly housing expenses in the same amount as the payments to HSBC Mortgage Services. If Debtor is not permitted to include the mortgage payments as expenses on the means test and, is required to use the applicable IRS housing standard of $757.00, he will have $361.75 in additional disposable income triggering the presumption of abuse.

A hearing was held in this matter on July 12, 2006. The parties have filed briefs, and the matter is ready for decision.⁵

Discussion

The parties agree on the material facts and submit this pure legal issue to the Court for decision — may a debtor deduct as an expense on Form B22A, debts he does not intend to pay that are secured by collateral that he does not intend to retain? The UST argues, that for purposes of the means test, Congress did not intend to permit debtors to deduct payments to secured creditors if they do not intend to reaffirm the debt and make the payments. Debtor asserts, to the contrary, that the statutory language authorizes him to deduct mortgage obligations for which he is contractually obligated notwithstanding his decision to surrender the property.

a. Relevant Statutory Provisions

Section 707(b)(2)(A)(i) states that a bankruptcy court shall presume that a chapter 7 case is abusive 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 non priority unsecured claims in the case, or $6,000, whichever is greater; or (II) $10,000."⁶ Section 707(b)(2)(A)(iii)(I) permits a debtor to deduct from current monthly income "the total of all amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the petition...." 11 U.S.C. § 707(b)(2)(A)(iii)(I). The resolution of the issue in this case is contingent upon whether, in performing the means test calculation under § 707(b)(2)(A)(i), Debtor is permitted to deduct his mortgage payments as provided in § 707(b)(2)(A)(iii)(I).

b. Principles of Statutory Construction

The "starting point" in construing a statute is "the existing statutory text." Lamie v. United States Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 1030, 157 L.Ed.2d 1024 (2004). "It is well established that when the statute's language is plain, the sole function of the courts — at least where the disposition required by the text is not absurd — is to enforce it according to its terms." Id. (citations and internal quotations omitted.) "[A]s long as the statutory scheme is coherent and consistent, there generally is no need for a court to inquire beyond the plain language of the statute." In re American Steel Product, Inc., 197 F.3d 1354, 1356 (11th Cir.1999). In United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989), the Supreme Court held that the plain meaning of a statute is controlling unless "the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters." Id. at 242, 109 S.Ct. 1026. A statute is not ambiguous, however, merely because it is susceptible to varying interpretations. "The plainness or ambiguity of statutory language is determined by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole." Robinson v. Shell Oil Co., 519 U.S. 337, 341, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997).

c. Application of statutory construction principles to § 707(b)(2)(A)(iii) (I)

The Court's first task is to determine the meaning of § 707(b)(2)(A)(iii)(I). The language of the text states that "the total of all amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the petition" may be deducted as an expense from Debtor's income. The UST argues that the phrase "scheduled as contractually due" means that if a debtor has a mortgage on the date of his petition, he may include his mortgage payments as expenses only if he intends to make those payments in the future. If he intends to surrender the property subject to the mortgage, however, he may not claim the expense. The. UST construes the term "scheduled" to mean debts included on Schedule "J," which reports current expenditures.⁷ Debtor urges the Court to construe the phrase "scheduled as contractually due" to refer to the payments a debtor is obligated to make under the contract — in this instance, the note and mortgage, regardless of whether or not the property will be retained.

Bankruptcy courts addressing this issue have reached opposite conclusions about the "plain meaning" of § 707(b)(2)(A)(iii). In In re Nockerts, 357 B.R. 497 (Bankr. E.D.Wis.2006), the UST moved to dismiss a chapter 7 petition because the debtors had included on Form B22A a payment on a residence that they intended to surrender. Without the burden of this payment, the debtors' monthly Income exceeded their expenses by an amount sufficient to fund a chapter 13 plan. The UST in Nockerts cited In re Skaggs, 349 B.R. 594 (Bankr.E.D.Mo.2006) and In re Harris, 353 B.R. 304 (Bankr.E.D.Okla.) in support its position that unless a debtor intended to make future mortgage payments, they may not be deducted as an expense. In Skaggs, the court did not use the common dictionary meaning for the phrase "scheduled as," but interpreted the phrase to mean debts identified on a debtor's bankruptcy schedules. Skaggs, 349 B.R. at 598. The court based this construction on a finding that Congress used the phrase "scheduled as" in the Bankruptcy Code "several times." The court then cited § 521 and Fed. R. Bankr.P. 1007(b) for the proposition a debtor's duty to amend their schedules and statement to keep the information current implied that future obligations should be used when calculating expenses for the means test. Skaggs, 349 B.R. at 599. Because the Skaggs were no longer making mortgage payments on their residence at the time of the hearing,⁸ the court held that the payments could not be included as deductions on Form B22A. Applying similar reasoning, the Harris court concluded that "monthly payments for secured debt cannot be included in the means test calculation when a debtor ... intend[s] to surrender the corresponding collateral." Harris, 353 B.R. 304, 309-10 (Bankr.E.D.Okla.). The bankruptcy court in Nockerts disagreed with the reasoning in Skaggs finding that the Missouri court's observation that Congress used "scheduled as" repeatedly in the Code to be inaccurate. The Nockerts court determined that this phrase was used in only one other provision of the Code — § 1111(a).⁹ Broadening its search of the Code to isolate the word "scheduled," the court found only two more sections — §§ 523(a)(3) and 554(c) — in which the term referred to information included on bankruptcy schedules. Id. 357 B.R. at 501-03. The court concluded that

"scheduled as contractually due" does not refer to the bankruptcy schedules [because] [w]when describing the bankruptcy schedules, Congress included in the statute a reference to the schedules, either directly by name or indirectly by reference to § 521. On the other hand, when the statute refers to scheduled payments, such as in the reaffirmation or pre-confirmation lease provision, the bankruptcy schedules are not mentioned.

Id at 501-03. I agree with the Nockerts court's analysis and conclude that the phrase "scheduled as" does not...