In re Nockerts

• Citation: 357 B.R. 497
• Decision Date: 14 December 2006
• Docket Number: No. 06-24480-svk.,06-24480-svk.
• Parties: In re Ricky L. NOCKERTS and Geri L. Nockerts, Debtors.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Eastern District of Wisconsin

357 B.R. 497

In re Ricky L. NOCKERTS and Geri L. Nockerts, Debtors.

No. 06-24480-svk.

United States Bankruptcy Court, E.D. Wisconsin.

December 14, 2006.

COPYRIGHT MATERIAL OMITTED

John A. Foscato, Green Bay, WI, for Debtors.

MEMORANDUM DECISION ON MOTION TO DISMISS

SUSAN V. KELLEY, Bankruptcy Judge.

The U.S. Trustee has moved to dismiss this case based on a presumption of abuse under Bankruptcy Code § 707(b)(2) or as an abuse under § 707(b)(3). This chapter 7 case was filed on August 15, 2006, and is governed by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The parties have stipulated to most of the facts.

The Debtors are "above-median" debtors; their annualized current monthly income is $82,131, which exceeds the Wisconsin median of $60,106 for a family of three. Accordingly, in BAPCPA jargon, the Debtors must pass the "means test" in order to qualify for chapter 7 relief. The means test is codified in the provisions of § 707(b)(2) and the calculations are performed on Official Form B22A. Under § 707(b)(2)(A), the case will be presumed an abuse unless the debtor passes the means test or successfully rebuts the presumption of abuse by showing special circumstances, and then only to the extent that those circumstances are proven to justify additional expenses or adjustments.

Section 707(b)(2)(A) states that the Court shall presume that the debtor's case is an abuse of chapter 7 if the debtor's current monthly income, less the amounts deductible under § 707(b)(2)(A)(ii), (iii) and (iv), over a 60-month period, equals or exceeds the lesser of (A) 25% of the nonpriority unsecured claims in the case or $6,000, whichever is greater; or (B) $10,000. In this case, 25% of the Debtors' general unsecured claims exceeds $11,500; therefore, $10,000 is the lesser amount, and serves as the threshold for determining whether a presumption of abuse arises. If, after subtracting the allowable deductions found in § 707(b)(2)(A)(ii), (iii) and (iv), the Debtors' current monthly income exceeds $167 ($10,000 ÷ 60), the Court must presume that the case is an abuse of chapter 7 of the Bankruptcy Code. The Debtors' Amended Form B22A shows that their monthly income is $6,844.30 and their total monthly deductions total $8,625.56, so that the bottom line is a negative number. However, the U.S. Trustee takes issue with certain deductions claimed by the Debtors.

Specifically, the U.S. Trustee focuses on § 707(b)(2)(A)(iii) which allows a debtor to deduct "average monthly payments on account of secured debts." That section provides:

The debtor's average monthly payments on, account of secured debts shall be calculated as the sum of —

(I) 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; and

(II) any additional payments to secured creditors necessary for the debtor, in filing a plan under chapter 13 of this title, to maintain possession of the debtor's primary residence, motor vehicle, or other property necessary for the support of the debtor and the debtor's dependents, that serves as collateral for secured debts;

divided by 60.

Question 42 of Form B22A, entitled "Future payments on secured claims" corresponds to this portion of the statute, and asks debtors to list the average monthly payments "due to each Secured Creditor in the 60 months following the filing of the bankruptcy case, divided by 60." In response to this Question, the Debtors listed three amounts: $2,839.00 monthly for two mortgages on their homestead; $59.40 monthly for their 2003 Chevy Avalanche; and $133.40 monthly for their 2004 Pontiac Bonneville.

The U.S. Trustee's Motion to Dismiss asserts that according to the Debtors' testimony at the § 341 meeting, the Debtors are not reaffirming the mortgage debts on their homestead, are not making the monthly payment on the mortgages and intend to surrender the homestead to the secured creditors. The Debtors may not therefore "claim a Line 42 deduction for payments on collateral that they intend to surrender," since they "were not making this payment at the time they filed their bankruptcy petition and will not make this payment in the future." If this deduction is allowed, and the Debtors therefore pass the means test, the U.S. Trustee contends that their case should be dismissed under § 707(b)(3)(B), because the totality of the circumstances of the Debtors' financial situation demonstrates abuse. The Debtors objected to the Motion, and after a hearing, the Court took the matter under advisement. This Memorandum Decision constitutes the Court's findings of fact and conclusions of law.

The first issue in this case is the construction of the words "scheduled as contractually due," found in § 707(b)(2)(A)(iii). The U.S. Trustee argues that this language allows a means test deduction only if the Debtors are actually making the monthly payment, and only if the Debtors intend to retain the collateral securing the debt. In the absence of an actual monthly payment, the U.S. Trustee contends that a debtor should list the appropriate IRS allowances, as described in § 707(b)(2)(A)(ii)(I). The Debtors, however, urge a plain reading of the statute, and assert that "scheduled as contractually due" means that a debtor may list a payment that the debtor is contractually obligated to make as of the date of the petition, regardless of what the debtor intends to do with the property.

The few courts that have decided this issue are evenly divided. The earliest case, In re Walker, 2006 WL 1314125 (Bankr.N.D.Ga. May 1, 2006), supports the Debtors' argument. There, chapter 7 debtors included in their means test calculations a deduction for average monthly payments on property they intended to surrender at the time of filing. Id. at *1. The U.S. Trustee filed a motion to dismiss arguing that debtors should not be able to deduct an expense when they have no intention of making those payments in the future. The Walker court applied a "plain meaning" rule in interpreting the statute, and determined that the common meaning of the words "scheduled as contractually due" is "those payments that the debtor will be required to make on certain dates in the future under the contract." Id. at *3. As a result of this interpretation, "nothing the debtor does or does not do changes the fact that scheduled payments remain contractually due." Id. at *4. The date of the petition is the applicable time frame to apply the means test, because the statute requires a determination of "how many payments are owed under the contract for each secured debt at the time of filing:" Id. Since the debtors were contractually obligated to make payments on the date they filed for bankruptcy, the court allowed the deduction. See also In re Oliver, 2006 WL 2086691 (Bankr.D.Or. June 29, 2006).

The court faced the same issue in In re Singletary, 2006 WL 2987945 (Bankr. S.D.Tex. Oct.19, 2006), where chapter 7 debtors deducted future payments on their house and vehicle, but also filed a statement of intention indicating they were going to surrender the property. Id. at *5. In analyzing § 707(b)(2)(A)(iii), the court first noted that the means test is both backward-and forward-looking at the same time. Id. at *6. Following Fifth Circuit precedent established in In re Cortez, 457 F.3d 448 (5th Cir.2006), the Singletary court rejected the "snapshot" approach embraced by Walker. Because Cortez requires a court to "consider post-petition events in deciding whether to dismiss a case for substantial abuse under § 707(b)," the Singletary court determined it could not examine the means test strictly as of the filing date. Id. at *7 (quoting Cortez, 457 F.3d at 450). However, the court determined that a debtor would be able to deduct future expenses even if the debtor intended to surrender the property, as long as the property had not actually been surrendered as of the date the § 707(b) motion to dismiss was filed. Id. at * 15.

Although this Court is not bound by Cortez, and the Seventh Circuit has no similar precedent, the decision warrants consideration. In Cortez, a pre-BAPCPA case, the debtor had been unemployed on the date of the bankruptcy filing, but four days later found employment at an annual salary of $95,000. The Fifth Circuit held that "post-petition events should be considered up until the date of discharge," and that a bankruptcy court "should consider any post-petition events affecting [the debtor's] financial situation, including any post-petition improvements in income, or if still applicable, . . . unemployment." 457 F.3d at 454. In considering the language of the prior statute, which conditioned dismissal on a finding "that the granting of relief would be a substantial abuse of the provisions of this chapter," the court focused on the phrase "granting of relief," reasoning that the relief was actually the chapter 7 discharge. Therefore, depending on what events occurred during the case, a substantial abuse could occur at any point up to the discharge. Id. at 455. In Singletary, although the debtors had listed both the house and a vehicle on their statement of intention, only the vehicle had been surrendered as of the date of the U.S. Trustee's § 707(b) motion, and therefore, the debtors' home mortgage payments were properly deductible on the means test, but the vehicle payments were not.

The problem with basing a BAPCPA means test analysis on Cortez-style reasoning is that, although the "granting of relief" language did not change, nearly everything else about § 707(b) did. Section 707(b)(2)(A)(iii)(I) now specifically refers to "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." (Emphasis added). Further, § 707(b)(2)(A)(ii)(I) expressly requires that a debtor calculate expenses "as in effect on the date of the order for relief." The statute...