In re Norenberg

• Decision Date: 21 July 2016
• Docket Number: Case No. 15–61171–7
• Citation: 554 B.R. 480
• Parties: In re Clint A Norenberg, Debtor.
• Court: U.S. Bankruptcy Court — District of Montana

554 B.R. 480

In re Clint A Norenberg, Debtor.

Case No. 15–61171–7

United States Bankruptcy Court, D. Montana.

Signed July 21, 2016

Edward A. Murphy, Murphy Law Offices, PLLC, Missoula, MT, for Debtor.

MEMORANDUM OF DECISION

Honorable Ralph B. Kirscher, Chief U.S. Bankruptcy Judge

At Butte in said District this 21st day of July, 2016.

In this Chapter 7 case creditor Elska, Inc. (“Elska”) filed a Motion to Dismiss for abuse under 11 U.S.C. § 707(b) on April 15, 2016, on the grounds that erroneous statements regarding Debtor's non-filing spouse's income and expenses on Debtor's Forms 122A–1 and 122A–2 (Chapter 7 Means Test Calculation) resulted in an erroneous determination by Debtor that the presumption of abuse under § 707(b) does not arise. Debtor Clint A. Norenberg (“Clint” or “Debtor”) filed an objection. A hearing on Elska's Motion was held after due notice at Missoula on June 2, 2016. Debtor appeared and testified at the hearing, represented by attorney Edward A. Murphy of Missoula. Elska was represented by attorney Marcel A. Quinn of Kalispell. Elska's Exhibits (“Ex.”) 1, 2(redacted), 3, 4, and an unmarked transcript (“Tr.”) of a Rule 2004 examination of Debtor's non-filing spouse Christie R. Norenberg (“Christie”), were admitted without objection. At the conclusion of the hearing the Court granted the parties time to file briefs, which have been filed and reviewed by the Court together with the record and applicable law. This matter is ready for decision. Elska's Motion to Dismiss will be denied by separate Order for the reason that Debtor's “current monthly income” (“CMI”) defined by 11 U.S.C. § 101(10A) does not include income of Debtor's nonfiling spouse which is not paid on a regular basis for the household expenses of the Debtor or the Debtor's dependents.

Elska's Motion to Dismiss for abuse under § 707(b) is a core proceeding under 28 U.S.C. § 157(b)(2). This Court has jurisdiction over this contested matter under 28 U.S.C. § 1334(a). This Memorandum of Decision includes the Court's findings of fact and conclusions of law.

At issue is whether Elska satisfied its burden of proof to show that the granting of relief to the above-named Debtor would be an abuse of the provisions of Chapter 7 under § 707(b) when the Debtor omitted income received by his non-filing spouse from his Means Test calculation. The Court concludes that Elska failed to satisfy its burden of proof by a preponderance of the evidence.

FACTS

Debtor Clint Norenberg is married to Christie R. Norenberg (“Christie”). They have one child, and Christie is expecting their second child. Clint is engaged in a landscaping business with his father. Clint and his father are indebted to Elska. Christie is employed as a teller at First Interstate Bank in Kalispell. She is not indebted to Elska. Clint testified that Christie's financial affairs are “absolutely” separate from his. No evidence exists in the record to the contrary; his testimony that their finances are separate is corroborated by Christie's deposition testimony. Tr., pp. 12, 16–17, 18, 19.

Christie owns an interest in a family entity identified as the “Sullivan Family Montana, Inc.” (“Sullivan Family Entity”) from which she receives periodic royalty income, usually in late November or early December. Ex. 2; Tr., p. 11. Ex. 2 states that amount of Christie's royalty income was $12,396 on their 2014 tax return. Clint testified that Christie received a royalty check from the Sullivan Family Entity in the approximate amount of $10,000 in 2015. Christie testified at her Rule 2004 examination that she received a check for $10,000 from the Sullivan Family Entity in November or December of 2015. Tr., p. 11. Ex. 3 are bank statements of Christie's checking account at First Interstate Bank. Clint testified that when Christie receives funds from the Sullivan Family Entity by check she deposits it immediately into her separate account. He does not know how she spends the royalties. Page 7 of Ex. 3 shows a $8,000 deposit to Christie's checking account on December 2, 2015, and a $2,500 withdrawal on the same date. The deposit slip on page 8 of Ex. 3 shows that she withdrew $2,000 when she deposited $10,000 on December 2, 2015 for a net deposit of $8,000, which is reflected on page 7. Christie testified that she used the $10,000 for family expenses. Tr., p. 11.

Christie has three credit cards in her name, which she uses to pay for family expenses only, and not for any non-family expenses. Tr., pp. 7, 8, 16–17. In addition, she testified that she has taken draws throughout 2015 from her account at American Funds and received income dividends, all of which were reinvested in the account. Tr., pp. 13–15. Clint has no interest and is not a beneficiary in Christie's American Funds account. Tr., p. 12.

Clint filed a voluntary Chapter 7 bankruptcy petition on December 21, 2015. He marked the box “Yes” at item 16 in response to the question: “Are your debts primarily consumer debts.” Debtor filed his Schedules and Statements on January 22, 2016, and on the same date filed his completed Official Form 122A–1 (“Chapter 7 Statement of Your Current Monthly Income”) and Form 122A–2 (“Chapter 7 Means Test Calculation”). Ex. 1. Clint testified that he does not know the definition of CMI.

Form 122A–1 includes instructions between Lines 1 and 2 as follows: “Fill in the average monthly income that you received from all sources, derived during the 6 full months before you file this bankruptcy case, 11 U.S.C. § 101(10A).” Ex. 1. Following those instructions and counting backward from the December 21, 2015, petition date, the six month period for the instant Debtor begins June 1, 2015, and ends Monday, November 30, 2015. At Line 2 of Form 122A–1 Debtor listed his gross wages or salary as $3,768.67, and under Column B of Line 2 listed Christie's gross wages as $2,590.20. No other income was listed in Part 1.

Line 7 of Form 122A–1 (“Interest, dividends, and royalties”) lists “$0.00” for both Debtor and his non-filing spouse. Ex. 1. Part 1 does not include the $10,000 from the Sullivan Family Entity which Ex. 3 shows was deposited into Christie's checking account on December 2, 2015, which Christie used for family expenses (Tr., p. 11), and does not include her draws or dividends from American Funds which were reinvested.

Ex. 4 is the year-end statement for Christie's account at American Funds. Ex. 4 shows on page 1 a beginning total value on 1/1/2015 of $131,432.85, and a year end value of $103,261.30. Her American Funds account is divided among two funds. On September 9, 2015, Christie received redemptions in the amounts of $4,500 from each of her American Funds. Clint testified that he could not recollect what Christie did with the $9,000 in total redemptions. Christie testified that Clint is not a beneficiary and has no ties to her American Funds account at all. Tr., p. 12.

Pages 2 and 3 of Ex. 4 show that Christie received periodic income dividends from her American Funds within the six month period before the December 21, 2015, petition date. Elska contends that Christie received a total of $832.27 in American Funds dividends. Clint and Christie both testified that she elected to have the dividends reinvested with American Funds instead of receiving them in checks. No evidence exists in the record that Christie's redemptions and reinvested dividends from her American Funds account were used for family or household expenses.

Ex. 1 states at page 2, Line 11, that Debtor's CMI, including Christie's salary, totaled $6,358.87. Part 2 multiplied that number by 12 months for a result at Line 12b of $76,306.44. Line 13 states the Montana mean family income for a household of 3 as $64,729. Because Line 12b is more than Line 13, Line 14b states: “The presumption of abuse is determined by Form 122A–2.”

Form 122A–2 starts at page 3 of Ex. 1. From the $6,358.87 CMI at Line 1, deductions are made. The instructions for Line 3 state: “Adjust your current monthly income by subtracting any part of your spouse's income not used to pay for the household expenses of you or your dependents.” At Line 3 Debtor deducted a total of $207.82 consisting of “Wife's IRA contribution” ($97.82) and “Wife's debts” ($110). Debtor did not include at Line 3 the $10,000 royalties which Christie received from the Sullivan Family Entity, or the dividends and redemptions she received from American Funds.¹

Line 3 lists $110 described as “Wife's debts.” Elska argues that Christie paid for family expenses with that $110 on her credit card. Christie testified that all of her credit card charges were for household expenses. Tr., pp. 7–8. Debtor's Form 122A–2 then deducted from his CMI expenses for healthcare, housing and utilities, transportation expenses for two vehicles, taxes and childcare using IRS categories, then deducted additional expenses in the form of health insurance and debt payments for Debtor's two vehicles.

Part 3 of Form 122A–2 calculated Debtor's monthly disposable income for 60 months by subtracting his total deductions ($7,148.58) from his adjusted CMI ($6,151.05). The result on page 8 of Ex. 1is a negative monthly disposable income of $997.53, which multiplied by 60 at Line 39d resulted in a negative amount, (-$59,851.80), and prompted the Debtor to check box 1 of Form 122A–2 (“There is no presumption of abuse”). At Line 43 of Debtor's Form 122A–2 he marked the box “No” indicating that he has no special circumstances that justify additional expenses or adjustments of CMI for which there is no reasonable alternative. Debtor repeated under direct examination that he has no special circumstances.

Debtor submitted both forms on Ex. 1 under penalty of perjury. Under direct examination by Elska Debtor admitted that he did not include Christie's income from the Sullivan Family Entity. He also admitted that his health insurance entry at line 25 of Ex. 1 of $898.95 is an error because it includes his IRA contribution. His health insurance expense is $706.95.

Debtor...