In re Parada

• Decision Date: 10 January 2008
• Docket Number: No. 07-15938-BKC-LMI.,07-15938-BKC-LMI.
• Citation: 391 B.R. 492
• Parties: In re Asdrubal Jose PARADA and Lourdes Josefa Parada, Debtors.
• Court: U.S. Bankruptcy Court — Southern District of Florida

391 B.R. 492

In re Asdrubal Jose PARADA and Lourdes Josefa Parada, Debtors.

No. 07-15938-BKC-LMI.

United States Bankruptcy Court, S.D. Florida.

January 10, 2008.

COPYRIGHT MATERIAL OMITTED

James Schwitalla, Esq., Miami, FL, for Debtors.

Ariel Rodriguez, Office of the US Trustee, Miami, FL, for U.S. Trustee.

ORDER CONDITIONALLY GRANTING MOTION TO DISMISS

LAUREL M. ISICOFF, Bankruptcy Judge.

This matter came before me on November 28, 2007 on the U.S. Trustee's Motion to Dismiss Pursuant to 11 U.S.C. § 707(b)(1) (CP #34). Having heard presentation of counsel, having considered the evidence presented, and having reviewed the applicable law, I determine for the reasons stated below that dismissal of this case is appropriate unless, within ten days of the entry of this Order, the Debtors move to convert this case to a case under either chapter 11 or chapter 13.

BACKGROUND FACTS

The following constitute the Court's findings of fact and conclusions of law in accordance with Fed. R. Bank. P. 7052. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A).

The Debtors filed jointly for protection under chapter 7 of the United States Bankruptcy Code on July 30, 2007. The Debtors' Joint Petition (CP #1) indicates their debts are "Consumer/Non-Business Debts." As required, the Debtors completed Official Form B22A — Chapter 7 Statement of Current Monthly Income and Means-Test Calculation (CP # 4) ("Official Form B22A"). Because the Debtors' annualized income exceeds the applicable median family income for Florida, the Debtors were required to complete the entire Official Form B22A. Based on the deductions itemized by the Debtor on Official Form B22A, the presumption of abuse under 11 U.S.C. § 707(b)(2) did not arise. The U.S. Trustee reviewed Debtors' petition, Official Form B22A, the Debtors' bankruptcy schedules, and the Debtors' Statement of Financial Affairs and conducted the section 341(a) meeting of creditors. On October 29, 2007 the U.S. Trustee filed a statement (CP # 32) that he had determined a presumption of abuse has arisen in this joint case under 11 U.S.C. § 707(b)(2), and subsequently filed the motion to dismiss.

The Debtors' Assets and Liabilities¹

The Debtors are married and have no dependents. They live in a rental condominium in Sunny Isles, Florida. On Schedule A the Debtors listed a condominium located in Hollywood, Florida ("the Hollywood Condominium") with a value of $400,000. The Hollywood Condominium is encumbered by a first mortgage in the amount of $488,874 and by other liens. Until June 2007, the Debtors lived in the Hollywood Condominium and claimed it as their homestead property. The Debtors' statement of intention indicates the Debtors are surrendering their interest in the Hollywood Condominium. In late August the secured lender received stay relief to proceed with foreclosure of the Hollywood Condominium.

The Debtors valued their personal property assets at $86,155.45 on Schedule B. Included as an asset is a 2001 BMW 325i Sedan (the "BMW"), which is encumbered by a lien of $19,950. The Debtors listed the current monthly payment as $490.99. According to the statement of intention, the Debtors are surrendering their interests in the BMW. At the section 341 meeting of creditors, Mrs. Parada testified that the BMW was, in fact, surrendered post-petition to the lender.

The Debtor listed numerous creditors on their schedules. On Schedule F, the Debtors listed $34,618.88 in unsecured claims, primarily consisting of consumer debt.

Mr. Parada is employed as a freight handler with a local company and Mrs. Parada is employed as a billing supervisor for a local law firm. On Schedule I, the Debtors reported monthly gross income of $8,846.01 and monthly payroll deductions of $2,218.32, which include deductions for voluntary 401(k) contributions of $182 and $200 by Mr. and Mrs. Parada, respectively.

The U.S. Trustee's Determination

The U.S. Trustee argues that the presumption of abuse arises under 11 U.S.C. § 707(b)(2) because of three improper deductions on Debtors' Official Form B22A —

• $790 for monthly homeowner association dues for the Hollywood Condominium,

• $1,958.35 for monthly mortgage payments for the Hollywood Condominium, and

• $490.99 per month car payment for the BMW that was surrendered.²

According to the U.S. Trustee, the deductions relating to the surrendered car and house are not appropriate because the Debtors will not continue to incur the associated expenses throughout the bankruptcy. The U.S. Trustee argues that when these improper deductions are removed from the Official Form B22A deductions, the presumption of abuse arises because the Debtors' monthly incomes does not "pass" the means test calculation, and indeed, the revised Official Form B22A calculation prepared by the U.S. Trustee indicates the Debtors could pay their unsecured debts in full. (Trustee Exhibits and Exhibit 5.)

Alternatively, the U.S. Trustee argues, even if the Debtors did "pass" the means test, that is, the presumption of abuse did not arise under 11 U.S.C. § 707(b)(2), this joint chapter 7 case should nonetheless be dismissed because of abuse based on the totality of the circumstances under 11 U.S.C. § 707(b)(3)(B).

THE MEANS TEST AND THE PRESUMPTION OF ABUSE

Congress substantially revised section 707 when BAPCPA³ was enacted in 2005. Under revised section 707(b), renumbered 11 U.S.C. § 707(b)(1), a case can be dismissed for abuse, rather than substantial abuse, although a debtor is now given the option to convert to a case under chapter 11 or chapter 13 in the face of dismissal. New section 707(b)(2) creates a test (the "means test"), for determining whether there is a rebuttable presumption of abuse. New section 707(b)(3) provides additional criteria for determining abuse when the presumption does not arise under the means test or when the presumption is rebutted. In sum, "BAPCPA provides a two-step process to detect and deter abusive filers: the ... objective means test prescribed in § 707(b)(2), and the more subjective test of § 707(b)(3) which requires an analysis of the facts of a particular case." In re Henebury, 361 B.R. 595, 603-04 (Bankr.S.D.Fla.2007).

Prior to the enactment of BAPCPA, the law presumed that a debtor filed a case in good faith and the burden was on the trustee to demonstrate the filing constituted a substantial abuse of the Bankruptcy Code. In re Lenton, 358 B.R. 651, 656 n. 11 (Bankr.E.D.Pa.2006). See In re Brown, 301 B.R. 607 (Bankr.M.D.Fla.2003). Under the Bankruptcy Code as revised by BAPCPA, however, if the presumption of abuse arises under the means test, the burden is on the debtor to rebut the presumption. If the presumption is not rebutted, dismissal is appropriate. If the presumption does not arise, or is rebutted, the burden of proof lies with the trustee to show abuse.

The means test calculation of 11 U.S.C. § 707(b)(2) is somewhat convoluted, but, in sum, if a debtor's current monthly income ("CMI") is higher than the state median income for a household of the same size, then the debtor must complete the means test calculation in parts IV, V, VI and VII of Official Form B22A. As summarized —

if after deducting all allowable expenses from a debtor's current monthly income, the debtor has less than $100 per month in monthly net income (i.e., less than $6,000, to fund a 60 month plan), the filing is not presumed abusive. If the debtor has monthly income of more than $166.67, or $10,000 to fund a sixty month plan, the filing is presumed abusive. Finally, if the debtor has between $101 and $166 per month, the case will be presumed abusive if that sum, when multiplied by 60 months, will pay 25% or more of the debtor's non-priority unsecured debts.

In re Benedetti, 372 B.R. 90, 92 n. 1 (Bankr.S.D.Fla.2007).

In calculating whether a presumption of abuse arises, section 707(b)(2) of the Bankruptcy Code states, in pertinent part for this case, that allowable deductions to a debtor's CMI "on account of secured debts shall be calculated as ... (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...." 11 U.S.C. § 707(b)(2)(A)(iii). The U.S. Trustee argues that payments on account of debt secured by collateral the Debtors intend to surrender cannot appropriately be deducted from the Debtors' CMI because the debt will not be contractually due "in each month of the 60 months" following the petition date. Debtors, having deducted these payments on the Official Form B22A, disagree.

Thus, the initial dispute in this case is what is the meaning of "amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the petition." In interpreting the meaning of a statute, one starts with the language of the statute itself. Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730, 739, 109 S.Ct. 2166, 104 L.Ed.2d 811 (1989); In re Yates Development, Inc., 256 F.3d 1285, 1288 (11th Cir. 2001). If the statute is unambiguous, there is no reason to look further. Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 64 L.Ed.2d 766 (1980); US v. Mount Sinai Med. Ctr. of Flo., Inc., 486 F.3d 1248, 1251 (11th Cir.2007).

The meaning of section 707(b)(2)(A)(iii)(I), and the allowability of deductions on account of assets surrendered post-petition, has been debated by courts since BAPCPA became effective in October 2005. There are two diametrically opposed interpretations of this "unambiguous statute" — one group of cases interprets the statute as requiring that all payments should be deducted, whether or not the debtor actually intends to make the payments; the other group of cases interprets the statute such that these payments may not be deducted.

The first line of cases holds that, based on the "unambiguous" language of the statute, it is clear Congress designed the means test to create a "snaps...