In re Plichta

• Decision Date: 05 September 2018
• Docket Number: Bankruptcy No. 17-82147
• Citation: 589 B.R. 794
• Parties: IN RE Robert A. PLICHTA and Donna M. Plichta, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

589 B.R. 794

IN RE Robert A. PLICHTA and Donna M. Plichta, Debtors.

Bankruptcy No. 17-82147

United States Bankruptcy Court, N.D. Illinois, Western Division.

Signed September 5, 2018

James T. Magee, Magee Hartman, PC, Round Lake, IL, for Debtor.

Bernard J Natale, Bernard J. Natale, Ltd., Rockford, IL, pro se.

MEMORANDUM OPINION

Thomas M. Lynch, United States Bankruptcy Judge

Consumers Credit Union ("Credit Union") seeks to dismiss the Debtors' joint Chapter 7 case for abuse under 11 U.S.C. § 707(b).¹ (ECF No. 18.) The Credit Union first argues that the Debtors did not satisfy the means test prescribed by Section 707(b)(2), contending that they may not treat Credit Union's judgment debt as a secured debt and challenging certain deductions made in their calculations. It further argues that the totality of the circumstances reveals the Debtors' financial situation to be well above the median income of those similarly situated, amounting to abuse under Section 707(b)(3). For the reasons discussed below, the court finds that neither the means test nor the totality of the circumstances gives rise to a presumption of abuse in this case. Accordingly, the Motion will be denied.

JURISDICTION AND PROCEDURE

The court has jurisdiction to decide this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. The adjudication of a motion to dismiss a Chapter 7 case under Section 707(b) is a core proceeding under 28 U.S.C. § 157(b)(2)(O) which this court may hear and determine. In re Smith, 2016 WL 7441605 (Bankr. N.D. Ill. Dec. 27, 2016). The parties expressly consented on the record to the court's authority to enter a final determination of this matter. (Tr. Mar. 19, 2018.)

PROCEDURAL BACKGROUND AND FINDINGS OF FACT²

Robert A. Plichta and Donna M. Plichta commenced this Chapter 7 case on September 23, 2017. This is their third bankruptcy; the couple's last case, filed under Chapter 7 in late 2009, was dismissed on October 4, 2010.³ Following the meeting of creditors held on November 11, 2017, the Chapter 7 Trustee reported his determination as to the existence of assets or likelihood assets may reasonably be recovered for administration. (ECF. No. 15.) The Trustee and the Debtors later reached a settlement whereby the estate would not pursue the Debtors for the alleged non-exempt value of certain household goods, furnishings and personal property in return for which the Plichtas would turn over $23,028 representing the proceeds from the sale of stock for which the Debtors claimed an exemption. This court approved the proposed compromise and on June 1, 2018, the Trustee filed his final account and certification that the estate has been fully administered.⁴ (ECF No. 70.)

Credit Union filed the Motion on November 22, 2017, less than three weeks after the initial meeting of creditors. See Fed. R. Bankr. P. 1017(e)(1). The court held a one-day trial on the Motion at which only Debtor Donna Plichta was called to testify. Copies of the Debtors' petition and schedules filed in this case and a group exhibit consisting of photographs of the Plichtas' residence were the only exhibits offered at trial. The parties also filed a joint statement of stipulated facts on April 25, 2018. (ECF No. 58.) The court also takes judicial notice of the court's docket in the case and filings therein. See, e.g. , Lulay Law Offices v. Rafter, 579 B.R. 827, 829 n.1 (N.D. Ill. 2017) (taking "judicial notice of matters of public record, such as filings in the bankruptcy court, even where not specifically referenced by the parties") (citing United States v. Wood, 925 F.2d 1580, 1582 (7th Cir. 1991) ).

Stipulations and Uncontested Facts. There is no dispute regarding most of the relevant facts. The Plichtas reside in Barrington Hills, Illinois, at 750 Plum Tree Road. The individual Debtors acknowledge "that their obligations are primarily consumer debts." 11 U.S.C. § 707(b)(1). Credit Union holds the Debtors' Note in the amount of $210,000, dated January 18, 2008, which is secured by their mortgage on the Barrington Hills property. The Note provides that the Debtors will repay Credit Union in monthly installments of $490.37, beginning January 2009. However, in March 2013 the Debtors defaulted on the note. They never cured the default and have not made a payment on the Note since then. On November 10, 2016, the Circuit Court for the 22^nd Judicial Circuit (McHenry County, Illinois) granted the Credit Union summary judgment on the note, awarding it $240,893.02, plus costs.

The Debtors are represented by counsel in this bankruptcy case. It is not disputed that the Plichtas caused the requisite certificates, statements, forms and schedules to be filed with their Chapter 7 petition on September 13, 2017. With these documents the Debtors filed their declaration, signed by both under penalty of perjury, that affirms that they had reviewed their schedules and "that they are true and correct."

The Debtors' bankruptcy schedules disclose total debt secured by property of $1,589,989 and total non-priority unsecured indebtedness of $29,719. Their Schedule D further indicates that based on the value of collateral the unsecured portion of their otherwise secured debt is $989,989. The Debtors' residence is collateral for the secured debt. Shellpoint Mortgage Servicing holds the first mortgage on the property for $1,349,096. The Credit Union holds the second mortgage for $240,893. The parties do not dispute the Debtors' valuation of $600,000 for the Barrington Hills residence⁵ nor the lack of equity in the property. In their filings the Debtors stated their intention to keep the Barrington Hills property. They intend to stay current on their mortgage payments to the senior secured lender, but do not intend on making further installment payments on the note held by the Credit Union. (Form 108 Statement of Intention, ECF No. 1.)⁶

The Debtors' Form 122A-1 Statement of Current Monthly Income lists their total monthly income to be $10,416.00. Mr. Plichta's gross wages, salary, tips, bonuses, overtime, and commissions is identified to be the primary source of their income. (ECF No. 7.) It discloses that their household consists of three people and that their annual income, $124,992.00, exceeds the median family income for a family of three in Illinois ($76,406.00). (Id. ) The accompanying Form 122A-2 Means Test Calculation claims deductions based on IRS standards of $1,378.00 for food, clothing and other items, $147.00 for out-of-pocket health care allowances, $572.00 for housing / utilities / insurance / operating expenses and $682.00 for vehicle operation expenses. (ECF No. 8.) Their Statement also lists mortgage or rent expense of $1,906.00 which they did not factor into the means test analysis which claimed instead estimated average monthly payments which they calculated for the secured indebtedness to Shellpoint Mortgage Servicing ($3,472.00) and Consumers Credit Union ($4,015.00). (Id. ) They also claimed deductions of $2,600.00 for taxes, $1,153.00 for additional health care expenses, $90.00 for optional telephone services, $312.00 for health insurance and $30.00 for charitable contributions. From these figures the Debtors derived their monthly disposable income to be negative $4,035.00 for purposes of the means test, which figure is based on $10,416.00 current monthly income and $14,451.00 in total deductions. (Id. ) The Debtors now admit that this calculation is incorrect because they erroneously used the IRS Local Standards for Lake County, Illinois, rather than McHenry County. (Stipulation, ECF No. 58.)

The Debtors' Schedule I lists Mr. Plichta's monthly income to be $10,416.00 subject to payroll deductions totaling $3,562.00. Adding to this Ms. Plichta's Social Security income of $1,034, the schedule estimates their total monthly income to be $7,888.00. Their Schedule J estimates total monthly household expenses of $9,152.44, which amount includes $3,472.44 for home ownership expenses, $200.00 for home maintenance, repair and upkeep, $800 for utilities and $600 attributed to their service dogs.

Ms. Plichta testified at trial. Her testimony began with a review of Schedules I and J which confirmed her spouse's income. She testified that she does not know how much they have in retirement savings. Turning to schedule J, she testified that their 32-year-old daughter "lost her job" and has lived with her parents since shortly before this case commenced, around August 30 - September 1, 2017. The witness explained that her daughter suffers from a worsening debilitating medical condition, "very serious health issues" as Ms. Plichta put it. Remaining unemployed, the daughter does not "contribute anything" to support the household and depends on her parents for her support. Ms. Plichta further testified that due to her own medical condition she has two certified service dogs as prescribed by her doctor. Her testimony that that the $600 expense for the service animals in the schedules accurately reflects their expense was not controverted. She further testified that both animals have assisted her for more than ten years.

Ms. Plichta then proceeded to summarize the Debtors' financial circumstances. She and her husband purchased their residence in 2003, describing the purchase as the couple's last major voluntary expense or luxury item. She testified that since then they have spent approximately $60,000 on needed modifications and improvements to the house. Ms. Plichta further testified that she suffers from an autoimmune disorder

and that over the years her condition has necessitated the customization of their house, including the installation of a "specified humidification system" to assist her breathing. She described the couple's car as "old" and testified that they took their last vacation more than fifteen years ago. Ms. Plichta testified that the last major household items they purchased were a...