In re Powers, CASE NO.: 14–40433–KKS
| Decision Date | 01 May 2015 |
| Docket Number | CASE NO.: 14–40433–KKS |
| Citation | 534 B.R. 207 |
| Parties | In re: Andrea Cay Powers, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Florida |
William H. Crawford, Thompson, Crawford & Smiley, P.A., Tallahassee, FL, for Debtor.
AMENDED ORDER GRANTING UNITED STATES TRUSTEE'S MOTION TO DISMISS CHAPTER 7 CASE PURSUANT TO 11 U.S.C. SECTION 707(b)(1) BASED ON PRESUMPTION OF ABUSE ARISING UNDER 11 U.S.C. SECTION 707(b)(2) AND ABUSE ARISING UNDER 11 U.S.C. SECTION 707(b)(3) (DOC. 26), AND DISMISSING CASE UNLESS DEBTOR MOVES TO CONVERT TO CHAPTER 13 WITHIN FOURTEEN (14) DAYS1
THIS CASE is before the Court on the United States Trustee's Motion to Dismiss Chapter 7 Case Pursuant to 11 U.S.C. Section 707(b)(1) Based on Presumption of Abuse Arising Under 11 U.S.C. Section 707(b)(2) and Abuse Arising Under 11 U.S.C. Section 707(b)(3) (). The Debtor, Andrea Cay Powers, filed a response to the Motion to Dismiss on October 15, 2014 (Doc. 32). Both parties submitted memoranda of law after a hearing on the Motion (Docs. 43 and 45).
The Motion seeks dismissal of this Chapter 7 case on two separate bases, § 707(b)(2) and § 707(b)(3). To facilitate determination of this matter, the Court bifurcated the Motion and advised the parties that it would first consider dismissal pursuant to § 707(b)(2), and then consider dismissal pursuant to § 707(b)(3) only if necessary.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(1) and (b)(2)(A).
After thoroughly reviewing the pleadings and pertinent case law, and having considered argument of competent bankruptcy counsel, the Court finds that the Motion to Dismiss should be granted on the basis that the Debtor's Chapter 7 petition is presumptively abusive under 11 U.S.C. § 707(b)(2).
The material facts are not in dispute. The Debtor filed her Chapter 7 petition on July 31, 2014. She is a divorced mother of four whose gross monthly income is $19,733.2 The Debtor and her children are currently living in a rental home, having moved out of their former homestead pre-petition.3 The Debtor's total unsecured debt will exceed $480,000, if the estimated deficiency on her former homestead is included.4
The Debtor claimed a deduction of $4,359 per month for mortgage payments on her former homestead5 that she has not made since before July of 2013.6 The Debtor also claims a housing adjustment deduction to account for the rent she currently pays.7 The Debtor represented that she intends to surrender her former homestead.8 Under the “means test” calculation,9 once she reduced her child education expense deduction to $312.50, the Debtor's net disposable income as of the petition date became a negative $1,147.60, inclusive of the mortgage payments on the former homestead. If the Debtor's deduction for the mortgage payments on the former homestead is allowed, the Debtor “passes” the means test and qualifies for Chapter 7; if the Debtor's deduction for the mortgage payments on the former homestead is disallowed, she will have net disposable income of $3,211.40 per month, which over 60 months will total over $192,000.10 This would enable the Debtor to pay about 39–40% of her scheduled unsecured debt; more if all unsecured creditors do not file claims.
The Debtor's high income makes her an “above median” debtor under BAPCPA.11 That status, in turn, permits her to claim certain deductions in order to arrive at her adjusted monthly income for purposes of qualifying for Chapter 7 or Chapter 13 relief.12 The United States Trustee originally challenged three deductions taken by the Debtor: (1) $2,100 per month for child education expenses; (2) the monthly mortgage payment of $4,359 on the former homestead; and (3) $467 per month in excess of the allowable deduction for actual rent and a security system.13
The issues before the Court are: (1) whether the Debtor should be allowed to claim the deduction for the $4,359 mortgage payment that she is not paying, and was not paying on the petition date for property she has effectively abandoned, that is in foreclosure, and that she intends to surrender; and (2) whether this case is subject to dismissal based on a presumption of abuse arising under Section 707(b)(1).
Under 11 U.S.C. § 707(b)(2)(A)(ii), a debtor may deduct certain expenses from her current monthly income. As to one of the permitted expense deductions, Subsection 707(b)(2)(A)(iii) provides:
Two decisions by the Supreme Court in Chapter 13 cases lead this Court to conclude that the Debtor should not be permitted to deduct phantom secured debt payments in this Chapter 7 case. Hamilton v. Lanning16 and Ransom v. FIA Services, N.A.,17 dealt with income and expenses, respectively, under § 1325(b) of the Bankruptcy Code, which incorporates § 707 by reference.
In Lanning, the debtor received a one-time buyout from a former employer within 180 days before she filed her Chapter 13 petition.18 Because this buyout would have increased the debtor's current monthly income, as calculated under the “means test,” the debtor did not include it in her income calculations nor did she use it with which to calculate her plan payments. Rather, she based her $144 plan payments only on the income from her new job.19
The Chapter 13 trustee objected, arguing that the means test calculation of the debtor's “projected disposable income”20 should include the one-time buyout, and so her plan payments were too low.21 The bankruptcy court disagreed, and overruled the Trustee's objection.22 The Tenth Circuit B.A.P. and the Tenth Circuit both affirmed, finding that bankruptcy courts may look beyond the bankruptcy schedules and forms to the debtor's actual circumstances to determine the debtor's “projected disposable income.”23 The Supreme Court also affirmed, holding that a Chapter 13 debtor's projected disposable income calculation can account for changes in income or expenses that are known or virtually certain at the time of confirmation.24 In reaching this conclusion, the Court criticized use of a “mechanical” approach to the determination of a debtor's projected disposable income, noting that a calculation that relies solely on the formulae provided in § 707 could “deny creditors payments that the debtor could easily make.”25
In Ransom, the Supreme Court again interpreted the phrase “projected disposable income” contained in § 1325(b)(1)(B), this time in relation to expense deductions rather than income.26 Holding that a debtor that was not making loan or lease payments on a car could not take the car ownership deduction as an expense under the means test, the Court stated:
Before and after Lanning and Ransom, bankruptcy courts have disagreed about proper application of § 707(b)(2)(A)(iii) ; specifically, as to whether a Chapter 7 debtor may deduct secured loan payments he or she is not making, on collateral to be surrendered. At last count, since Lanning and Ransom eight bankruptcy courts have allowed such deductions,28 and six courts have not, but for different reasons.29 The courts that have denied Chapter 7 debtors the right to deduct payments on secured debts they are not actually making—so called “phantom payments”—have examined, as did the Supreme Court in Lanning and Ransom, the debtor's “actual circumstances.”30 Some courts have adopted the “forward-looking” approach, focusing on the debtor's post-petition intentions and obligations, while others use a “snapshot” approach, focusing instead on the debtor's financial and legal obligations as of the date of the bankruptcy petition.
The bankruptcy court in In re White adopted the “forward-looking approach” and denied the above-median debtor's $18,864.67 deduction for monthly payments on secured claims that he did not intend to pay and was not paying on the date of his petition.31 The court held that the § 707(b)(2)(A)(iii) deduction could only be claimed if the payments to secured creditors were to “actually be made.”32 The court disagreed with the “snapshot approach” because it found that courts that have adopted this approach generally apply the mathematical calculations in the means test in a vacuum, as opposed to courts that have adopted the...
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