In re Ralston

• Decision Date: 10 February 2009
• Docket Number: No. 8:07-bk-09727-MGW.,8:07-bk-09727-MGW.
• Citation: 400 B.R. 854
• Parties: In re Misty D. RALSTON and Kevin C. Ralston, Debtors.
• Court: U.S. Bankruptcy Court — Middle District of Florida

400 B.R. 854

In re Misty D. RALSTON and Kevin C. Ralston, Debtors.

No. 8:07-bk-09727-MGW.

United States Bankruptcy Court, Tampa Division. M.D. Florida.

February 10, 2009.

COPYRIGHT MATERIAL OMITTED

Melanie Archer Newby, Jodat Law Group P.A., Bradenton, FL, for Debtors.

MEMORANDUM OPINION AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

MICHAEL G. WILLIAMSON, Bankruptcy Judge.

The Bankruptcy Abuse and Consumer Protection Act of 2005 ("BAPCPA") added 11 U.S.C. § 707(b)(1)-(2) (2008) ("the Means Test") to Chapter 7 of the Bankruptcy Code.¹ The Means Test is a formula for determining the amount of disposable income a Chapter 7 debtor could hypothetically contribute to a Chapter 13 plan. If the amount rises above a certain threshold, a presumption of abuse arises and the case must be dismissed or converted to Chapter 13. The Means Test is only applied to debtors whose income is above their state's median income for a family of the same size and whose debts are primarily consumer debts. The Means Test applies to the Debtors in this case, who "pass" the test under their own calculation. The United States Trustee has moved to dismiss the case, arguing that two of the expense deductions taken by the Debtors in this case are not permissible. If those two deductions are disallowed, the Debtors "fail" the Means Test and the case must be dismissed or converted to a case under Chapter 13.

Under the Means Test, a debtor is allowed to deduct payments "scheduled as contractually due" on account of secured debts. § 707(b)(2)(A)(iii) ("Secured Debt Deduction"). A question that has often arisen as courts attempt to interpret the Means Test, which has also arisen in this case, is whether such payments may be deducted in a Means Test calculation where, as here, the Debtors intend to surrender the collateral. A debtor is also allowed to deduct a monthly vehicle "Ownership Costs" amount pursuant to the Internal Revenue Service ("IRS") Local Standards. § 707(b)(2)(A)(ii)(I) ("Ownership Costs Deduction"). The second question that has arisen in this case is whether these Debtors may deduct Ownership Costs where there is no monthly lease or loan payment on account of the vehicle. For the reasons stated herein, the Court concludes that these Debtors may include both the Secured Debt Deduction and the Ownership Costs Deduction in their Means Test calculation.

I. Factual Background

The pertinent facts in this case are relatively straightforward. At the time of filing, the Debtors owned a home that was encumbered by a mortgage obligating them to make monthly payments of $2,235.31 and a 1987 pickup truck with 117,000 miles, which was owned free and clear of any debt. The Debtors' Statement of Intention indicates that they intend to surrender their home. (Chapter 7 Individual Debtor's Statement of Intention, Doc. No. 1.) The Debtors' annualized current monthly income is above the median income for a family of four in the state of Florida, so they were required to fill out the entirety of Official Form 22A, the Means Test form (Chapter 7 Statement of Current Monthly Income and Means-Test Calculation, Doc. No. 1) ("Form 22A"). On Form 22A, the Debtors included in their Secured Debt Deduction the $2,235.31 monthly mortgage payments on their home and included an Ownership Costs Deduction of $332.00 for their 1987 pickup, which is owned free and clear. As a result of taking these deductions, the Debtors calculated their monthly disposable income as a negative $819.39. The U.S. Trustee filed a motion to dismiss pursuant to § 707(b)(2), or, alternatively, § 707(b)(3) (Doc. No. 17) ("Motion to Dismiss"). The U.S. Trustee argues that these two deductions are improper.

If the Debtors were not allowed to deduct their monthly mortgage payments on the home that they intended to surrender, but instead were allowed to deduct only the IRS Local Standards amount for housing and utilities, which is $906.00, their deductions would be reduced by $1,329.31. If they were not allowed the Ownership Costs Deduction for their 1987 pickup truck, which is unencumbered, their deductions would be further reduced by $332.00. As a result of disallowing these two deductions, the Debtors' monthly disposable income, instead of being a negative $819.39 would be a positive $841.92. Multiplied by 60, this would amount to $50,515.20 that they could pay to their unsecured creditors.² With that amount of disposable income, these Debtors would "fail" the Means Test, and the presumption of abuse would arise.

If this Court finds that the Debtors may take these deductions, resulting in the Debtors passing the Means Test, the U.S. Trustee alternatively argues that their case should be dismissed as abusive pursuant to § 707(b)(3), under a totality of the circumstances analysis, arguing that the totality of the Debtors' financial situation demonstrates abuse. The Debtors and the U.S. Trustee have filed cross-motions for summary judgment (Doc. No. 26; Doc. No. 27) on the Motion to Dismiss.

II. Legal Analysis

This Court has jurisdiction under 28 U.S.C. § 1334. This is a core proceeding under 28 U.S.C. § 157(2)(A) and (O).

A. Summary Judgment Standard

Federal Rules of Bankruptcy Procedure 7056 and 9014 make Federal Rule of Civil Procedure 56, which provides for summary judgment, applicable to adversary proceedings and contested matters within the context of a bankruptcy case. The contested matter before the Court is the U.S. Trustee's Motion to Dismiss. The parties have filed cross-motions for summary judgment on the Motion to Dismiss. It is appropriate for a court to grant summary judgment where "there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Johnson v. Board of Regents of the Univ. of Ga., 263 F.3d 1234, 1242 (11th Cir.2001). For purposes of granting a motion for summary judgment, all evidence and all actual inferences must be viewed "in the light most favorable to the party opposing the motion." Johnson, 263 F.3d at 1243.

In this case, there is no genuine disagreement between the parties as to the material facts that underlie the dispute as to whether the Debtors "fail" or "pass" the Means Test. Their dispute relates to the application of BAPCPA to the undisputed facts of this case. Therefore, summary judgment is appropriate as to the question of whether the Debtors in this case pass or fail the Means Test. However, as the parties represented prior to the hearing on summary judgment, there is substantial disagreement as to the facts that might or might not support dismissal with respect to the U.S. Trustee's alternative argument under § 707(b)(3). Where the record exhibits such factual disagreements, summary judgment must be denied and the matter be set for trial. Clemons v. Dougherty County, Ga., 684 F.2d 1365, 1369 (11th Cir.1982). Therefore, the Court will only address the Means Test issues. Because the Court decides these issues in the Debtors' favor, it will be necessary to set for final evidentiary hearing the question of whether the case should be dismissed pursuant to § 707(b)(3).

B. The Means Test

Under the Means Test, a debtor's monthly disposable income is calculated by taking the debtor's current monthly income, as defined in § 101(10A) ("CMI"), and subtracting the allowable monthly expenses delineated in § 707(b)(2), consisting of the following five categories: 1) applicable monthly expense amounts specified under the IRS National Standards and Local Standards, 2) actual monthly expenses for the categories listed in the IRS Other Necessary Expenses, 3) various specified actual expenses (e.g., costs to maintain the safety of the family from domestic violence; for care of an elderly, chronically ill, or disabled family member; educational expenses for dependent children; increased home energy costs), 4) monthly payments contractually due on secured debts, and 5) monthly payments on priority claims. 11 U.S.C. § 707(b)(2)(A)(ii)-(iv). If, after subtracting the allowable monthly expenses from the debtor's CMI, the amount of monthly disposable income, multiplied by 60, is greater than $10,950, then the debtor "fails" the Means Test. If the amount is less than $6,575, then the debtor "passes" the Means Test. If the amount is between $6,575 and $10,950,³ the debtor only fails the Means Test if the amount is greater than 25% of the debtor's non-priority unsecured claims. If the debtor fails the Means Test, absent a showing of special circumstances, which have not been alleged in this case, the court "shall presume abuse exists" and the case must be either dismissed or converted to a case under Chapter 13.

C. Scheduled as Contractually Due

The Means Test has been the fodder for an inordinate number of written opinions over the course of the last three years. The first question in this case, whether secured debt payments may be deducted where the collateral will be surrendered, is itself responsible for a large number of the Means Test opinions. While a majority position is gradually emerging, to date, none of the courts of appeals have weighed in on this issue. The two bankruptcy appellate panels that have decided the issue have followed the emerging majority, holding that payments on account of secured debt may be deducted regardless of an intent to surrender the property. In re Rudler, 388 B.R. 433 (1st Cir. BAP 2008) (Chapter 7 case); In re Thomas, 395 B.R. 914 (6th Cir. BAP 2008) (holding that the means test applies in the same mechanical manner in a Chapter 13 case).

Two courts in the Middle District of Florida have addressed the question of whether the Secured Debt Deduction is allowed under the Means Test where the collateral will be surrendered, but only in the context of applying the Means Test deductions in a Chapter 13 case. First, Judge Paskay, in In re Vernon, 385 B.R. 342 (Bankr.M.D.Fla.2008), held that the debtors cannot deduct the monthly secured debt payments on...