In re Randle, 06 B 05929.

• Citation: 358 B.R. 360
• Decision Date: 19 December 2006
• Docket Number: No. 06 B 05929.,06 B 05929.
• Parties: In Re: Ernestine RANDLE, Debtor.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

358 B.R. 360

In Re: Ernestine RANDLE, Debtor.

No. 06 B 05929.

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

December 19, 2006.

Melvin J. Kaplan, Melvin J. Kaplan and Associates, Chicago, IL, for Debtor.

MEMORANDUM OPINION

CAROL A. DOYLE, Bankruptcy. Judge.

The United States Trustee for the Northern District of Illinois (the "Trustee") has moved to dismiss this case under 11 U.S.C. § 707(b)(1) as an abuse of the provisions of Chapter 7 of the Bankruptcy Code. The Trustee asserts that the debtor, Ernestine Randle, has income as calculated under § 707(b)(2) (the "means test") high enough to create a presumption of abuse. Ms. Randle counters that her monthly disposable income falls below the thresholds set forth in § 707(b)(2). At issue is whether a debtor may deduct from her current monthly income the installment payments due on secured debt when she intends to surrender the collateral after filing the case. The court concludes that Ms. Randle is entitled under § 707(b)(2)(A)(iii) to deduct her current mortgage payments in determining her monthly disposable income under the means test. The Trustee's motion is therefore denied.

I. The Means Test

Section 707(b)(2) of Bankruptcy Code, as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), contains a mechanism called "the means test" for measuring a debtor's presumed ability to repay her debts in the 60 months following the bankruptcy filing. Under the means test, if the debtor's "current monthly income"¹ less specified allowable expenses would permit the debtor to pay over the course of 60 months either (1) $10,000, or (2) 25 percent. of her non-priority unsecured debt or $6,000 (whichever is greater), then her case is presumed to be an abuse of Chapter 7. 11 U.S.C. § 707(b)(2)(A)(i). The means test was designed to determine whether the debtor could pay a significant amount to creditors in a Chapter 13 case. The 60-month period in this provision corresponds to the maximum term of a case under Chapter 13 of the Bankruptcy Code, and other provisions of § 707(b)(1) allow a debtor to deduct expenses that would be incurred in a Chapter 13 case from her current monthly income.

Section 707(b)(2)(A)(i) provides that the court shall presume abuse if "the debtor's current monthly income reduced by the amounts determined under clauses (ii), (iii) and (iv), and multiplied by 60 is not less than the lesser of the threshold amounts set forth above. Section 707(b)(2)(A)(iii) provides that the amount of secured debt to be deducted from current monthly income "shall be calculated" as "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. . . ."² The issue in this case is whether the debtor may deduct the amount owed on secured debt if she intends to surrender the collateral after filing her bankruptcy petition.

II. Factual Background

Ms. Randle filed her Chapter 7 petition and all of the schedules and other documents required by the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure, including her Form B22A calculation under the means test and her Statement of Intention regarding secured debt. Line 42 of Form B22A tracks the statutory language of § 707(b)(2)(A)(iii). It requires the debtor to identify each secured debt and state the average monthly payment on the debt, which is defined as "the total of all amounts contractually due to, each Secured Creditor in the 60 months following the filing of the bankruptcy case," divided by 60. Ms. Randle listed exactly what the form requested—her mortgage payment and her car payment based on the amounts due under her contracts with respect to those secured claims. She also filed a Statement of Intention in which she stated that she intended to surrender her home rather than reaffirm or redeem that debt. After deducting all allowed expenses, her form B22A shows that Ms. Randle has negative monthly disposable income for purposes of the means test.

The Trustee filed a Statement of Presumed Abuse alleging that Ms. Randle's current monthly income less the allowed deductions (her "disposable income"), when multiplied by 60, yields an amount greater than the $10,000 threshold set forth in § 707(b)(2)(A)(i). Instead of using her actual mortgage payment for her housing expense, the Trustee used the standard housing deduction of $980 per month (based on the housing deduction in the IRS Local Standards for a debtor in Ms. Randle's position), and calculated that Ms. Randle has $786 in monthly disposable income. Multiplying this amount by 60 equals $46,138.20, which far exceeds the $10,000 threshold of § 707(b)(2)(A)(i). The Trustee asserts that the debtor should not be allowed to use her actual mortgage payment in this calculation because she intends to surrender the property and the stay has already been lifted with respect to the property. Therefore, the court must determine whether § 707(b)(2)(A)(iii) permits a debtor to deduct her actual mortgage payment from her current monthly income when she intends to surrender her home to the mortgage company.

III. Section 707(b)(2)(A)(iii)

When interpreting any statute, "we [must] begin with the language of the statute itself." In re T.H. Orlando, Ltd., 391 F.3d 1287, 1291 (11th Cir.2004); see also Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 64 L.Ed.2d 766 (1980) ("[T]he starting point for interpreting a statute is the language of the statute itself."). Here, the plain language of § 707(b)(2)(A)(iii) says that the debtor "shall" deduct the amounts "scheduled as contractually due in each month of the 60 months following the date of the petition." It does not say that the debtor can deduct this amount only if she intends to keep the collateral post-petition. It does not say that the debtor can deduct this amount only if she intends to continue making the payments due post-petition. And it does not refer to the debtor's Statement of Intention with respect to the collateral. The provision requires the court to consider only the amounts due under the contract itself.

A. Congressional Intent

The Trustee apparently recognizes this, because his primary argument is that the court must look to general Congressional intent with respect to BAPCPA and § 707(b) as a whole in interpreting § 707(b)(2)(A)(iii). He contends that the purpose of BAPCPA and § 707(b) was to force debtors who could afford to pay their creditors out of Chapter 7. He therefore urges the court to interpret § 707(b)(2)(A)(iii) to permit deduction of secured debt payments only if the debtor intends to keep the collateral so that the means test more accurately reflects the debtor's post-petition ability to pay her creditors. Thus, the Trustee asks the court to ignore the actual words used by Congress to achieve a result that is more consistent with his view of overall Congressional intent.

The Trustee's argument is not persuasive for several reasons. First, it ignores the cardinal rule of statutory interpretation— that the court must first look to the language of the statute to determine Congressional intent. U.S. v. Ron Pair Enters., Inc., 489 U.S. 235, 242, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) ("The plain meaning of legislation should be conclusive, except in the rare cases in which the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.") (citations omitted). The plain language of § 707(b)(2)(A)(iii) requires the debtor to deduct the "amount due under her contracts for secured debt regardless of whether she intends to redeem, reaffirm or surrender the property. If Congress had intended otherwise, it could easily have said so, excluding secured debt when the debtor has stated an intention to surrender the collateral. Or Congress could have specified that only payments the debtor actually intended to make post-petition should be deducted from income. But Congress did neither. Congress' choice of language shows a clear intent not to impose any such limit on debtors.

Second, even if Congressional intent is considered, the legislative history of the means test supports the court's interpretation of § 707(b)(2)(A)(i). To the extent it is discernable, Congress' intent in enacting the Means Test was to create a "mechanical" formula for presuming abuse of Chapter 7. See Report of the Committee on the Judiciary, House of Representatives, to Accompany S. 256, H.R.Rep. No. 109-31, Pt. 1, p. 553, 109th Cong., 1st Sess. (2005) Millie formula remains inflexible and divorced from the debtor's actual circumstances.") (dissenting views); see also In re Barr, 341 B.R. 181, 185 (Bankr. M.D.N.C.2006) ("[I]t appears that Congress intended to adopt a specific test to be rigidly applied rather than a standard to be applied according to the facts and circumstances of the case."); In re Farrar-Johnson, No. 06 B 3089, 2006 WL 2662709, *5 (Bankr.N.D.Ill. Sept.15, 2006) ("Eliminating flexibility was the point": the obligations of chapter 13 debtors would be subject to "clear, defined standards," no longer left "to the whim of a judicial proceeding."); see generally Susan Jensen, A Legislative History of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 Am. Bankr.L.J. 485 (2005).

Congress' intent to use a standardized or mechanical test and avoid reliance on individualized information as much as possible is demonstrated throughout § 707(b)(2). For example, the majority of expenses that can be deducted from current monthly income under § 707(b)(2)(A) are based on national or local standards issued by the Internal Revenue Service, not the debtor's actual or expected expenses. National IRS standards apply to expenses related to food, housekeeping supplies, apparel, personal care and miscellaneous expenses. See Eugene R. Wedoff, Means Testing In the New § 707(b), 79 Am. Bankr.L.J....