In re Rowell

• Decision Date: 03 September 2015
• Docket Number: Case No. 14–25460–svk
• Citation: 536 B.R. 245
• Parties: In re Thomas R. Rowell and Natasha Rowell, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Wisconsin

536 B.R. 245

In re Thomas R. Rowell and Natasha Rowell, Debtors.

Case No. 14–25460–svk

United States Bankruptcy Court, E.D. Wisconsin.

Signed September 3, 2015

Joel Bruce Winnig, Joel Bruce Winnig S.C., Madison, WI, for Debtors.

Larry H. Liebzeit, Appleton, WI, Trustee.

Michelle S.Y. Cramer, U.S. Trustee, Milwaukee, WI, for U.S. Trustee.

MEMORANDUM DECISION

Susan V. Kelly, Chief U.S. Bankruptcy Judge

Bankruptcy Code § 707(b)(2)(D) exempts certain veterans from undergoing “any form of means testing” when attempting to qualify for Chapter 7 relief. The wealthy debtors in this case argue that they qualify for a Chapter 7 discharge under this exemption. Thomas and Natasha Rowell (the “Debtors”) filed a Chapter 7 petition on April 30, 2014. Thomas is a psychiatrist and a reservist in the United States Army who was called to active duty on July 31, 2012, and released from active duty in November 2012. The Debtors filed their bankruptcy petition during the 540–day period following his release from active duty.

On September 15, 2014, the U.S. Trustee filed a motion to dismiss the Debtors' case under Bankruptcy Code § 707(b). (ECF No. 27.) The U.S. Trustee argued that the means test applied to the Debtors' case, and that even if it did not, that their case should be dismissed as an abuse under the totality of the circumstances. The Debtors disputed both claims. With the agreement of the parties, the Court bifurcated the issues. In a Decision issued on January 8, 2015, the Court determined that because the 540–day period after Thomas' release from active duty had not expired when the Debtors filed their petition, the means test did not apply. (ECF No. 38.)

The parties then stipulated to the facts relevant to the U.S. Trustee's “totality of the circumstances” argument. (ECF No. 45, hereinafter, “Stip.”). This Memorandum Decision constitutes the Court's findings of fact and conclusions of law on that issue.

I. Statement of Facts

The Debtors are both highly educated. Thomas is a licensed psychiatrist, and Natasha has a master's degree in education and psychology. (Stip. ¶¶ 14, 21.) After almost ten years of marriage and the birth of one child, the Debtors filed for divorce in 2011. (Stip. ¶¶ 9, 10.) The divorce was granted on May 23, 2014 and finalized in December 2014. (Stip. ¶¶ 9, 59.)

Prior to the petition, Thomas lived and practiced psychiatry in Virginia. (Stip. ¶¶ 22, 23, 25.) He had an independent private practice and operated a separate practice as part of an employment agreement with Danville Regional Medical Center (“Danville”). (Stip. ¶¶ 23, 25.) In 2009, while running both practices, Thomas received orders to deploy to Kosovo for 90 days. (Stip. ¶ 30.) While deployed, his practice suffered. (Stip. ¶ 32.) When he returned from his deployment, Thomas could not find a way to maintain the Danville practice in the event he was deployed again, and Thomas severed his employment contract with Danville. (Stip. ¶ 35.) Thomas and Danville then entered into arbitration over the breached employment contract, resulting in an award of $182,464 plus interest in Danville's favor. (Stip. ¶ 37.) Thomas was deployed again on July 31, 2012 and released from active duty on November 24, 2012. (Stip. ¶ 38.) The Debtors filed their Chapter 7 bankruptcy petition on April 30, 2014. (ECF No. 1.)

At the time of filing, the Debtors listed $467,717 of secured debt on Schedule D. (Stip. ¶ 40.) The debt includes three mortgages on their former home in Virginia totaling approximately $273,000 and secured liens of approximately $69,000 and $37,000 on two vacant lots. (Id. ) The Debtors' unsecured debt on Schedule F totals $520,415. (Stip. ¶ 42.) It consists of $223,933 in student loan debt, $200,000 for the Danville arbitration award, $71,482 in credit card debt, loans and cable/phone charges, and $25,000 for a medical software lease. (Id. ) The Debtors' exempt retirement assets total $100,614, and they have no non-exempt assets. (Stip. ¶¶ 43, 44.)

Both of the Debtors are gainfully employed. (Stip. ¶¶ 46–48.) In 2012 the Debtors earned $443,332 of combined income, and in 2013 they earned $557,400 of combined income. (Stip. ¶ 51.) Their annual gross income as of the date of the petition was $591,867. (Stip. ¶¶ 49, 50.) Because they maintain separate households, they filed two expense schedules. (Stip. ¶ 52.) Thomas claimed $12,098 of monthly expenses for a household of two,¹ including: rent of $2,200; home maintenance of $300; food and housekeeping supplies of $800; clothing, laundry and dry cleaning of $300; personal care products and services of $200; entertainment expenses of $1,000; two vehicle payments totaling $1,250; back tax payments of $800; and divorce attorney fees of $3,000. (Stip. ¶ 53.)

Natasha's expenses for a household of two total $13,901 a month, including: rent of $1,050; food and housekeeping supplies of $1,000; childcare and education costs of $1,500; clothing, laundry and dry cleaning costs of $750; entertainment costs of $1,430, including a monthly stay at a waterpark and the cost of trips to South Africa; back tax payments of $200; a vehicle payment of $640; student loan payments of $1,497; mortgage payments totaling $1,152 for properties in Virginia; pet and hobby costs of $300; incidental costs of $500; and divorce attorney fees of $2,500. (Stip. ¶¶ 54, 57.)

The Debtors concede that they have the ability to pay a significant amount to their creditors in future monthly payments. (Stip. ¶ 60.) After deducting the expenses for the two households, the Debtors report a $3,732 surplus per month. (Stip. ¶ 55.) In addition to the surplus, the Debtors no longer incur two major expenses listed on the schedules. Natasha no longer pays $1,152 in mortgage payments on the vacant lots since the bank foreclosed on the properties. (Stip. ¶ 56.) Second, the Debtors no longer spend a combined $5,500 in monthly divorce attorneys' fees, as the divorce was finalized in 2014. (Stip. ¶ 59.)

II. Analysis

A court can dismiss a Chapter 7 case under § 707(b)(3) if the totality of a debtor's financial circumstances demonstrates abuse. 11 U.S.C. § 707(b)(3)(B). The Debtors argue that since they are exempt from “any form of means testing” under The National Guard and Reservist Debt Relief Act of 2008, Pub. L. No. 110–438, 122 Stat. 5000 (2008) (the “Act”), this Court cannot consider their ability to pay their debts as part of the totality of the circumstances analysis. Alternatively, the Debtors argue their case is not an abusive under the totality of the circumstances because the U.S. Trustee has not demonstrated “any facts that would show the [Debtors'] filing was an abuse of the bankruptcy system, other than the ability to pay.” (ECF No. 62 at 12.) The U.S. Trustee disagrees and contends that the Act does not prohibit the Court from considering the Debtors' ability to pay under § 707(b)(3) and that the totality of the Debtors' financial circumstances demonstrates abuse.²

A. “Any form of means testing” is a reference to the means test in § 707(b)(2).

The Act, codified in Bankruptcy Code § 707(b)(2)(D), states that for certain veterans: “Subparagraphs (A) through (C) shall not apply, and the court may not dismiss or convert a case based on any form of means testing.” 11 U.S.C. § 707(b)(2)(D)(i). Subparagraphs (A) through (C) contain the presumption of abuse calculations added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), commonly known as the “means test.” By referring to the means test and “any form of means testing” does the Statute preclude consideration of an ability to pay under the totality of circumstances test of § 707(b)(3) ?

As this Court noted in its prior Decision in this case, “To resolve a dispute over the meaning of a statute, the court begins with the language of the statute itself. United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). Where the language is plain, the court should enforce it according to its terms. Id. However, where that meaning is ambiguous or leads to a senseless result, the Court should examine the text with the goal of uncovering the legislative purpose behind the words. Lamie v. United States Tr., 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004). Whether a statute is ambiguous should be determined by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole. Robinson v. Shell Oil Co., 519 U.S. 337, 341, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997). The language of a statute is ambiguous if it is susceptible to more than one reasonable interpretation or more than one accepted meaning. Carrieri v. Jobs.com Inc., 393 F.3d 508, 519 (5th Cir.2004).

Here, the statute says that certain veterans are not subject to the calculations of § 707(b)(2)(A) through (C), and the court may not dismiss a case “based on any form of means testing.” “Any form of means testing” is not defined in the Bankruptcy Code, but the word “any” suggests that more than the means test itself should be included in the sweep of the statute. One definition of “any” is “every”. See http://www.merriam-webster.com/dictionary. Under this interpretation, certain veterans are exempt from every form of means testing, whether or not codified in § 707(b)(2). On the other hand, “means test” is a term of art under BAPCPA, and “any form of means testing” could simply be referring back to the cited provisions of the statute. See In re Green, supra. Both of these interpretations are reasonable, and the Court concludes that “any form of means testing” in § 707(b)(2)(D) is ambiguous.

“When a statute is ambiguous, the court may seek guidance in the statutory structure, relevant legislative history, congressional purposes expressed in the pertinent act, and general principles of law applicable to the circumstances of the statute to determine the appropriate interpretation.” In re Knudsen, 389 B.R. 643, 653 (N.D.Iowa 2008) ...