In re Rudler

• Decision Date: 23 May 2008
• Docket Number: BAP No. 07-015.,Bankruptcy No. 06-10809-MWV.,BAP No. 07-019.,Bankruptcy No. 06-10982-MWV.
• Citation: 388 B.R. 433
• Parties: In re Glen H. RUDLER, Debtor. Phoebe Morse, United States Trustee, Appellant, v. Glen H. Rudler, Appellee. In re William J. Hagerty, Debtor. Phoebe Morse, United States Trustee, Appellant, v. William J. Hagerty, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, First Circuit

388 B.R. 433

In re Glen H. RUDLER, Debtor.

Phoebe Morse, United States Trustee, Appellant, v. Glen H. Rudler, Appellee.

In re William J. Hagerty, Debtor.

Phoebe Morse, United States Trustee, Appellant, v. William J. Hagerty, Appellee.

BAP No. 07-015.

BAP No. 07-019.

Bankruptcy No. 06-10982-MWV.

Bankruptcy No. 06-10809-MWV.

United States Bankruptcy Appellate Panel for the First Circuit.

May 23, 2008.

Ann Marie Dirsa, Esq., on brief for Appellant.

Scott W. LaPointe, Esq., on brief for Appellee, Glen H. Rudler.

Paul A. Petrillo, Esq., on brief for Appellee, William J. Hagerty.

Before LAMOUTTE, VOTOLATO and DE JESUS, United States Bankruptcy Appellate Panel Judges.

INTRODUCTION

VOTOLATO, Bankruptcy Judge.

The issue presented in this appeal is— when calculating "means test" eligibility, is it permissible to deduct payments due to secured creditors to whom the debtor intends to surrender the secured property? The United States Trustee (the "UST") disagrees with the conclusion of the United States Bankruptcy Court for the District of New Hampshire ("bankruptcy court") denying the UST's motions to dismiss the captioned cases for abuse under § 707(b)(1).¹ Before the bankruptcy court and on appeal, the UST asserts that payments due on collateral that the debtor intends to surrender must be included as part of the debtor's disposable monthly income.

JURISDICTION

Before addressing the merits of this dispute, the Panel must determine that it has jurisdiction, even if the issue is not raised by the litigants. See In re George E. Bumpus, Jr. Constr. Co., 226 B.R. 724 (1st Cir. BAP 1998). The Panel has jurisdiction to hear appeals from: (1) final judgments, orders and decrees; or (2) with leave of court, from certain interlocutory orders. 28 U.S.C. § 158(a); Fleet Data Processing Corp. v. Branch (In re Bank of New England Corp.), 218 B.R. 643, 645 (1st Cir. BAP 1998).

A decision is considered final if it "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment,'" id. at 646 (citations omitted), whereas an interlocutory order "only decides some intervening matter pertaining to the cause, and requires further steps to be taken in order to enable the court to adjudicate the cause on the merits." Id. (quoting In re American Colonial Broad. Corp., 758 F.2d 794, 801 (1st Cir.1985)).

Typically, while denials of motions to dismiss are not deemed final for appellate purposes, the Panel agrees with those courts holding that denial of a request for dismissal regarding the application of the means test should be treated as final appealable orders. See Randle v. Neary (In re Randle), 2007 WL 2668727 at *4 (N.D.Ill. Jul.20, 2007) ("[T]he split among the bankruptcy courts over application of the means test to this issue provides greater support for treating the denial of the Trustee's motion to dismiss for substantial abuse as final."); Fokkena v. Hartwick, 373 B.R. 645, 646 (D.Minn.2007) (on appeal from bankruptcy court's order denying the UST's motion to dismiss under § 707(b)); see also In re Northwood Properties, 509 F.3d 15 (1st Cir.2007) (an order is final if it disposes of all issues surrounding a discrete controversy within a larger proceeding). Therefore, this Panel concludes that the bankruptcy court's orders denying the UST's motions to dismiss under § 707(b) are final appealable orders.

STANDARD OF REVIEW

Appellate courts generally apply the clearly erroneous standard to findings of fact and de `novo review to conclusions of law. See TI Fed. Credit Union v. Del-Bonis, 72 F.3d 921, 928 (1st Cir.1995); Western Auto Supply Co. v. Savage Arms, Inc. (In re Savage Indus., Inc.), 43 F.3d 714, 719-20 n. 8 (1st Cir.1994). Where the issue on appeal is essentially one of statutory interpretation, it will be subject to de novo review. See Kibbe v. Sumski (In re Kibbe), 361 B.R. 302 (1st Cir. BAP 2007) (citing Vicenty v. San Miguel Sandoval, 327 B.R. 493, 506 (1st Cir. BAP 2005); Jeffrey v. Desmond, 70 F.3d 183, 185 (1st Cir.1995)). Here, the bankruptcy court's denial of the motions to dismiss was premised on its interpretation of § 707(b)(2). That interpretation of the Bankruptcy Code is a conclusion of law subject to de novo review.

BACKGROUND

Because these two bankruptcy appeals are factually similar and present the same legal issue, they were consolidated for oral argument, and for the same reasons, both appeals are addressed and decided in this joint opinion.

William J. Hagerty ("Hagerty") filed: (1) a petition for Chapter 7 relief on July 14, 2006; (2) a "Chapter 7 Statement of Current Monthly Income and Means-Test Calculation" ("Form 22A"); and (3) a "Chapter 7 Individual Debtor's Statement of Intention" (the "Statement of Intention"). The Statement of Intention signaled Hagerty's intent to surrender his home and one of his motor vehicles.

Glen H. Rudler ("Rudler," and, together with Hagerty, "the Debtors"), whose case is not markedly different, filed his Chapter 7 petition on August 15, 2006, and also filed a Form 22A and the Statement of Intention to surrender his homestead property.

Pursuant to § 707(b)(1)(A), the UST filed Statements of Presumed Abuse and motions to dismiss both Debtors' cases under the abuse provision of § 707(b)(1). The UST disputes both Debtors' calculations of their disposable monthly income and argues that each Debtor had disposable monthly income that exceeded the amount permitted for Chapter 7 relief. That is, instead of deducting the loan payments due on the homestead property which the Debtors intend to surrender, the UST deducted only the "IRS Housing and Utilities Standards"² from the Debtors' monthly incomes. The UST also excluded Hagerty's deduction of the loan payments for the vehicle he proposed to surrender.

After hearing, the bankruptcy court denied the UST's motions to dismiss, holding that all scheduled contractual payments to secured creditors may be deducted from current monthly income, notwithstanding that the Debtors intend to surrender the property.

DISCUSSION

Under § 707(b)(1), the UST may move to dismiss a case "filed by an individual debtor under this chapter whose debts are primarily consumer debts ... if [the court] finds that the granting of relief would be an abuse.... "Abuse" is determined under either § 707(b)(2) or § 707(b)(3). Section 707(b)(2) prescribes an objective test and § 707(b)(3) requires an analysis of the totality of the circumstances. Here, the UST relies solely on § 707(b)(2)—i.e., the "means test."

The § 707(b)(2) financial means test "creates a presumption of abuse when a debtor's disposable income exceeds fixed amounts," In re Singletary, 354 B.R. 455, 460-61 (Bankr.S.D.Tex.2006), and to determine a debtor's disposable monthly income, a complex mathematical equation is provided. Fortunately for this Panel, only § 707(b)(2)(A)(iii) has been brought before it. That section provides that for Chapter 7 debtors:

The debtor's average monthly payment on account of secured debts shall be calculated as the sum of 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 ... divided by 60.

The UST contends, and we agree, that § 707(b)(2)(A)(iii) must be construed in a way that gives meaning and effect to all of the statutory words and phrases. See In re Kibbe, 361 B.R. at 312. We do not, however, agree with the UST's interpretation and application of that principle.

So we begin our own analysis "where all such inquiries must begin: with the language of the statute itself." United States v. Ron Pair Enter., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) (citing Landreth Timber Co. v. Landreth, 471 U.S. 681, 685, 105 S.Ct. 2297, 85 L.Ed.2d 692 (1985)). "[W]hen the statute's language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms." Lamie v. United States Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004) (quoting Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000); Ron Pair, 489 U.S. at 241, 109 S.Ct. 1026; Caminetti v. United States, 242 U.S. 470, 485, 37 S.Ct. 192, 61 L.Ed. 442 (1917)).

In In re Walker, the court interpreted the first phrase at issue, "scheduled as contractually due," as "those payments that the debtor will be required to make on certain dates in the future under the contract." 2006 WL 1314125 *3 (Bankr. N.D.Ga.2006). And as a result, "nothing the debtor does or does not do changes the fact that scheduled payments remain contractually due." Id. at *4.

The UST cites In re Skaggs, 349 B.R. 594 (Bankr.E.D.Mo.2006), for a different interpretation of "scheduled as contractually due," where the court examined the text of the Bankruptcy Code for instances where the words "scheduled as" were used, and concluded, based solely on § 1111(a),³ that the phrase "scheduled as" referred only to whether a debt is identified on a debtor's bankruptcy schedules. Id. at 599.

We disagree with Skaggs, because as the court in In re Nockerts pointed out, the Skaggs exercise in statutory analysis actually compels the opposite conclusion. See In re Nockerts, 357 B.R. 497, 502 (Bankr. E.D.Wis.2006). When the statute discusses bankruptcy schedules, the schedules are described either by name or by reference to § 521, or the reference to the bankruptcy schedules is otherwise obvious.⁴ Id. When the statute discusses scheduled payments, on the other hand, the bankruptcy schedules are not mentioned,⁵ id., and "[t]here is no bankruptcy schedule that requires the debtor to list `all amounts contractually due to secured creditors in each month of the 60 months following the date of the petition.'" In re Randle, 358 B.R. 360, 365 (Bankr.N.D.Ill.2006), aff'd, Randle v. Neary (In re Randle), 2007 WL 2668727 (N.D.Ill. Jul.20, 2007).

Furthermore, the...