In re Sanders, 10–11939–WRS.

• Decision Date: 12 July 2011
• Docket Number: No. 10–11939–WRS.,10–11939–WRS.
• Parties: In re Steve D. SANDERS, Deborah M. Sanders, Debtors.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Alabama

454 B.R. 855

271 Ed. Law Rep. 364

In re Steve D. SANDERS, Deborah M. Sanders, Debtors.

No. 10–11939–WRS.

United States Bankruptcy Court, M.D. Alabama.

July 12, 2011.

Collier H. Espy, Jr., Espy, Metcalf & Espy, P.C., Dothan, AL, for Debtors.

MEMORANDUM DECISION

WILLIAM R. SAWYER, Bankruptcy Judge.

This case is before the Court on the Bankruptcy Administrator's Motion to Dismiss Chapter 7 Case Pursuant to 11 U.S.C. § 707(b)(2). (Doc. 24). The Debtors, Steve D. and Deborah M. Sanders, through their attorney Collier H. Espy, orally objected to the motion at a hearing held January 26, 2011 in Dothan, Alabama. The issue underlying the Bankruptcy Administrator's motion is the Debtors' student loan payments and whether those payments constitute special circumstances to get past the presumption of abuse raised under the Means Test. A second hearing was held telephonically on April 6, 2011 to clarify the scope of the Bankruptcy Administrator's objection. For the reasons set forth below, the Bankruptcy Administrator's motion is DENIED.

I. Facts

On September 30, 2010, Steve D. and Deborah M. Sanders (“the Debtors”) filed a chapter 7 case, Case No. 10–11939. (Doc. 1). Along with their petition they filed their Chapter 7 Statement of Currently Monthly Income and Means Test Calculation—Form 22A (“Means Test”). Id. On their Means Test they state an annualized current monthly income of $76,264.32. Id. at ln. 13. The Debtors claim their twenty-three year old son as a dependent on their Schedule I and list their household size as three. Id. For a household of three, the applicable median family income is $55,433. Id. at ln. 14. The Means Test shows a monthly disposable income of $1,196.91. Id. at ln. 50. The Debtors' 60–month disposable income is $71,814.60. Id. at ln. 51. At line 56, the Debtors list an Additional Expense Claim of $2,041.61 for payments on student loans incurred by their son. The Debtors are either directly or on a guarantor basis responsible for the student loan payments incurred by their son. The total amount to be repaid on the student loans is approximately $236,672.25. Id. at pg. 9.

On December 13, 2010, the Bankruptcy Administrator (“BA”) filed her Motion to Dismiss under 11 U.S.C. § 707 because absent the deduction for the student loan payments, the Debtors' income raises a presumption of abuse under the Means Test. (Doc. 24). At a hearing on January 19, 2011, this Court took the issue regarding the student loan payments under advisement. Briefs were submitted by both parties to the issue. A second hearing was held telephonically on April 6, 2011, where the BA waived her right to raise a procedural issue, thus limiting the scope of her objection to the substantive legal issue.

II. Conclusions of Law

A. The Law

Under 11 U.S.C. § 707(b)(2), a chapter 7 debtor's bankruptcy must be dismissed or converted to a chapter 11 or 13 case when a presumption of abuse arises under § 707(b)(2)(A)(i). 11 U.S.C. § 707(b)(2). Under § 707(b)(2)(A)(i)(II), the debtor's current monthly income, reduced by amounts stated in other parts of § 707(b)(2)(A), and multiplied by 60 must be less than $11,725. If it is not, then the court “shall presume abuse exists.” 11 U.S.C. § 707(b)(2)(A)(i). However, the presumption of abuse may be rebutted by the debtor's demonstration of “special circumstances, such as a serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative.” 11 U.S.C. § 707(b)(2)(B)(i) (emphasis added).

It is the debtor's responsibility to prove there exist “special circumstances ... for which there is no reasonable alternative.” On the procedural side, the debtor must meet the requirements of § 707(b)(2)(B)(ii), which require: (1) documentation for the expense or adjustment; (2) “a detailed explanation of the special circumstances that make the adjustments to income necessary and reasonable;” and (3) such information must be provided by the debtor under oath. In re Hammock, 436 B.R. 343, 352 (Bankr.E.D.N.C.2010).

Once the procedural burden has been met, the courts then look to whether there exists a special circumstance creating an expense for which there is no reasonable alternative but to pay to rebut the presumption of abuse. This examination must be done on a “case-by-case basis.” In re Fonash, 401 B.R. 143, 147 (Bankr.M.D.Pa.2008); In re Champagne, 389 B.R. 191, 200 (Bankr.D.Kan.2008). As a result of this fact-specific inquiry, courts have divided largely into three camps when it comes to addressing the issue of whether student loan repayment qualifies as a “special circumstance” under § 707(b)(2)(B).

In the first camp are courts who have found that student loans can never qualify as “special circumstances” and therefore, cannot be considered as an “other necessary expense” for the purposes of determining abuse under the Means' Test. See Id. Those courts reason that a debtor's circumstances need to be “reasonable and necessary” to be similar to the examples provided by Congress in the Code in order to qualify as special. Id. at 354 (citing In re Siler, 426 B.R. 167, 172 (Bankr.W.D.N.C.2010) (citation omitted)). Thus, the expense ultimately needs to be the result of situation that is extraordinary, outside the control of a debtor, or always unanticipated. Id. (citing Siler, 426 B.R. at 172). This creates a very high standard for a debtor to achieve.

In applying this high standard, the courts in camp one look at the particulars of student loan repayment. These courts note that debtors often advance the argument that the non-dischargeable nature of student loans is what triggers the special circumstances. Id. at 355. These courts find that simply being classified as non-dischargeable does not meet the high standard intended by Congress. Rather, if a student loan were provided this additional protection, it would essentially give a student loan a priority status not provided for in the Bankruptcy Code. Id. (citing Siler, 426 B.R. at 175; In re Vaccariello, 375 B.R. 809, 815 (Bankr.N.D.Ohio 2007)). These courts concluded that there is nothing “special” about student loans and therefore, they do not qualify as special circumstances.

A second camp of courts suggest that they are open to student loan repayments constituting special circumstances, but did not find special circumstances because of the facts before them or for procedural reasons. See In re Womer, 427 B.R. 334 (Bankr.M.D.Pa.2010); In re Fonash, 401 B.R. 143 (Bankr.M.D.Pa.2008). In Womer, the court noted the “exceptional burdens placed on the debtor by reason of the obligation of the student loan” as the crux for other courts finding student loan repayments constitute special circumstances. Id. at 336. However, the debtors in Womer did not provide any evidence of exceptional burdens or an inability to repay; rather they simply stated they had student loan obligations and a general difficulty in paying their expenses. The Womer court concluded that absent something more specific, the court could not find that special circumstances existed. Id. In Fonash, the court did not reach the substantive issue because it found that the debtor had not even met the procedural requirements under § 707(b)(2)(B). Fonash, 401 B.R. at 148. Both courts recognized the need for the debtor to document the expense that would constitute special circumstances. Without this minimum showing, the courts did not need to further examine the trickier question of if that situation is a special circumstance.

In the third and final camp, the courts have found that depending on the facts, student loan repayments can constitute special circumstances. See In re Haman, 366 B.R. 307 (Bankr.D.Del.2007); In re Templeton, 365 B.R. 213 (Bankr.W.D.Okla.2007); In re Delbecq, 368 B.R. 754 (Bankr.S.D.Ind.2007); In re Knight, 370 B.R. 429 (Bankr.N.D.Ga.2007). These courts reasoned that “ ‘special circumstances' requires ‘a fact-specific, case-by-case inquiry into whether the debtor has a meaningful ability to pay his or her debts in light of an additional expense or adjustment to income not otherwise reflected in the means test calculation.’ ” Knight, 370 B.R. at 437 (citing Delbecq, 368 B.R. at 758–59). To these courts, a special circumstance is one that if the additional expense is not taken into consideration it creates a “demonstrable economic unfairness” that prejudices the debtor. Id. at 437–38.

In support of their position, the courts in the third camp look first to the statutory language of § 707(b)(2)(B) itself. See Haman, 366 B.R. at 313 ( “[W]here ... the statute's language is plain, ‘the sole function of the courts is to enforce it according to its terms.’ ” United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989)); Delbecq, 368 B.R. at 756. “[C]ourts must presume that a legislature says in a statute what it means and means in a statute what it says there. When the words of a statute are unambiguous, then ... ‘judicial inquiry is complete.’ ” Id. (citing Conn. Nat'l Bank v. Germain, 503 U.S. 249, 253–54, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992) (quoting Rubin v. United States, 449 U.S. 424, 449, 424, 430, 101 S.Ct. 698, 66 L.Ed.2d 633 (1981))). In the event the statute is ambiguous, then the courts can turn to the legislative history to determine the intention of the drafters. Id. (citing Ron Pair, 489 U.S. at 242–43, 109 S.Ct. 1026 (internal citations omitted)). Here, the term “special circumstances” is not defined in the Code, so the courts turn to the legislative intent.

First, these courts have noted that nothing in the plain language of § 707(b)(2)(B) requires that the special circumstances be of an involuntary nature: the only clear requirements under § 707(b)(2)(B) are that the debtor bears the burden to prove a special circumstance that leaves the...