In re Siler

• Decision Date: 23 March 2010
• Docket Number: No. 09-33227.,09-33227.
• Citation: 426 B.R. 167
• Court: U.S. Bankruptcy Court — Western District of North Carolina
• Parties: In re Angel D. SILER, Debtor.

426 B.R. 167

In re Angel D. SILER, Debtor.

No. 09-33227.

United States Bankruptcy Court, W.D. North Carolina, Charlotte Division.

March 23, 2010.

COPYRIGHT MATERIAL OMITTED

Chris Karrenstein, Law Office of Chris Karrenstein, P.C., Charlotte, NC, for Debtor.

ORDER

J. CRAIG WHITLEY, Bankruptcy Judge.

This matter is before the Court upon the Bankruptcy Administrator's ("BA") Motion to Dismiss Bankruptcy Case for Abuse and the Debtor's Response. A hearing was held on January 28, 2010.

STATEMENT OF FACTS/PARTIES' POSITIONS

Most of the relevant facts are derived from Angel Siler's ("Siler") bankruptcy petition and are not in dispute.

Siler is an unmarried IT Specialist who filed a Chapter 7 bankruptcy petition in this Court on November 20, 2009. Under her Form 22A "Means Test," Siler reports a current monthly income ("CMI") (as defined in 11 U.S.C. § 101(10A)) of $4,887.80 and an annualized CMI of $58,653.60. Because the latter sum exceeded the applicable median family income ($38,794 per year for a North Carolina Household size of 1), Siler was required to complete the second part of Form 22A.¹

After doing so, Siler reported $382.85 in monthly disposable income under § 707(b)(2), or $22,971 over 60 months. Voluntary Petition Under Chapter 7, page 38, Form 22A, Lines 50 & 51 (Docket No. 1). Since her annualized disposable income exceeds both the sum of $10,950 and 25% of Siler's unsecured, nonpriority debts, Siler failed the Means Test. See 11 U.S.C. § 707(b)(2)(A).

On December 7, 2009, the BA filed a Statement of Presumed Abuse and subsequently this Motion to Dismiss Bankruptcy Case for Abuse. The BA maintains Siler's Chapter 7 case must be dismissed as an "abuse" under § 707(b)(2). Alternatively, the BA argues for dismissal under the "totality of the circumstances" test because she believes Siler possesses an ability to pay creditors a meaningful portion of their debts. 11 U.S.C. § 707(b)(3)(B).

In response, Siler amended Form 22A to add a $63 per month furniture loan payment omitted from the original form. The BA does not oppose this amendment. Siler also seeks to rebut the presumption of abuse with three monthly expenses that she argues are "special circumstances" under § 707(b)(2)(B)(i): (1) a $140.92 student loan payment; (2) a $244.40 retirement plan contribution; and (3) a $97.76 401(k) loan obligation, for a total of $483.08 per month.

The three additional expenses exceed Siler's amended monthly disposable income of $382.85. If deemed special circumstances, they would rebut the presumption of abuse. However, the BA argues that these expenditures do not fall within the statutory definition of "special circumstances."

The parties' arguments concerning the § 707(b)(3)(B) "totality of the circumstances" test parallel their Means Test dispute. Siler argues that she has a budget surplus of only $86.06 per month² and thus, no meaningful ability to repay her creditors. The BA counters that Siler achieves this low monthly surplus by including the aforementioned and objectionable expenses (student loan payments, retirement contributions, and 401k loan repayments) in her budget, as well as an unnecessary life insurance premium ($20.68 per month). The BA posits that if the objectionable $362.84 of withholdings³ were redirected under a Chapter 13 plan, Siler could pay $21,770 of the $56,214.26 of unsecured debts, or about 39%.

Holding: On the facts presented, Siler has failed to demonstrate her student loan payment, retirement contribution, or 401k loan repayment expenses are "special circumstances" within the meaning of § 707(b)(2)(B)(i). Ordinarily, this failure to rebut the presumption of abuse would require that the debtor's case be dismissed or, with her consent, converted to Chapter 13.

However, because Congress has simultaneously directed that ERISA contributions and loan repayments be deductible from CMI in Chapter 13 cases, on the facts presented, such a conversion would yield no distribution to unsecured creditors. In this case, the difference in treatment causes an absurdity that is directly contrary to the congressional intent, that while debtors with an ability to repay creditors should file under Chapter 13, debtors lacking that ability are to be permitted Chapter 7 relief. On these rather unusual facts, Siler may remain in Chapter 7.

DISCUSSION

Jurisdiction over this proceeding arises under 28 U.S.C. § 1334(a) and the case referencing the order of the U.S. District Court dated July 24, 1984. A motion to dismiss for abuse is a matter concerning the administration of the estate and a "core" proceeding under 28 U.S.C. § 157(b)(2)(A).

I. Statutory Background

Prior to the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA") amendments, a bankruptcy court was authorized to dismiss a case if it constituted a "substantial abuse" of Chapter 7. See 6 Collier On Bankruptcy ¶ 707.045a (15th ed. rev.2006).

The 2005 BAPCPA reforms rewrote § 707(b) in an attempt to eliminate Chapter 7 cases by debtors capable of repaying their debts. See 151 Cong. Rec. S2459, 2468-70 (daily ed. Mar. 10, 2005) (Statement of Sen. Hatch). The statutory standard was reduced from "substantial abuse" to simple "abuse." See, e.g., In re King, No. 08-41975, 2009 WL 62252, at *3 (Bankr.E.D.Tex.2009). The presumption in favor of granting relief to the Chapter 7 debtor was removed. In re Rudler, 576 F.3d 37, 40 (1st Cir.2009). A mathematical calculation, the "Means Test," was added to determine when a case should be presumed to be abusive. 11 U.S.C. § 707(b)(2). Finally, § 707(b) was augmented to provide that even if a debtor passes the Means Test, the case could still be dismissed if it was filed in bad faith or if the "totality of the circumstances" indicated abuse. In re Meade, 420 B.R. 291, 298 (Bankr.W.D.Va.2009) (citing 11 U.S.C. §§ 707(b)(2) & (3)).

II. Section 707(b)(2): Means Test

The Means Test focuses on a debtor's CMI, or average monthly income for the six (6) calendar months prior to the filing of the bankruptcy case. 11 U.S.C. § 101(10A). Under § 707(b)(2), a presumption of abuse arises "if the Debtor's currently monthly income reduced by the amounts determined under clauses (ii), (iii), and (iv), and multiplied by 60 is not less than the lesser of: (I) 25 percent of the debtor's nonpriority unsecured claims in the case, or $6,575, whichever is greater; or (II) $10,950." 11 U.S.C. § 707(b)(2)(A)(I).

If, as here, a presumption of abuse arises under the Means Test, the debtor must rebut the presumption by showing "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); In re Witek, 383 B.R. 323, 330 (Bankr.N.D.Ohio 2007). Otherwise, the case is subject to dismissal.

The Bankruptcy Code does not define "special circumstances," but merely gives two nonexclusive illustrations: a) a serious medical condition or b) "a call or order to active duty in the Armed Forces". 11 U.S.C. § 707(b)(2)(B). This unfortunate lack of specificity has led to wholesale disagreement as to the meaning of the term.

One group of courts has defined "special circumstances" narrowly: "The plain meaning of "special" provides some instruction to the Court that the expense or adjustment to income in question must be out of the ordinary or exceptional in some way." In re Delbecq, 368 B.R. 754, 756-57 (Bankr.S.D.Ind.2007). In re Tauter, 402 B.R. 903 (Bankr.M.D.Fla.2009); In re Patterson, 392 B.R. 497 (Bankr.S.D.Fla.2008); In re Smith, 388 B.R. 885 (Bankr.C.D.Ill. 2008); In re Cribbs, 387 B.R. 324 (Bankr. S.D.Ga.2008); In re Witek, 383 B.R. at 330; In re Pageau 383 B.R. 221, 226 (Bankr.D.N.H.2008); In re Haar, 360 B.R. 759, 760 (Bankr.N.D.Ohio 2007); In re Parulan, 387 B.R. 168 (Bankr.E.D.Va.2008). These courts hold that to be "special," a debtor's circumstances must be similar in nature to the two statutory illustrations. That is, they must be "necessary and reasonable" expenses "for which there is no reasonable alternative." In re Tauter, 402 B.R. 903 (Bankr.M.D.Fla.2009). Courts taking the narrow interpretation reason that Congress intended "to set this bar extremely high, placing it effectively off limits for most debtors." In re Haar, 360 B.R. 759, 760 (Bankr.N.D.Ohio 2007); In re Parulan, 387 B.R. 168 (Bankr.E.D.Va. 2008).

A second line of cases holds that special circumstances need not be "extraordinary" and that a broad range of circumstances may be considered special. In re Martin, 371 B.R. 347, 352 (Bankr.C.D.Ill.2007); In re Batzkiel 349 B.R. 581, 586 (Bankr. N.D.Iowa 2006); In re Littman, 370 B.R. 820, 830-831 (Bankr.D.Idaho 2007).

Under the broad view, special circumstances need not be outside of a debtor's control. In re Graham, 363 B.R. 844, 850 (Bankr.S.D.Ohio 2007); In re Thompson, 350 B.R. 770, 777 (Bankr.N.D.Ohio 2006); In re Armstrong, 2007 WL 1544591 at *3 (Bankr.N.D.Ohio 2007); In re Tamez, 2007 WL 2329805 at *5 (Bankr.W.D.Tex.2007); In re Robinette, 2007 WL 2955960, *4 (Bankr.D.N.M.2007). Nor must the expenses be unanticipated. In re Armstrong, 2007 WL 1544591 at *3 (Bankr. N.D.Ohio 2007).⁴

A second disagreement between bankruptcy courts exists over a court's options if the Chapter 7 debtor fails to rebut the presumption of abuse. One line of cases treats § 707(b) as a mandatory provision which if not satisfied, requires that the case must be dismissed.⁵In re Haman, 366 B.R. 307, 311 (Bankr.D.Del.2007); Justice v. Advanced Control Solutions, Inc., 2008 WL 4368668 (W.D.Ark.2008).

Other courts note inclusion of the word "may" in § 707(b),⁶ and, therefore, hold that a court has discretion whether to dismiss the case or to permit it to remain in Chapter 7. In re Mravik, 399 B.R. 202, 210 (Bankr.E.D.Wis.2008); In re Skvorecz, 369 B.R. 638 (Bankr.D.Colo.2007).⁷

Like many other BAPCPA interpretations, there are strengths and weaknesses to each of these positions. That said, however,...