In re Sorrell, 06-31720.

Citation359 B.R. 167
Decision Date26 January 2007
Docket NumberNo. 06-31720.,06-31720.
PartiesIn re Mark C. SORRELL, Michelle B. Sorrell, Debtors.
CourtUnited States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio

Pamela D. Rice, Columbus, Ohio, for U.S. Trustee.

Eileen K. Field, Cincinnati, Ohio, for Debtors.

Paul Spaeth, Dayton, Ohio, Chapter 7 Trustee.

DECISION DENYING MOTION OF THE U.S. TRUSTEE TO DISMISS CHAPTER 7 CASE PURSUANT TO 11 U.S.C. §§ 707(b)(2) AND/OR (b)(3)

THOMAS F. WALDRON, Bankruptcy Judge.

Background

On July 3, 2006, the Debtors, Mark and Michelle Sorrell, filed a chapter 7 petition (Doc. 1). This chapter 7 case is subject to the provisions of Pub.L. No. 109-8, 119 Stat. 23, the Bankruptcy Abuse Prevention and Consumer Protection Act (the "2005 Act"), more specifically, this case requires consideration of issues presented by 11 U.S.C. § 707(b), commonly referred to as the means test. The court further notes that this case is limited to the consideration of § 707(b) in the context of a chapter 7 case.1

As this court has previously noted:

When Congress enacted the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549 (the Code), it repealed and completely replaced the prior bankruptcy legislation (the Bankruptcy Act of 1898, Pub.L. No. 55-171, amended by the Chandler Act of 1938, Pub.L. No. 75-696, 52 Stat. 840). When Congress enacted the 2005 Act, Pub.L. No. 109-8, 119 Stat 23, it did not repeal or replace the prior bankruptcy legislation (the Code). Instead, Congress merely attached a sidecar (the 2005 Act) to the existing bankruptcy vehicle (the Code). The operation of this oddly constructed vehicle is frequently difficult, depending on whether it is controlled solely by the provisions of the Code, solely by the provisions of the 2005 Act, or, as in this case, by some provisions of the 2005 Act and some provisions of the Code.

In re Murray, 350 B.R. 408, 411 (Bankr. S.D.Ohio 2006) (footnote omitted). The issues in this proceeding are controlled solely by the provisions of the 2005 Act.

On August 9, 2006, within the time requirements of § 704(b)(1)2, the United States Trustee (the "UST") determined that this case was presumed to be an abuse under the means test of § 707(b)(2). The means test sets forth the congressionally determined calculations of a debtor's income and expenses, which, depending upon the result obtained from completing the calculations, presumes the bankruptcy filing, to be an abuse of chapter 7 or permits the chapter 7 case to proceed.

As a bankruptcy court recently explained:

Section 707(b)(2) of Ethel Bankruptcy Code, as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), contains a mechanism caged "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" 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. (footnote omitted)

In re Randle, 358 B.R. 360, 361-62 (Bankr. N.D.Ill.2006).

On September 6, 2006, within the time requirements of § 704(b)(2),3 the United States Trustee (the "UST") filed the Motion of the U.S. Trustee to Dismiss Chapter 7 Case Pursuant to 11 U.S.C. §§ 707(b)(2) and/or (b)(3) and Memorandum in. Support (Doc. 19). The Debtors filed a Response (Doc. 22) on September 26, 2006. The court issued an Order Fixing Date for Filing Final Legal Memoranda (Doc. 24), which provided the parties with an opportunity to suggest issues which would require an evidentiary hearing, but further provided:

It would appear from these filings that the parties are in agreement that there are no material factual issues in dispute and that the Court can rule on the pending issues as a matter of law. To the extent that either party believes the Court is incorrect in this conclusion, the parties shall, not later than October 12, 2006, complete a filing setting forth the factual disputes which will require an evidentiary hearing.

Neither party suggested any such issues, nor requested an evidentiary hearing. The UST Med a final Reply to Debtor's Response to Motion of U.S. Trustee to Dismiss (Doe. 25) and the Debtors filed a final Legal Memorandum in support of their position (Doc. 27).

Positions Of the Parties

The UST's position is that this case is subject to dismissal, since the Debtors failed to correctly calculate certain components of the means test (Form 22A) or have otherwise disposable income sufficient to repay a substantial portion of their debt within a reasonable time. The UST asserts the Debtors erred (1) by excluding, when they should have included, unemployment compensation (Line 9) in calculating current monthly income (CMI) and (2) in including, rather than excluding, payments contractually due (Line 42), and including, rather than excluding, a Local Standard vehicle operating expense (Line 22) in connection with a vehicle the Debtors intend to surrender. The UST further asserts that, even if the presumption of abuse is not established, the issue of the Debtors' ability to pay can be considered as part of "the totality of the circumstances . . . of the [Debtors'] financial situation." It is the position of the UST that when the correct calculations are completed, the Debtors "would have monthly disposable income of $1,184.28 or $71,056.80 over the course of a five-year chapter 13 plan." (Doc. 19).

The Debtors' position is that they have correctly supplied the information required in the means test (Form 22A). The Debtors dispute all of the calculations urged by the UST. The Debtors, whose household consists of three minor children, one employed spouse and one unemployed spouse, assert that their financial situation justifies the relief available in chapter 7. It is the Debtors' position that "[a]n examination of the Debtors' Schedules reflects [a total combined] net. . . monthly income of $4,515.84 (Schedule I), and current monthly expenses of $6,481.80, including a $507.00 monthly child support obligation, which has been temporarily suspended during Mr. Sorrell's period of unemployment (Schedule J). . . . It is clear beyond peradventure that the Debtors in the instant case do not have sufficient income to fund a Chapter 13 plan and repay their debts. Reasonable and necessary expenses exceed current income, and additional vehicle expense is anticipated." (Doc. 22).

Jurisdiction

This court has jurisdiction pursuant to 28 U.S.C. § 1334 and the Standing Order of Reference entered in this District. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (0).

Issues Presented

1. In determining if abuse is presumed to exist under § 707(b)(2)(A)(i), is unemployment compensation included or excluded in the calculation of current monthly income as defined in § 101(10A)?

2. If the Debtors file a statement of intention to surrender a secured motor vehicle, is it correct for the Debtors to include payments contractually due in calculating the Debtors' average monthly payments under § 707(b)(2)(A)(iii)(I) and is it correct for the Debtors to deduct the Local Standard operating expense for that vehicle under § 707(b)(2)(A)(ii)(I)?

3. If a chapter 7 case of above median income Debtors is determined not to be subject to the presumption of abuse under § 707(b)(2), or that presumption is overcome by special circumstances, is it correct to consider the Debtors' ability to pay under § 707(b)(3) as part of "the totality of the circumstances... of the debtor's financial situation?"

Issues Determined

1. In determining if abuse is presumed to exist under § 707(b)(2)(A)(i), unemployment compensation is excluded in the calculation of current monthly income as defined in § 101(10A).

2. If the Debtors file a statement of intention to surrender a secured motor vehicle, it is correct for the Debtors to include payments contractually due in calculating the Debtors' average monthly payments under § 707(b)(2)(A)(iii)(I) and it is correct for the Debtors to deduct the Local Standard operating expense for that vehicle under § 707(b)(2)(A)(ii)(I).

3. If a chapter 7 case of above median income Debtors is determined not to be subject to the presumption of abuse under § 707(b)(2), or that presumption is overcome by special circumstances, it is correct to consider the Debtors' ability to pay under § 707(b)(3) as part of "the totality of the circumstances. . . of the debtor's financial situation."

Analysis
Statutory Construction And The 2005 Act Generally

It merely states the obvious to note that the initial court decisions interpreting provisions of the 2005 Act demonstrate that one element legislation should provide — clarity of expression in the choice of language so that interested parties can have predictability in their proceedings — is frequently lacking in significant portions of the 2005 Act. As an example, one court noted:

This is the first contested motion of its kind considered by this Court under BAPCPA. As a threshold issue, the Court notes that the language in new § 362(c)(3) is very poorly written. It has been noted that the provisions of this new subsection "are, at best, particularly difficult to parse and, at worst, virtually incoherent." In re Charles, 332 B.R. 538, 541 (Bankr.S.D.Tex.2005). Judge Thomas Small, former chair of the Advisory Committee on Bankruptcy...

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