In re Wilson

• Decision Date: 11 December 2006
• Docket Number: No. 06-10834 (BLS).,06-10834 (BLS).
• Citation: 356 B.R. 114
• Parties: In re Celine Artie WILSON, Debtor.
• Court: U.S. Bankruptcy Court — District of Delaware

Page 114

356 B.R. 114

In re Celine Artie WILSON, Debtor.

No. 06-10834 (BLS).

United States Bankruptcy Court, D. Delaware.

December 11, 2006.

Tiffany A. Poole, Rahaim & Saints, Wilmington, DE, for Debtor.

MEMORANDUM OPINION¹

BRENDAN LINEHAN SHANNON, Bankruptcy Judge.

Before the Court is the Motion of the United States Trustee ("UST") to Dismiss the chapter 7 case of Celine Artie Wilson (the "Debtor") pursuant to 11 U.S.C. § 707(b)(2) or, alternatively, pursuant to 11 U.S.C. § 707(b)(3) (the "Motion to Dismiss"). Following the November 16, 2006 hearing on the Motion to Dismiss, only one discrete issue with regard to the UST's request for dismissal under section 707(b)(2) remains: namely, whether the Debtor, for purposes of section 707(b)(2)(A)(ii)(I), may take the transportation-ownership expense deduction specified under the Internal Revenue Service ("IRS") Local Standards for a car she owns free and clear of liens.

For the reasons stated below, the Court concludes that the Debtor may take the deduction.

BACKGROUND

On August 8, 2006, the Debtor commenced the above-captioned case (the "Case"), seeking protection under chapter 7 of the Bankruptcy Code (the "Code"). Along with her voluntary petition, the Debtor filed her Schedules, Statement of Financial Affairs, and Statement of Current Monthly Income and Means Test Calculation ("Form B22A").

On October 23, 2006, the UST filed its Motion to Dismiss arguing that, inter alia: (1) although the Debtor's Form B22A demonstrated that the Debtor did not have sufficient net monthly income for the presumption of abuse to arise under section 707(b)(2), the presumption in fact did arise due to an improper deduction of the transportation-ownership expense, as an "applicable monthly expense amount" specified under the IRS Local Standards, where the Debtor owned her vehicle free and clear of liens; and (2) even if the Court found the deduction proper, dismissal of the Case under section 707(b)(3) was appropriate because the totality of the circumstances indicate the Debtor's ability to fund a chapter 13 plan.

On November 8 and, again, on November 16, 2006, the Debtor amended her Schedule I, Schedule J, and Form B22A. On November 9, 2006, she objected to the Motion to Dismiss, arguing that, inter alia: (1) Chief Judge Walrath's recent opinion in In re Fowler, 349 B.R. 414 (Bankr.D.Del.2006), permitted her to deduct the transportation-ownership expense, as an "applicable monthly expense amount", even though she owns her vehicle free and clear of liens; and (2) even if this Court held the deduction improper, she did not have excess income with which to fund a chapter 13 plan due to changes in her financial condition following the filing of her voluntary petition.

A hearing was held on November 16, 2006, at which time the parties advised the Court that, although there were other minor disputes regarding the Debtor's claimed expenses, there would be no presumption of abuse under section 707(b)(2) if the Court determines that the Debtor may take the deduction for ownership of her car. Additionally, counsel for the UST requested additional time for discovery and a further evidentiary hearing regarding section 707(b)(3) if the Court permits the Debtor to take the deduction.

This matter is ripe for decision.

JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a) and (b)(1). Consideration of this matter constitutes a "core proceeding" under 28 U.S.C. § 157(b)(2)(A) and (O).

DISCUSSION

Dismissal of a chapter 7 case is governed by section 707, which was substantially modified by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA").² Pursuant to section 707(b)(1), the Court, after notice and a hearing, "may dismiss a case filed by an individual debtor under [chapter 7] whose debts are primarily consumer debts ... if it finds that the granting of relief would be an abuse of the provisions of [chapter 7]." To determine whether the granting of relief would be an abuse, the Court is guided by the "means test" of BAPCPA, established by section 707(b)(2)(A)(i). According to section 707(b)(2)(A)(i), "the court shall presume abuse exists if the debtor's current monthly income reduced by the amounts determined under clauses (ii), and (iv), and multiplied by 60 is not less than the lesser of ... 25 percent of the debtor's nonpriority unsecured claims in the case, or $6,000, whichever is greater; or ... $10,000."

For purposes of this test, a debtor's current monthly income, as defined under section 101(10A), is:

the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor's spouse receive) without regard to whether such income is taxable income, derived during the 6-month period ending on ... the last day of the calendar month immediately preceding the date of the commencement of the case if the debtor files the schedule of current income required by section 521(a)(1)(3)(ii) ... or ... the date on which current income is determined by the court for purposes of [chapter 7] if the debtor does not file the schedule of current income required by section 521(a)(1)(B)(ii) ....

From this amount, certain expenses must be subtracted. Pursuant to section 707(b)(2)(A)(ii), a debtor is entitled to deduct the "applicable monthly expense amounts specified under the National Standards and Local Standards ... issued by the [IRS] for the area in which the debtor resides ...." The National Standards establish presumptively reasonable amounts for five necessary expenses: food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous. These amounts vary based upon a debtor's gross income level and family size. The Local Standards establish presumptively reasonable amounts for two necessary expenses: transportation and housing. The local housing standard includes expenses for housing and utilities, and the local transportation standard includes expenses for ownership and operation. The Local Standards vary depending upon the area of the country in which a debtor resides, a debtor's family size, and the number of vehicles owned by a debtor.

In addition to expense amounts specified under the National and Local Standards, in some instances, a debtor may deduct actual expenses. 11 U.S.C. § 707(b)(2)(A)(ii). Finally, a debtor is permitted to deduct average monthly payments for secured debts and priority claims. 11 U.S.C. § 707(b)(2)(A)(iii) — (iv).

If, after performing the means test calculations, the presumption of abuse arises, the Court has no discretion and must dismiss the chapter 7 case unless a debtor is able to rebut the presumption pursuant to section 737(b)(2)(B). Under this section, a debtor may rebut the presumption "by demonstrating 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 ... justify additional expenses or adjustments of [the debtor's] current monthly income for which there is no reasonable alternative." 11 U.S.C. § 707(b)(2)(B).

If the presumption of abuse does not arise under the means test or if a debtor successfully rebuts the presumption, a debtor's chapter 7 case still may be dismissed if "the debtor filed the petition in bad faith ... or ... [if] the totality of the circumstances ... of the debtor's financial situation demonstrates abuse." 11 U.S.C. § 707(b)(3) (emphasis added).

The Congressional intent behind the BAPCPA modifications to section 707(b) is clear. In amending section 707(b), Congress sought to remedy perceived abuses that occur when consumer debtors received "a full discharge under Chapter 7 when they had regular income that could be used to repay some portion of their unsecured debt in a Chapter 13 plan." In re Singletary, 354 B.R. 455, 458-59 (Bank".S.D.Tex.2006); accord In re Harshaw, 345 B.R. 518, 522 (Bankr.W.D.Pa. 2006); In re Savoie, No. 05-13263, 2005 WL 2476268, at *2 (Bankr.E.D.Pa. Oct.6, 2005). As President George W. Bush explained at the signing ceremony for BAPCPA:

In recent years, too many people have abused the bankruptcy laws. They've walked away from debts even when they had the ability to repay them. This has made credit less affordable and less accessible, especially for low-income workers who already face financial obstacles. The bill I sign today helps address this problem. Under the new law, Americans who have the ability to pay will be required to pay back at least a portion of their debts.... This practical reform Will help ensure that debtors make a good-faith effort to repay as much as they can afford.

In re Richie, 353 B.R. 569, 580-81 (Bankr. E.D.Wis.2006) (quoting Press Release, White House Press Office, President Signs Bankruptcy Abuse Prevention, Consumer Protection Act (Apr. 20, 2005), available at http://www.white house.govinews/releases/2005/04/20050420-5.html). One method Congress developed to achieve this purpose is the means test, described as a "blind legislative formula that attempts to direct debtors to a chapter that provides for at least some measure of repayment to unsecured creditors over a period of years." In re Barraza, 346 B.R. 724, 729 (Bankr.N.D.Tex.2006).

While the legislative purpose behind the modifications to section 707(b) is easy to discern, courts have struggled with its application. Indeed, the discrete and rather arcane issue currently before the Court — concerning allowances for vehicle expenses — has given rise to no fewer than ten written opinions from Bankruptcy Courts around the country over the past eight months. In the present case, at issue is the proper interpretation of section 707(b)(2)(A)(ii), which permits the deduction of the "applicable monthly expense amounts specified under the National Standards and Local Standards ... issued by the [IRS] for the area in which the debtor resides ...." More specifically, this...