Matter of: Mary S. McKeever
| Decision Date | 01 April 2011 |
| Docket Number | Case No. 07-03876-lmj7 |
| Parties | In the Matter of: Mary S. McKeever, d/b/a Mary McKeever, Inc.,Debtor |
| Court | U.S. Bankruptcy Court — Southern District of Iowa |
OPINION TEXT STARTS HERE
[UNPUBLISHED]
The United States Trustee for Region 12 ("U.S. Trustee") filed a motion to dismiss this Chapter 7 case pursuant to 11 U.S.C. section 707(b)(1). That section permits a court to dismiss a Chapter 7 case brought by an individual debtor with primarily consumer debts if the court finds that allowing the case to proceed as a liquidation case would be an abuse of the provisions governing Chapter 7. Relying on paragraph (3) of section 707(b),1 the U.S. Trustee asserts that Debtor Mary S. McKeever d/b/a Mary McKeever, Inc. ("Debtor") filed her Chapter 7 case in bad faith or the totality of the circumstances of the Debtor's financial circumstances demonstrates abuse. Debtor disagrees. Having reviewed the record and having considered the arguments of the parties, the Court enters its decision in favor of Debtor.
The Court has jurisdiction of this matter pursuant to 28 U.S.C. section 1334 and the standing order of reference entered by the U.S. District Court for the Southern District of Iowa. This is a core matter under 28 U.S.C. section 157(b)(2)(A) and (O).
On November 13, 2007 Debtor filed a voluntary Chapter 7 petition. On Schedule A (Real Property), Debtor reported a legal interest in real estate located at 1609 Skyline Drive, Council Bluffs, IA ("1609 Skyline Drive") and having a current fair market value of $325,000.00. On her Statement of Intention, Debtor designated an intent to surrender that property.2
On Schedule D (Creditors Holding Secured Claims), Debtor reported she owed $346,097.65 to secured creditors at the time of filing. The largest portion of this amount related to a $339,735.85 secured mortgage claim on 1609 Skyline Drive. On Schedule E (Creditors Holding Unsecured Priority Claims), Debtor reported she owed $581.00 in unsecured priority debt. On Schedule F (Creditors Holding Unsecured Nonpriority Claims), Debtor reported she owed $82,233.65 in unsecured nonpriority debt. The parties do not dispute that Debtor's debts are primarily consumer debts.
On Schedule I (Current Income of Individual Debtor(s)), Debtor reported she was divorced with two dependent teenage daughters and had been employed for nine years as a court reporter for the State of Nebraska. Debtor indicated her average net monthly income was $5,140.75. The U.S. Trustee contends Debtor erroneously deducted a $60.00 voluntary parking fee as a payroll deduction from her regular income and erroneously included $391.77 in income from the operation of a court reporting transcription business, meaning her average net monthly income should be $4,808.98.
On Schedule J (Current Expenditures of Individual Debtor(s)), Debtor reported average monthly expenses of $6,853.98. The U.S. Trustee contends that figure should be $3,489.21 based on proposed reductions pursuant to National and Local Standards promulgated by the Internal Revenue Service ("IRS") and the Census Bureau for allowable living, transportation, housing and utilities expenses. In addition to those proposed reductions, the U.S. Trustee's calculation of Debtor's current monthly expenditures eliminates $696.92 in regular monthly expenses from the operation of Debtor's court reporting transcription business because those expenses allegedly exceed Debtor's monthly income from that business.
Based on his adjustments to Debtor's monthly income and expenses, the U.S. Trustee argues that the totality of the circumstances of Debtor's financial situation demonstrates abuse of the provisions of Chapter 7 because Debtor has $1,319.77 in monthly disposable income, which amounts to $47,511.72 over three years ($1,319.77 x 36) and $79,186.20 over five years ($1,319.77 x 60) or unsecured debt service of 57 percent in three years ([$47,511.72 x 100] - $82,814.65) and unsecured debt service of 95 percent in five years ([$79,186.20 x 100] - $82,814.65). Based on the actual figures appearing on Schedules I and J, Debtor contends she has negative monthly income of $1,713.23, making any meaningful repayment to unsecured creditors impossible.
In a case in which the 11 U.S.C. section 707(b)(2) presumption of abuse does not arise or is rebutted, a court nevertheless may dismiss the case for abuse under 11 U.S.C. section 707(b)(3). 11 U.S.C. section 707(b) provides, in relevant part:
(1) After notice and a hearing, the court, on its own motion or on a motion by the United States trustee . . . may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts . . . if it finds that the granting of relief would be an abuse of the provisions of this chapter.
(3) In considering under paragraph (1) whether the granting of relief would be an abuse of the provisions of this chapter in a case in which the presumption in subparagraph (A)(i) of such paragraph does not arise or is rebutted, the court shall consider—
(A) whether the debtor filed the petition in bad faith; or
(B) the totality of the circumstances (including whether the debtor seeks to reject a personal services contract and the financial need for such rejection as sought by the debtor) of the debtor's financial situation demonstrates abuse.
11 U.S.C. §§ 707(b)(1) and (3) (emphasis added).
When considering whether a Chapter 7 petition was filed in bad faith under 11 U.S.C. section 707(b)(3)(A), a court "focuses on the debtor's conduct." In re Honkomp, 416 B.R. 647, 649 (Bankr. N.D. Iowa 2009) (citing In re Booker, 399 B.R. 662, 667(Bankr. W.D. Mo. 2009)). When considering the totality of the circumstances under 11 U.S.C. section 707(b)(3)(B), "a court should consider primarily, if not exclusively, the Debtors' ability to pay." Id. Further, in examining the totality of the circumstances, a court may consider the debtor's actual and anticipated financial situation over the applicable Chapter 13 commitment period. Morse v. Rudler (In re Rudler), 576 F.3d 37, 51 (1st Cir. 2009); In re Chapman, 431 B.R. 216, 220 (Bankr. D. Minn. 2010) () (citations omitted).
Though the U.S. Trustee included bad faith as a basis for dismissal in his motion, he did not pursue that argument at the conclusion of the evidence. Moreover, the record would not support a finding that Debtor engaged in any bad faith conduct. Consequently, resolution of the pending controversy requires the Court to determine whether dismissal is appropriate under a totality of the circumstances analysis.
Debtor's scheduled average net monthly income is $5,140.75 but the U.S. Trustee would reduce that amount by $331.77 to $4,808.98. Specifically, the U.S. Trustee would eliminate the $60.00 nonmandatory payroll deduction on Line 4 of Schedule I and would omit the $391.77 regular income from the operation of a business on Line 7 of Schedule I.
Payroll Deduction for Parking (Schedule I, Line 4). Debtor's Exhibit 3, a letter signed by the Financial Officer for the Supreme Court of Nebraska's Administrative Office of the Courts & Probation, indicates that Debtor is not required to have the $60.00 deducted from her monthly paycheck but that it is necessary for Debtor to park somewhere in downtown Omaha. Though the U.S. Trustee questioned whether the parking fee could be reduced by Debtor choosing a different parking facility, the author of the letter included a comment that the parking fee for the facility where Debtor currently parks is no higher than what she would encounter if she parked elsewhere in the downtown area.
The U.S. Trustee also questioned why Debtor could not commute to and from work via public transportation. L. Todd Vandenberg, the U.S. Trustee's Bankruptcy Analyst for the Southern District of Iowa, testified that his research indicated there was a bus route close to Debtor's home and place of employment and that a monthly bus pass would cost her $50.00. Debtor testified that she drives her two teenage daughters to and from school and, when emergencies occasionally arise during the work day, she needs immediate access to a vehicle. Though the U.S. Trustee argues that Debtor's oldest daughter could drive her sister and herself to school or the daughters could take advantage of other options like public transportation or carpooling with friends, the Court observes that there would be additional costs involved with at least two and likely all three of those options. Accordingly, the Court finds that Debtor's monthly payroll deduction for parking is reasonable and necessary.
Regular Income from Operation of Business (Schedule I, Line 7). Debtor has been operating a court reporting transcription business for a number of years. The U.S. Trustee would eliminate the $391.77 monthly business income on Schedule I because Schedule J reflects monthly business expenses in the amount of $696.92. When questioned about how she arrived at the business income figure on Schedule I, Debtor asserted that $391.77 was a monthly average of the income made by the business during 2007.
While the Court agrees it would be questionable to continue a business that encounters a financial loss each month, Debtor's Exhibit 6 consists of her 2007 U.S. Individual Income Tax Return that reflects business income of $1,254.00 on Line 12 of Form 1040 and on Line 31 of Schedule C (Profit or Loss From Business). Though this information may be inconsistent with information on Schedule I and on Form 22A (Chapter 7 Statement of Current Monthly Income and Means-Test Calculation) and with Debtor's testimony, nothing in the record...
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