U.S. Tr. v. Kubatka (In re Kubatka), Case No. 18-21842-GLT

• Decision Date: 30 September 2019
• Docket Number: Case No. 18-22233-GLT,Case No. 18-21842-GLT,File at: Case No. 18-22406-GLT
• Citation: 605 B.R. 339
• Parties: IN RE: Steven J. KUBATKA, IV and Michelle L. Kubatka, Debtors. United States Trustee, Movant, v. Steven J. Kubatka, IV and Michelle L. Kubatka, Respondents. In re: Tamala M. Delval, Debtor. United States Trustee, Movant, v. Tamala M. Delval, Respondent. In re: Damien W. Harms and Casey M. Harms, Debtors. United States Trustee, Movant, v. Damien W. Harms and Casey M. Harms, Respondents.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

605 B.R. 339

IN RE: Steven J. KUBATKA, IV and Michelle L. Kubatka, Debtors.

United States Trustee, Movant,

v.Steven J. Kubatka, IV and Michelle L. Kubatka, Respondents.

In re: Tamala M. Delval, Debtor.

United States Trustee, Movant,

v.Tamala M. Delval, Respondent.

In re: Damien W. Harms and Casey M. Harms, Debtors.

United States Trustee, Movant,

v.Damien W. Harms and Casey M. Harms, Respondents.

Case No. 18-21842-GLT

Case No. 18-22233-GLT

File at: Case No. 18-22406-GLT

United States Bankruptcy Court, W.D. Pennsylvania.

Signed September 30, 2019

Filed October 1, 2019

George M. Conway, Esq., Office of the United States Trustee, Philadelphia, PA, Attorney for the United States Trustee

Kenneth M. Steinberg, Esq., Steidl & Steinberg Pittsburgh, PA, Attorney for Delval

Bryan P. Keenan, Esq., Bryan P. Keenan & Associates, P.C., Pittsburgh, PA, Attorney for the Kubatkas & the Harmses

Related to Dkt. Nos. 24, 28, 33, 34, 37, 38

Related to Dkt. Nos. 17, 19, 25, 26

Related to Dkt. Nos. 18, 20, 33, 34, 37, 40

MEMORANDUM OPINION

GREGORY L. TADDONIO, UNITED STATES BANKRUPTCY JUDGE

In three separate chapter 7 cases, the United States Trustee (the "Trustee") filed motions to dismiss pursuant to 11 U.S.C. § 707(b)(3) (the "Motions to Dismiss") seeking dismissal of each case for abuse premised on the respective debtors' (collectively, the "Debtors") alleged ability to repay creditors.¹ Specifically, the Trustee argues that substantial funds are available by challenging the permissibility of certain expenses—voluntary retirement account contributions, retirement account loan repayments, tuition payments for an adult child, and student loan payments—from being considered in the calculation of the Debtors' available monthly disposable income rather than as payments to be made from it. In one case, the Trustee also objects to a vehicle maintenance expense where the Debtors have also listed a projected new car payment. In essence, the Trustee asserts that the Debtors are either inappropriately diverting funds from their general unsecured creditors, or unfairly discriminating among them. For the reasons set forth below, the Court will deny the Motions to Dismiss in the cases filed by the Kubatkas and Delval, but will afford the Harmses a brief opportunity to consider conversion before dismissing their case.

I. BACKGROUND

In each of these cases, the Trustee moved to dismiss for abuse after the chapter 7 trustee filed a report of no distribution, indicating that there were no assets available for distribution to creditors. The Motions to Dismiss were heard separately and taken under advisement in the ordinary course. No party requested an evidentiary hearing, leaving the Court to draw facts from the bankruptcy schedules and uncontested representations.² Review of the Motions to Dismiss was subsequently consolidated in light of the common issues presented. After an initial examination, the Court ordered additional briefing with respect to the following two questions:

(1) Whether Anes v. Dehart (In re Anes), 195 F.3d 177, 181 (3d Cir. 1999), was abrogated by the enactment of section 541(b)(7) and 1322(f) of the Bankruptcy Code ? and

(2) What is the impact of sections 541(b)(7) and 1322(f), if any, on an ability to pay analysis performed under section 707(b)(3) ?³

Briefs and rebuttal briefs followed. The matter is now ripe for determination.

A. Steven J. and Michelle L. Kubatka, Case No. 18-21842-GLT

Steven J. and Michelle L. Kubatka (the "Kubatkas") filed a voluntary chapter 7 petition on May 6, 2018. The filing was prompted by Mrs. Kubatka having suffered a complicated pregnancy that left her unable to work for well over a year.⁴ On Schedule E/F, they listed nonpriority unsecured debts totaling $110,164.83, of which $85,516 are nondischargeable student loan debts and $24,648.83 are general unsecured claims.⁵

Mrs. Kubatka returned to work as a nurse eight months prior to the petition date, while Mr. Kubatka remained home for the past two years to care for their three children, aged 2, 10, and 12.⁶ The Kubatkas are below-median income debtors and were not required to complete the Chapter 7 Means Test Calculation (the "Means Test").⁷ On Schedule I, they reported gross monthly income of $8,612.50 which, after monthly payroll deductions including $258.38 for voluntary retirement contributions, leaves $6,634.42.⁸ On Schedule J, they listed expenses totaling $6,734.72. The expenses included a monthly automobile maintenance expense for a 2010 Nissan Frontier in the amount of $291.66, a "projected car payment" in the amount of $400, and a monthly student loan expense in the amount of $515.⁹ Deducting all monthly expenses from their income yields negative monthly net income in the amount of $100.30.¹⁰

The Trustee filed a motion to dismiss, asserting that the voluntary retirement contributions, the monthly maintenance expense for the Nissan (to the extent that they also claim a "projected car payment"), and the monthly student loan payments are inappropriate expenses and must be considered disposable income.¹¹ As a result, the Trustee contends the Kubatkas actually have positive monthly net income in the amount of $964.74.¹² Thus, given the total amount of unsecured debt reported on their schedules, the Trustee concluded that the Kubatkas could pay $34,730.64 through a thirty-six month chapter 13 plan and provide a 31% dividend to unsecured creditors.¹³

In their response, the Kubatkas explained that their bankruptcy was filed in good faith.¹⁴

B. Tamala M. Delval, Case No. 18-22233-GLT

Tamala M. Delval ("Delval") filed a voluntary chapter 7 petition on May 31, 2018.

She did not explain what motivated her filing, and the reason (beyond the existence of debt) is not apparent from her schedules. On Schedule E/F, she listed nonpriority unsecured debts totaling $64,650.69, of which $13,963.87 are nondischargeable student loan debts and $50,686.82 are general unsecured claims.¹⁵ Delval's seventeen non-student loan creditors consist largely of consumer credit accounts she used for living expenses.¹⁶

Delval is a single mother with a twenty-one year old daughter as her sole dependent.¹⁷ For the last thirty years, she worked as a client services specialist at a life insurance company, earning a gross income of $5,908 per month.¹⁸ Over the past year, she also worked a second job as a greeter for an event services company for an additional $340 per month.¹⁹

Delval completed the Means Test with no presumption of abuse arising.²⁰ On Schedule I, Delval listed a voluntary contribution to a retirement plan in the amount of $177 and a retirement account loan repayment in the amount of $696 as monthly payroll deductions.²¹ After all other payroll deductions, her monthly income was $3,276.²² On Schedule J, she listed monthly expenses totaling $3,332, including expenses for books and tuition in the amounts of $75 and $100, respectively.²³ After deducting all monthly expenses from her income, Delval reported negative monthly net income in the amount of $56.²⁴

The Trustee moved to dismiss, objecting to Delval's voluntary retirement contributions, retirement account loan repayments, and educational expenses and insisting they all be counted as disposable income.²⁵ In effect, the Trustee argued that Delval has positive monthly net income in the amount of $977, which could yield a dividend of over 90% to her unsecured creditors if paid into a chapter 13 plan over a term of sixty months.

In response, Delval recognized these expenses may not be "allowable," but argued that in reality these funds are not available to her to repay her creditors.²⁶ At oral argument, she explained that she borrowed approximately $24,000 from her retirement account years ago to pay off higher interest credit card debt and pay $5,800 towards her daughter's tuition at Robert Morris University.²⁷

C. Damien W. and Casey M. Harms, Case No. 18-22406-GLT

Damien W. and Casey M. Harms (the "Harmses") filed a voluntary chapter 7 petition on June 14, 2018. On Schedule E/F, they listed nonpriority unsecured debts totaling $117,679.70, of which $63,663.93 are nondischargeable student loan debts and $54,015.77 are general unsecured claims.²⁸ They also listed a priority debt for 2017 taxes owed to the Internal Revenue Service in the amount of $1,326.80.²⁹

The present bankruptcy was motivated by Mrs. Harms' loss of employment in 2017 which resulted in a 36% reduction in the household gross income.³⁰ Initially, the Harmses used credit cards to make up the difference but eventually they became over extended.³¹ Mrs. Harms returned to work as an office manager seven months prior to filing the bankruptcy petition, while Mr. Harms has been employed as a technology analyst for the last three years.³² Together, they have a four year old son.³³

The Harmses completed the Means Test with no presumption of abuse.³⁴ On Schedule I, they listed monthly income in the amount of $5,070 after taking various payroll deductions, including voluntary contributions for retirement plans totaling $210.86.³⁵ On Schedule J, the Harmses listed monthly expenses totaling $5,105.12, of which child care was by far the biggest cost at $1,083.33.³⁶ They also listed $75 for an "IRS repayment plan" and two student loan payments totaling $515.³⁷ After deducting all monthly expenses from their income, the Harmses reported negative monthly net income in the amount of $34.52.³⁸

The Trustee filed a motion to dismiss, targeting the voluntary retirement contributions, the prepetition tax payments, and the monthly student loan payments.³⁹ If these items are reclassified as disposable income (as the Trustee urged), the Harmses would have positive monthly net income in the amount of $766.34. Accordingly, if these funds were devoted to a chapter 13 plan, the Harmses could pay their unsecured creditors a dividend of approximately 39% over sixty months.

The Harmses responded generally, asserting that the Trustee is seeking to impose an alternative means test where the Code does...