In re Addison

580 B.R. 24

IN RE: Barry ADDISON, Debtor.

Case No.: 16–74856–ast

United States Bankruptcy Court, E.D. New York.

Signed January 11, 2018

Heath S. Berger, Berger, Fischoff & Shumer, LLP, Syosset, NY, for Debtor.

DECISION AND ORDER DENYING UNITED STATES TRUSTEE'S MOTION TO DISMISS

Alan S. Trust, United States Bankruptcy Judge

Pending before the Court is the United States Trustee's (the "UST") motion to dismiss (the "Motion to Dismiss") the chapter 7 bankruptcy case of Barry Addison ("Debtor"), solely as a presumed abuse case pursuant to 11 U.S.C. § 707(b)(2). The UST asserts that Debtor, an above-median income, single-person-household debtor, improperly claimed certain deductions on his chapter 7 means test, and that after adjusting for the improper deductions, Debtor's case is presumptively abusive and should be dismissed. The deductions at issue are for operating two vehicles, an older vehicle, and an overstated tax liability. Debtor asserts all of the deductions on his means test are proper and that the presumption of abuse does not arise.

This Court has concluded that Debtor properly claimed two vehicles, improperly claimed an older vehicle expense, and overstated his tax liability, but that even with his means test recalculated, the presumption of abuse does not arise. Therefore, the UST's Motion to Dismiss will be denied.

JURISDICTION AND VENUE

This Court has jurisdiction over this core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A), and 1334(b), and the Standing Orders of Reference in effect in the Eastern District of New York dated August 28, 1986, and as amended on December 5, 2012, but made effective nunc pro tunc as of June 23, 2011.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

The following constitutes this Court's findings of fact and conclusions of law made in accordance with Rule 7052 and 9014 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules").

Background and procedural history¹

On October 19, 2016, (the "Petition Date"), Debtor filed a voluntary petition for relief (the "Petition") under Chapter 7 of Title 11 of the United States Code (the "Bankruptcy Code").² In his Petition, Debtor listed his residence in Suffolk County, New York, with a household size of one person; on Official Form 122A–1, Chapter 7 Statement of Your Current Monthly Income ("Form 122A–1"), Debtor listed that he is married but that he is living separately or is legally separated from his spouse. Debtor listed his debts as primarily consumer debts which included $145,333.99 in nonpriority unsecured claims, and that he was employed and earned a monthly gross income of $6,453.61. In Debtor's Schedule A/B, he claimed that he leased a 2016 Nissan Rogue, and that he owned a 2013 Honda Gold Wing F6B motorcycle, a 1999 S420 Mercedes–Benz, a 2004 Chevrolet Avalanche, and a 2010 Mercury Milan, [dkt item 1]

As Debtor's monthly income equates to $77,443.32 per year, he is above the New York median-family income of $49,086.00 for a one-person household. Thus, he completed Official Form 122A–2, Chapter 7 Means Test Calculation ("Form 122A–2" or the "Means Test"). Relevant here, on line 11 of Form 122A–2, Debtor claimed an ownership or operating expense for two or more vehicles; on line 12 he claimed a vehicle operation expense of $816.00; on line 16, he claimed an expense for taxes in the amount of $1,530.51; on line 39c, he listed his monthly disposable income as (-$465.32); on line 39d, listed his monthly disposable income multiplied by 60 as (-$27,919.20); and on line 40, Debtor asserted that there is no presumption of abuse in this chapter 7 case.³

On May 8, 2017, the UST filed a notice that it has determined that Debtor's case is presumed to be an abuse under § 707(b). [dkt item 18]

On May 8, 2017, the UST filed its Motion to Dismiss Debtor's case under § 707(b)(2) and Rule 1017 of the Bankruptcy Rules. [dkt item 17] In its Motion to Dismiss, the UST asserts as follows: that Debtor incorrectly claimed a vehicle operation expense for two vehicles and therefore overstated the deduction in the amount of $308.00; that Debtor is not entitled to an older vehicle deduction of $200.00; that Debtor overstated his tax liability in the amount of $314.51; and that Debtor improperly claimed a life insurance deduction in the amount of $120. The UST asserts that if Debtor had properly completed the Means Test, a presumption of abuse arises and his case should be dismissed.

On August 15, 2017, Debtor filed an affirmation in opposition to the UST's Motion to Dismiss (the "Opposition"), asserting, among other things, that Debtor properly completed the Means Test and is entitled to all of his claimed deductions, and that the presumption of abuse does not arise.⁴ [dkt item 22]

The Court held a hearing on the Motion to Dismiss and Opposition on August 22, 2017, and an adjourned hearing on September 12, 2017. After agreeing that there are no disputed facts for which an evidentiary hearing would be necessary, on October 26, 2017, Debtor and the UST filed a joint statement of post-hearing issues and exhibits (the "Joint Statement"). [dkt item 24] The Court held a further status hearing on October 31, 2017, and marked this matter submitted.

Pursuant to the Joint Statement, the parties stipulated that Debtor is not entitled to the life insurance deduction of $120.00, and that the only issues remaining for the Court to decide regarding Debtor's deductions are: (1) whether a single-person-household debtor is entitled to an operation expense deduction for more than one vehicle; (2) whether Debtor is entitled to the older vehicle deduction; and (3) whether the correct deduction for Debtor's tax expenses is the amount withheld from his payroll or the actual tax obligations he incurs. The parties agreed that the Court's resolution of the above three issues will determine whether Debtor's chapter 7 case is presumed abusive, and that a finding in favor of Debtor on any of these issues will render Debtor's chapter 7 case not abusive.

Discussion

In 2005, as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), to prevent debtors from proceeding in chapter 7 cases that Congress considered to constitute an abuse of the bankruptcy process, Congress added § 707(b)(2) and created the Means Test; this allows bankruptcy courts to dismiss chapter 7 cases that are abusive because the debtor has a certain income level and an ability to pay a statutorily defined meaningful dividend to creditors. See Section 707(b)(1) (the court may dismiss a case filed by an individual debtor whose debts are primarily consumer debts if it finds that the granting of relief would be an abuse of the provisions of this chapter.) 11 U.S.C. § 707(b)(1) (2016). If a debtor's Current Monthly Income ("CMI"), as defined in § 101(10A) of the Code, exceeds a defined level, the debtor is subject to the Means Test, and § 707(b)(2)(C) specifically requires him to file a statement of CMI and make certain expense calculations to determine whether the debtor can pay the defined dividend; if he can, his chapter 7 case is presumptively abusive, and thus subject to dismissal. See In re Bohnenblusch , No. 10-79097-AST, 2011 WL 1102809, at *2 (Bankr. E.D.N.Y. Mar. 21, 2011). Section 707(b)(2)(A)(i) provides that, in considering Section 707(b)(1), a court shall presume abuse exists "if the debtor's current 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 $7,700,⁵ whichever is greater; or (II) $12,850." 11 U.S.C. § 707(b)(2)(A)(i) (2016) (the "Means Test").⁶ If a presumption of abuse arises under the Means Test, a debtor is not entitled to relief under chapter 7, unless she can rebut the presumption by demonstrating special circumstances.⁷ 11 U.S.C. § 707(b)(2)(B)(i). See Former Official Forms 22A–22C advisory committee's note to 2005–2008 amendments.

The Means Test is intended to be applied as a strict mechanical test, with bankruptcy courts having little discretion in applying the test. In re Kimbro , 389 B.R. 518, 527 (6th Cir. BAP 2008), rev'd and remanded , 409 Fed.Appx. 930 (6th Cir. 2011) ; In re Lopez , 574 B.R. 159, 164 (Bankr. E D. Cal. 2017) ; In re Rivers , 466 B.R. 558, 568 (Bankr. M.D. Fla. 2012) ("it is widely recognized that the Means Test provides a nondiscretionary formula for determining whether the Court should presume that the case is an abuse of the provisions of Chapter 7"); In re Cotto , 425 B.R. 72, 77 (Bankr. E.D.N.Y. 2010) (intent of Congress in creating means test "was to create a more objective standard for establishing a presumption of abuse and to reduce judicial discretion in the process"); In re DeJoy , No. 11-10268, 2011 WL 5827319, at *6 (Bankr. N.D.N.Y. Nov. 18, 2011) (the "means test is a bright line test"). But see In re Rabener , 424 B.R. 36, 41 (Bankr. E.D.N.Y. 2010) ("This Court does not share the view that a rigid application of Section 707(b)(2)(A)(ii) is required because the 2005 BAPCPA amendments were intended to blindly reduce judicial discretion.")

This Court follows a plain meaning approach to the Bankruptcy Code: "[W]hen the statute's language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms." In re Olmo–Claudio , No. 8-16-71740-AST, 2017 WL 3835798, at *3 (Bankr. E.D.N.Y. Aug. 30, 2017) (quoting Hartford Underwriters Ins. Co. v. Union Planters Bank, Nat'l Ass'n , 530 U.S. 1, 6, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000) ); In re Miller , 462 B.R. 421, 430 (Bankr. E.D.N.Y. 2011) ; In re Phillips , 485 B.R. 53, 56 (Bankr. E.D.N.Y. 2012). This plain meaning applies equally to Section 707(b)(2).

The calculations required to perform the Means Test are provided for in Form 122A–2, under which a debtor may claim deductions for certain living expenses as well as deducting payments for...