In re Bearup

In re THOMAS R. BEARUP and ADELE M. BEARUP, Debtor(s)

Case No. A10-00565-HAR

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF ALASKA

DATED: June 1, 2011

JUDGE HERB ROSS (Recalled)

In Chapter 7

MEMORANDUM DECISION FOR DISMISSAL UNDER § 707(b)(3)(B)

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¦Index                                                                     ¦  ¦
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¦1. SUMMARY OF DECISION-                                                   ¦1 ¦
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¦2. BACKGROUND                                                             ¦2 ¦
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¦The Debtors' Background                                                   ¦2 ¦
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¦FBFAA                                                                     ¦2 ¦
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¦Personal Residence and Church Property in Arizona                         ¦2 ¦
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¦The Alaska Residence                                                      ¦3 ¦
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¦Thomas' Illness and Attempts to Find Work                                 ¦3 ¦
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¦Adele's Endeavors                                                         ¦4 ¦
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¦The Decline Precipitating Bankruptcy                                      ¦5 ¦
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¦FBFAA's Responsibilities for the Bearups' Obligations and Its Debt to     ¦5 ¦
¦Thomas                                                                    ¦  ¦
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¦The Debtor's Current and Potential Income and Expenses                    ¦6 ¦
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¦Debtors' and Counsel's Lack of Cooperation                                ¦7 ¦
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¦3. ANALYSIS                                                               ¦8 ¦
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¦3.1. Standards of Proof and Burdens of Producing Evidence in a § 707(b)(3)¦8 ¦
¦(B) Case                                                                  ¦  ¦
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¦3.2. Canons for Deciding a § 707(b)(3)(B) Case .7                         ¦8 ¦
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¦3.3. Post-BAPCPA Abuse Under Totality of the Circumstance                 ¦9 ¦
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¦3.4. Application of In re Price  to   This Case                          ¦10¦
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¦4. CONCLUSION                                                             ¦12¦
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1. SUMMARY OF DECISION- The United States Trustee (UST) filed a motion to dismiss for abuse under 11 USC § 707(b)(2) for failure to pass the Means Test or § 707(b)(3)(B) under the totality of circumstances. The debtors, while having recently suffered financial reverses duelargely to health issues, have the right to tap cash flow from their nonprofit religious corporation and the ability to be gainfully employed (Adele¹ ). Allowing them a chapter 7 discharge would be an abuse under § 707(b)(3)(B).

2. BACKGROUND-

The Debtors' Background- The debtors are pastors in a religious mission they have pursued for, probably, over 15 years. Adele testified she is a homemaker, but also testified she is a pastor, deeply committed to the Bearups' religious mission. Thomas is currently 64 and Adele is 52.

They both have Alaskan roots. Thomas was a law enforcement officer in Alaska and Adele lived there, too. They went to Arizona (the exact date is unclear) and both attended Arizona College of the Bible in 1993. They funded their education with student loans. The court recently denied the debtors' request to declare these student loan obligations, having a current balance of about $43,000 for Adele and $46,000 for Thomas, nondischargeable under 11 USC § 523(a)(8).²

FBFAA- After attending bible college, the debtors pursued their religious mission through a 501(c)(3) nonprofit corporation, Family Bible Fellowship and Academy (FBFAA), of which they are the controlling members.

Personal Residence and Church Property in Arizona- They owned a home in their own name in Phoenix. FBFAA owned a building in Phoenix where the Bearups operated a church.

In 2006, the Bearups sold their personal residence, receiving about $276,000 in cash. They bought a mobile home, trailers, and spent about a over a year traveling around the lower United States, deciding how next to continue their mission. They also paid their personal credit cards, and assisted family members financially. Their debts appear to have been current at that time,except for the student loan obligations, against which they paid nothing. They also used $40,000 to make a down payment on their current residence in Alaska. The $276,000 appears to have been fully spent at the time the bankruptcy was filed on July 1, 2010.

In September 2008, FBFAA sold the church for $725,000. The record is not clear what cash down was paid and what became of it, but FBFAA took back a $685,000 note and deed of trust on the church property. The note and deed of trust wrapped a first deed of trust with a balance of $175,000, so FBFAA's equity was $510,000.

The obligor on the FBFAA note has made the monthly payments regularly. They are made to an escrow which pays part of each monthly installment to the underlying, first deed of trust obligation, and the balance to FBFAA. The installment payments on the wraparound increased in April 2011, and now pay FBFAA a little over $3,000 per month. The parties did not advice the court about the current balance, but the court estimates that FBFAA's portion of the note probably exceeds $450,000.

The Alaska Residence- The debtors decided to relocate back to Alaska. They bought a home in their own names of about 4,000 square feet, a detached garage, and 31 acres in Soldotna, in about July 2007. On this property, they intended to live and continue the religious mission of FBFAA. The monthly payments on the property are $2,890 (including taxes)³ Due to Thomas' illness and loss of income from Adele's child care enterprise (under the name, "The Ark"), mortgage payments were not made from December 2009. The Alaska loan servicer began foreclosure in about March 2010, triggering this bankruptcy case.

Thomas' Illness and Attempts to Find Work- After becoming ill in 2008, Thomas underwent abdominal surgery in Mexico in April 2009. There were life threatening complications and he had to undergo additional surgery in Alaska. He testified he was on the verge of death, but was saved when his stomach was removed.

At his request, he was released for work by his physician in August 2010. He testified he sought the release so he could start earning an income again. His family was in dire financial straits due the illness and he wanted to work.

Since his medical release, he has tried finding work in the Soldotna area in law enforcement, real estate and a ministry, all without success. He attributes this to his age, his medical fragility and the stagnant economy.

Adele's Endeavors- When she returned to Alaska, Adele started a child care business in 2008, not to earn profit in the normal sense, but as an adjunct to the Bearups' ministry, which envisioned serving unwed mothers. The business was called "The Ark," but was accounted for under the FBFAA tax return. The Ark grossed $41,500 in 2009.⁴

The business was increasingly successful. The state welfare agency encouraged her to expand and take on more children to care for. She took the training required by the state to run a day care, and became certified. She eventually, employed two of her daughters to assist.

The business, despite its good start, started losing clients in the last half of 2009, through no fault of hers she testified, but due to some adverse market dynamics. The state still encouraged her to continue in the business, and she tried to do this, going to extraordinary measures to advertise and promote the child care facility. Nonetheless, she closed it in April 2010, after determining that continuing was hopeless.

She also made a small amount catering weddings.

Her testimony indicates to the court that she is a dynamic, energetic, forceful, innovative person, who has devoted her life to her church for 14 years for no personal salary and no employment benefits (such as health care). She is nonetheless capable of earning a decent salary at any reasonable endeavor she chooses, and seems to be the type of person who would rise to the top of almost any business she chose to pursue.

The Decline Precipitating Bankruptcy- The Bearups testified that they have not been able to pay their Alaska mortgage since December 2009. They said they started paying Loan Improvement Service, some type of Arizona loan consolidation service. They were told the service would help consolidate their student loan debt, their credit card debt, get a short sale of their mobile home, and a refinance of their Alaska deed of trust. They testified they made payments from the end of 2009. The...