In re Brown

500 B.R. 255

In re Veronica BROWN, Debtor.

No. 12–12316.

United States Bankruptcy Court,

S.D. Georgia,

Augusta Division.

Sept. 6, 2013.

Terrance P. Leiden, Leiden & Leiden, PC, Augusta, GA, for Debtor.

OPINION AND ORDER

SUSAN D. BARRETT, Chief Judge.

Before the Court is an Objection to Confirmation filed by Huon Le, Chapter 13 Trustee (“Trustee”). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2) and the Court has jurisdiction pursuant to 28 U.S.C. § 1334. For the following reasons, the Trustee's objection to confirmation is overruled.

FINDINGS OF FACT

Veronica Brown (“Debtor”) filed a chapter 13 bankruptcy petition on December 19, 2012. According to her means test, Debtor is an above-median debtor with an annual income of $66,996.00 while the median in Georgia for a household of two is $50,901.00. Dckt. No. 1, means test. On line 57 of her means test, entitled “Deduction for special circumstances” Debtor lists student loan payments in the amount of $500.00/month. Id. The Department of Education has filed two unsecured claims; one in the amount of $41,381.22 and the other in the amount of $58,590.49. Claim Nos. 5 and 6.

Debtor has filed a 60 month chapter 13 plan proposing to pay: directly on her student loan debt $500.00 per month; $340.00/month for her daughter's private school tuition; and a 1% dividend or $100.00, whichever is greater, to her general unsecured creditors. Dckt. No. 4.

The Trustee objects to Debtor's plan stating Debtor is not submitting all of her disposable income to the plan. Dckt. No. 20. The Trustee objects to Debtor taking a $500.00 deduction on the means test as a “special circumstance” for her student loans and Debtor's payment of her daughter's private school tuition while paying a 1% (or $100.00) dividend to her unsecured creditors. Dckt. No. 20. The Trustee states that a 100% plan is required for Debtor to continue to pay these expenses. Dckt. No. 20. The Trustee calculates that if the student loan payment is not allowed as a deduction, the means test would require a $20,380.80 dividend to general unsecured creditors, or approximately a 16% dividend to unsecured creditors. Dckt. No. 33.

Debtor's schedules reflect a monthly income of $4,137.00 and expenses of $3,863.00 which include deductions for the $500.00/month in her student loan payments and $340.00/month ¹ for private school tuition for a net monthly disposable income of $274.00. Dckt. No. 1, Schs. I and J.

As to the student loans, Debtor testified she is employed as a supervisor at Club Car. She obtained her bachelor's degree from Augusta State University and her master's degree (“MBA”) from Phoenix University in October of 2011. Debtor worked diligently and obtained her higher education while employed at Club Car and raising her daughter as a single parent. Debtor owes approximately $100,000.00 in student loans and is paying $300.00/month on her Stafford loan and $200.00/month on her Sallie Mae Consolidated Loan. Both of these payments include a 6% interest component.Debtor testified her loans have been in forbearance and she made her first payment in February 2013, two months after she filed for bankruptcy. Debtor testified her loans are eligible for forbearance, but they would continue to accrue interest while in forbearance.

Debtor stated she was promoted to supervisor after she obtained her bachelor's degree. While Debtor testified other people have lost jobs as supervisors because they did not have a bachelor's degree, Debtor obtained her bachelor's degree before becoming a supervisor. She has not been promoted since obtaining her MBA nor has she been told she had to get a MBA degree in order to maintain her job at Club Car.

Debtor's 12 year-old daughter that was born premature and has been diagnosed with Attention Deficit Hyperactivity Disorder (ADHD) as well as some speech and auditory difficulties. Debtor testified her daughter has attended Columbia County Christian Academy since first grade. Her daughter also attends a special speech/language program at Lakeside Middle School (a Columbia County Public School) one day a week. Hr'g held March 8, 2013, Debtor's Ex. Nos. 1 and 2. In her brief, Debtor expressed concerns as to possible bullying her daughter may be subject to in the public schools due to the difficulty in relating to peers and adults, along with her speech and auditory problems, as expressed in the reports. Debtor testified she does not think Richmond County Public schools could provide the level of special attention her daughter needs. Debtor testified she had not looked into Richmond County Public Schools except for Davison Fine Arts, a public magnet school, which her daughter applied for but did not score high enough on the math portion of the admissions test to be admitted. Hr'g held March 8, 2013, Debtor's Ex. No. 3. Debtor plans to have her daughter retake the admissions test for Davison Fine Arts next year.

CONCLUSIONS OF LAW

There are three main issues in this case. The first issue is whether the student loan payment is a special circumstance. The second issue is whether Debtor should be allowed to make her student loan payments directly to the creditors, as proposed. The third issue is whether Debtor's payments above the statutory limit for private school tuition constitute special circumstances for her daughter under the facts of this case. The Trustee argues neither of these payments should be deducted from Debtor's disposable income and therefore these monthly payments should be committed to paying her creditors.

In a chapter 13 bankruptcy case an individual is able to obtain a discharge of many of her debts if she pays all of her disposable income into the chapter 13 plan during the life of the plan. See11 U.S.C. § 1325(b)(1)(B) and § 1328. “Disposable income” is defined in pertinent part as “current monthly income” less “amounts reasonably necessary to be expended” for the “maintenance or support of the debtor or a dependent of the debtor.” 11 U.S.C. § 1325(b)(2)(A)(i). With the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Congress instituted a means test which provides a formula to calculate a debtor's disposable income. “For a debtor whose income is above the median for his State, the means test identifies which expenses qualify as ‘amounts reasonably necessary to be expended.’ ” Ransom v. FIA Card Servs., N.A., ––– U.S. ––––, 131 S.Ct. 716, 721–22, 178 L.Ed.2d 603 (2011).

Pursuant to 11 U.S.C. § 1325(b)(3), “amounts reasonably necessary to be expended”for above median debtors must be determined pursuant to 11 U.S.C. § 707(b)(2)(A) and (B). Section 707(b)(2)(A) and (B) provides in pertinent part:

(A)(ii)(I) The debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor's actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides, as in effect on the date of the order for relief, for the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent. Such expenses shall include reasonably necessary health insurance, disability insurance, and health savings account expenses for the debtor, the spouse of the debtor, or the dependents of the debtor. Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts

...

(IV) In addition, the debtor's monthly expenses may include the actual expenses for each dependent child less than 18 years of age, not to exceed $1,875 per year per child, to attend a private or public elementary or secondary school if the debtor provides documentation of such expenses and a detailed explanation of why such expenses are reasonable and necessary, and why such expenses are not already accounted for in the National Standards, Local Standards, or Other Necessary Expenses referred to in subclause (I)

...

(B)(i) In any proceeding brought under this subsection, the presumption of abuse may only be rebutted 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 that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative.

(ii) In order to establish special circumstances, the debtor shall be required to itemize each additional expense or adjustment of income and to provide—

(I) documentation for such expense or adjustment to income; and

(II) a detailed explanation of the special circumstances that make such expenses or adjustment to income necessary and reasonable.

(iii) The debtor shall attest under oath to the accuracy of any information provided to demonstrate that additional expenses or adjustments to income are required.

11 U.S.C. § 707(b)(2)(A) and (B). In the case sub judice, Debtor is above median and therefore her expenses must be analyzed pursuant to section 707(b)(2) of the Bankruptcy Code. Debtor's proposed plan raises several issues addressing the tension between her proposed 1% dividend to her general unsecured creditors and her proposed deductions as they relate to her student loan repayment plan and her daughter's private school tuition.

Student Loan Payments As Special Circumstances.

The first issue is whether Debtor's student loans constitute “special circumstances” that cause higher household expenses for which there is no reasonable alternative. 11 U.S.C. § 707(b)(2)(B). Section 707(b)(2) provides:

(B)(i) In any proceeding brought under this subsection, the presumption of abuse may only be rebutted by demonstratingspecial 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 that justify...