In re: DANIEL TODD CAMPBELL, Debtor.
Case No. 15-13426-BFK
UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF VIRGINIA Alexandria Division
August 3, 2016
Chapter 7
MEMORANDUM OPINION AND ORDER DENYING U.S. TRUSTEE'S MOTION TO DISMISS BANKRUPTCY CASE
This matter comes before the Court on the U.S. Trustee's Motion to Dismiss this Chapter 7 bankruptcy case pursuant to 11 U.S.C. §§ 707(b)(2) (the means test) and 707(b)(3) ("abuse"). Docket No. 30. The Debtor filed an Opposition. Docket No. 37 (Response), 38 (Amended Response). The Court heard the evidence on June 10, 2016. For the reasons stated below the Court will deny the U.S. Trustee's Motion.
The Court, having heard the evidence, makes the following findings of fact:
1. The Debtor, Daniel Todd Campbell, is an attorney. He practices with Crowell and Moring, LLP, in the District of Columbia. He is a graduate of Washington and Lee University School of Law and has an undergraduate degree from the College of William & Mary. He is divorced with one child, custody of whom he shares with his ex-wife.
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A. The Debtor's Income.
2. The Debtor earned gross compensation of $343,956.00 in 2013, and $508,668.00 in 2014. UST Ex. 3, Statement of Financial Affairs, Question No. 1. He earned gross compensation of $383,423.00 in 2015. DR Ex. J.1
3. The Debtor has a base salary and the opportunity for bonus compensation at his law firm. His recent salary history is as follows:
| 2011 | 2012 | 2013 | 2014 | 2015 | |
| Base: | $336,387 | $353,992 | $343,246 | $329,978 | $328,423 |
| Bonus: | $15,000 | --- | --- | $175,000 | $55,000 |
| Total: | $351,387 | $353,992 | $343,246 | $504,978 | $383,423 |
Id.
4. The Debtor testified that his 2014 bonus was a "one time" event, based on the fact that he was able to bring a substantial client matter into the firm. He further testified that he spent the 2014 bonus as follows:
| • Federal Income Taxes (Past Due) | $80,000.00 |
| • Virginia Income Taxes (Past Due) | (amount unknown) |
| • Federal Income Taxes (Due April 2015) | (amount unknown) |
| • Ocwen (Mortgage Arrearages) | $26,000.00 |
| • Bank of America (Mortgage Arrearages) | $7,000.00 |
| • Family Counselor | $5,000.00 |
| • Credit Card | $4,500.00 |
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| • Credit Card | $3,000.00 |
| • Auto Lease Payments | (amount unknown) |
| • Medical Bills | (amount unknown) |
| • Ongoing Mortgage Payments | (amount unknown) |
| • Engagement Ring | $16,500.00 |
5. By the Debtor's calculations, he spent approximately 9.5% of the 2014 bonus on a personal expenditure, the engagement ring, and paid almost 90% of the 2014 bonus to his creditors.
6. At the time that he filed his bankruptcy petition on September 30, 2015, the Debtor did not know whether he would receive a bonus for 2015. He testified that he did not learn of the 2015 bonus until some time in January 2016. The Debtor further testified that bonuses are discretionary with the firm and he is not entitled to a bonus at the end of any given year.
7. The Debtor testified that he is not expecting a bonus for 2016. In fact, he is concerned for his position with the firm because his hours are not meeting the firm's annual billable hour requirement of 1,900 hours.
B. The Courtland Road Property.
8. The Debtor and his ex-wife purchased the property at 1612 Courtland Road, Alexandria, Virginia, in 2006. The Debtor came to be the sole owner of the property as a result of his divorce.2
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9. There were two mortgages on the Courtland Road property - a first mortgage with Ocwen Loan Servicing, which required monthly payments of $5,039.00 per month, and a second mortgage with Bank of America, which required monthly payments of $1,211.00 per month. UST Ex. 3, Form 22A-2, Lines 33d and 33e. Together, the two mortgage payments totaled $6,250.00 per month. Id., Line 33g.
10. In mid-2015, the Debtor began investigating the possibility of a short sale of the Courtland Road property. The Debtor, in looking into the process of a short sale, determined that he should consult a bankruptcy attorney. In the words of the Debtor, his bankruptcy filing was "triggered by the short sale process."
11. The Debtor stopped paying the mortgages on the Courtland Road property in July 2015; the last payment he made was in June 2015. See UST Ex. 22 at p. 750.
12. The Debtor moved into his current residence, an apartment in Alexandria, Virginia, on August 1, 2015. The rent for the Debtor's apartment is $3,600.00 per month, plus utilities. DR. Ex. F. The apartment has two bedrooms and a loft. The Debtor testified that it was important to him to find a safe place for his daughter, as well as to be close to his office in D.C. so that he can work as many hours as necessary with as little commuting time as possible.
13. Although the move to the apartment cut the Debtor's housing bill roughly in half ($6,250.00 per month versus $3,600.00 per month), the Debtor lost the benefit of the income tax deductions associated with homeownership, specifically, the mortgage interest deduction and the deduction for real estate taxes paid to the local taxing authorities.
14. In response to an interrogatory from the U.S. Trustee asking "Do you intend to continue to make payments on any loans with respect to this property? [The Courtland Road
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property]," the Debtor answered: "I do not anticipate making any future payments on any loans associated with the property . . . ." UST Ex. 22 at p. 751.
15. U.S. Bank, N.A. (for whom Ocwen was the loan servicer), moved for relief from the automatic stay with respect to the Courtland Road property. Docket No. 17. The Court granted this Motion without opposition on November 20, 2015. Docket No. 25.
16. In addition, the Debtor filed with the Court a document entitled Trustee's Notice of Abandonment, stating: "[a]t the Debtors' request, in order to facilitate a short sale agreement of real estate located at 1612 Courtland Road, Alexandria, VA 22306, the Trustee has determined to abandon such real estate from the estate in accordance with 11 U.S.C. § 554(a) . . . " Docket No. 50. No objections were filed to the Notice of Abandonment and the Court entered an Order approving the abandonment of the property on June 17, 2016. Docket No. 62.
C. The Debtor's Divorce.
17. The Debtor and his former spouse separated in 2011. As noted above, the Debtor remained in the Courtland Road property.
18. As a result of his divorce, the Debtor's former spouse is entitled to 50% of his quarterly distributions, after deductions for retirement contributions (which the Debtor maintains are mandatory) and payment of the income taxes due on the distribution. DR Ex. G.
19. This translates to a payment to the Debtor's ex-wife of $4,350.00 per quarter, from his quarterly distributions. UST. Ex. 10, p. 110.
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D. The Debtor's Income Taxes.
20. The Debtor's Schedule E indicates that he owes $210,000.00 in income taxes to the Internal Revenue Service and $20,000.00 to the Virginia Department of Taxation. UST Ex. 3 at p. 28.
21. Before he filed for bankruptcy, the Debtor entered into a payment plan with the IRS, which required him to pay $2,805.00 per month for his 2012 and 2013 taxes. UST Ex. 22 at pp. 752-53. The Debtor testified that this amount will increase as a result of his 2014 income tax debt.
22. The IRS has filed a proof of claim in this case in the amount of $215,114.71, of which it asserts $174,902.84 is a priority debt under 11 U.S.C. § 507(a)(8). Proof of Claim No. 2-1. The IRS proof of claim indicates that $15,863.00 of its claim is secured, and $199,251.71 is unsecured. Id.
23. The Virginia Department of Taxation has not filed a proof of claim in the case.
E. The Debtor's Student Loans.
24. The Debtor also listed $143,363.00 in presumptively non-dischargeable student loan debt. UST Ex. 3, Sched. F.
25. Nelnet has filed a proof of claim in the case in the amount of $149,426.30, for the Debtor's student loans. Proof of Claim No. 1-1.
F. The Debtor's Car.
26. The Debtor leases a 2016 Acura MDX for approximately $600.00 per month. He entered into the lease in January 2015. See DR Ex. F.
27. The vehicle lessor, Acura, waived a penalty of $8,000.00 that would have been due on the Debtor's previous car lease had the Debtor not renewed with Acura.
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28. Further, the current lease includes maintenance on the vehicle.
G. The Debtor's Bankruptcy Filing and the Means Test.
29. The Debtor filed his voluntary petition under Chapter 7 with this Court on September 30, 2015. Docket No. 1.
30. The Debtor's Schedule I states that the Debtor has $18,958.33 in gross monthly income. UST Ex. 3, Schedule I, Line 2. The Debtor acknowledges, however, that this number (which equates to $227,499.96 in annual gross income) does not include his quarterly distributions.
(i) The Debtor's Means Test.
31. The Debtor's means test as originally filed resulted in negative monthly disposable income of ($8,413.00), and no presumption of abuse. UST Ex. 3, Form 22A-2, Line 39c.
32. When the quarterly distributions are factored in, the Debtor used an average monthly income for the six months preceding the bankruptcy on his Means Test of $23,880.03 (equating to $286,560.36). UST Ex. 3, Form 22A-1, Line 2.
33. The Debtor further acknowledges that his gross income on the Means Test is understated because he counted his voluntary contributions to his retirement plan ($3,135.25) twice. UST Ex. 6, p. 72. The Debtor agrees, therefore, that the U.S. Trustee's starting point of $27,243.30 is the correct number. UST Ex. 4, Official Form 122A-2, Line 1.
34. The Debtor's Means Test form uses the Local Housing Standard of $2,139.00 for his rent expense, although as noted above the Debtor is paying $3,600.00 per month in rent. Id. at Line 9.
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35. The Debtor also has taken deductions on his means test form for the Ocwen and Bank of America mortgages on Courtland Road, totaling $6,250.00. UST, Ex. 3, Form 22-A, Lines 33d and 33e.
(ii) The U.S. Trustee's Pro Forma Means...
