In re Hanks

618 B.R. 185

IN RE: Randy Joseph HANKS, Kristi Marie Hanks, Debtor

Case No. 19-20617

United States Bankruptcy Court, W.D. Louisiana, Lafayette Division.

Signed July 20, 2020

Ronald J. Bertrand, Lake Charles, LA, for Debtor.

Lucy G. Sikes, Chapter 7 Trustee, Lafayette, LA, for Trustee.

RULING ON MOTION TO DISMISS UNDER § 707(b) OF THE CODE

JOHN W. KOLWE, UNITED STATES BANKRUPTCY JUDGE

The United States Trustee has moved to dismiss this case, claiming it is presumed to be abusive of chapter 7 under 11 U.S.C. § 707(b) because the "means test" shows that the Debtors, Randy and Kristi Hanks, have disposable income above the statutory thresholds. The Debtors admit the presumption of abuse arises in this case, but claim it is rebutted by "special circumstances" requiring an adjustment to the expenses and income reflected in their means test calculation. The Trustee disagrees, focusing on the fact that the Debtors make nearly $160,000 per year, and arguing that the Debtors' adjustments are not "special circumstances." Given the parties' positions, the Court is tasked with determining whether the adjustments claimed by the Debtors rise to the level of "special circumstances" as contemplated by § 707 of the Code. The Court has considered the parties' pleadings and evidence, and rules as follows.

PRESUMPTION OF ABUSE UNDER THE BANKRUPTCY CODE

Section 707(b)(1) of the Bankruptcy Code authorizes a court to dismiss a case filed by an individual debtor "whose debts are primarily consumer debts ... if it finds" that relief under chapter 7 "would be an abuse of the provisions of" chapter 7. 11 U.S.C. § 707(b)(1). Under § 707(b)(2), the court must "presume abuse exists if the debtor's current monthly income reduced by the amounts determined under clauses (ii), (iii) and (iv) [of subsection (b)(2)(A) ]¹ , 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 $8,175, whichever is greater; or (II) $13,650." 11 U.S.C. § 707(b)(2)(A)(i) (emphasis added). This mathematical calculation is known as the "means test." If this test results in an average monthly disposable income figure that when multiplied by 60 exceeds the threshold provided in § 707(b)(2)(A)(i)(II) —$13,650—the bankruptcy case is presumptively abusive.

The presumption of abuse may be rebutted by showing that special circumstances exist. 11 U.S.C. § 707(b)(2)(B)(i). The statute does not define "special circumstances," but it provides two examples: (1) a serious medical condition, or (2) a call or order to active duty in the Armed Forces. "Special circumstances" are not limited to these two examples. 6 Collier on Bankruptcy ¶ 707.04[3][d] (Richard Levin & Henry J. Sommer eds. 16th eds., 2009 & Supp. 2020). The statute sets forth the procedural and substantive requirements a debtor must follow to establish special circumstances:

(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 of 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)(B)(ii) and (iii). The "debtor bears the burden of proof under both the procedural and substantive factors[.]" In re Martin , 505 B.R. 517, 521 (Bankr. S.D. Iowa 2014) ; In re Orlando , 2018 WL 3637231 at *1, *6 (Bankr. D. Mass. July 30, 2018) (citing Martin ); see also In re Pageau , 383 B.R. 221, 225 (Bankr. D.N.H. 2008).

Two Official Bankruptcy Forms have been developed to aid debtors in completing the means test calculation. The first is Form 122A-1, entitled "Chapter 7 Statement of Your Current Monthly Income," which is used to determine whether a debtor's annual income is above his or her state's median income. If above median, the debtor must complete the means test, and Form 122A-2, aptly entitled, "Chapter 7 Means Test," is used for completing that test.² If this test shows that the debtor's "monthly disposable income," when multiplied by 60, is above the statutory thresholds in § 707(b)(2)(A)(i)(I) or (II), then there is a presumption of abuse. To rebut the presumption, Form 122A-2 also contains a section for the debtor to disclose any special circumstances that may justify the allowance of additional expense deductions or adjustments to income. The Form instructs debtors to provide an itemization of all adjustments, and it advises debtors to provide all documentation in support of the adjustments to the trustee.

BACKGROUND

The Debtors' Form 122A-1 was filed with their schedules on August 30, 2019, and it shows that Mr. Hanks is employed as a registered nurse making $13,244.72 per month, or $158,936.64 annually.³ This Form also shows that the Debtors have a household of five, and that the median income in Louisiana for a household of that size is $87,489. Since the Debtors' annual income is nearly double the median, they were required to complete the means test, using Form 122A-2.

The means test shows that after giving effect to the allowed reductions to the Debtors' income, they have $405.46 in monthly disposable income, or $24,327.60 when that figure is multiplied by 60. Since this amount is greater than the statutory threshold in 11 U.S.C. § 707(b)(2)(A)(i)(II) of $13,650, the presumption of abuse arises, which the Debtors' admit.⁴ However, the Debtors set forth three "special circumstances" on Form 122A-2 that they claim rebut the presumption of abuse: student loan debt totaling $125,475, voluntary 401(k) payments of $929.50 per month, and excess vehicle expenses of $185.00 per month.

On October 28, 2019, the United States Trustee filed a Statement of Presumed Abuse. Since the Debtors did not dismiss their case or move to convert it to a Chapter 13 case in response to this Statement, the Trustee moved to dismiss the Debtors' case, arguing that the nondischargeability of the Debtors' student loan debt does not make it a special circumstance. The Trustee also argues that the voluntary 401(k) contributions and vehicle expenses are not "special circumstances" as contemplated by the Bankruptcy Code. Additionally, the Trustee noted that "several of the Debtors' ordinary means test deductions may be inflated," including the deductions of $210 per month for educational expenses, $283 per month in optional telephone expenses, and $457 per month in additional health care expenses. (ECF #15).

The Debtors objected to the Trustee's Motion, reiterating the alleged special circumstances set forth in Form 122A-2, and alleging two additional items that the Debtors contend are special circumstances: orthodontic work for their children and dental procedures needed by the codebtor for an implant and removal of impacted wisdom teeth. (ECF # 20). The Debtors objection also provided more information with respect to the additional health care expenses disclosed in the means test, noting that the "information in the means test as to medical includes the estimated monthly payment [for the orthodontist] but does not include the handling of the down payment" of $1,400. The Debtors also contend "that their Schedule I [income] and the actual necessary expenses as reflected on Schedule ‘J,’ do not allow for them to fund a Chapter 13 Plan[.]" Id.

Both the Trustee and the Debtors filed supplemental briefs just prior to the hearing. The Trustee's brief (ECF #21) provides more details in support of his claim that the Debtors have understated their income and have overstated some of the means test expenses. The Trustee contends the Debtors' income is understated because they did not disclose reimbursements they received from Mr. Hank's employer for cell phone usage. The Trustee also claims the telephone and education means test expenses are inflated, causing an understatement of monthly disposable income. After adjusting for these matters, the Trustee contends the Debtors' actual monthly disposable income is $967.97 per month, or $58,078.20 over a five-year period, not $405.56 per month and $24,327.60 over five years, as reported by the Debtors in Form 122A-2. The Trustee also reiterated his position that none of the adjustments requested by the Debtors rise to the level of "special circumstances" under prevailing jurisprudence.

The Debtor's supplemental brief (ECF #23) again reiterates the items they claim are "special circumstances." They also assert, for the first time, that their income has decreased since the Chapter 7 case was filed, because Mr. Hanks is no longer working overtime hours, which he voluntarily reduced so he could work on "clinicals" to become a nurse practitioner. Thus, the Debtors contend their current income, when annualized, will be approximately $141,108.36, which is nearly $20,000 less than they were making when the case was filed. The Debtors contend that the combination of the decreased income and their other special circumstances make it difficult for them to pay their regular monthly expenses, and they contend there is no money remaining on a monthly basis for them to fund a Chapter 13 plan.

The hearing on the Trustee's motion primarily focused on the arguments set forth by the parties in their briefing. The Debtors did not testify; nor did they submit an affidavit or sworn statement in support of any of their claims. However, without objection from the Trustee, they submitted documentary evidence in support of some of their claimed special circumstances, which will be discussed below.

The Court must determine whether the Debtors' student loan debt, voluntary 401(k) contributions, alleged excess vehicle expenses, orthodontist/dental costs, and the claimed reduction in income amount to special circumstances under § 707(b)(2)(B)(i) of the Code. Additionally,...