In Re John Polinghorn

436 B.R. 484

In re John POLINGHORN and Gretchen Fayerweather, Debtor(s).

No. 10-31093.

United States Bankruptcy Court,N.D. Ohio.

Aug. 27, 2010.

Kelly O'Brien, Toledo, OH, for Debtors.

Ronna Jackson, Office of the U.S. Trustee, Cleveland, OH, for U.S. Trustee.

DECISION AND ORDER

RICHARD L. SPEER, Bankruptcy Judge.

This cause comes before the Court on the Motion of the United States Trustee to Dismiss this case pursuant to 11 U.S.C. § 707(b)(1), § 707(b)(2) and § 707(b)(3). (Doc. No. 37). The Debtors filed a response to the Motion, objecting to the Dismissal of their case. (Doc. No. 45). A Hearing was then held on the matter. At the conclusion of the Hearing, the Court deferred ruling on the Motion to Dismiss so as to afford the opportunity to further consider the evidence and arguments submitted by the Parties. (Doc. No. 46). The Court has now had the opportunity to review all of the arguments and evidence submitted in this case, and finds, for the reasons now explained, that the Motion of the United States Trustee to Dismiss has Merit.

BACKGROUND

On March 4, 2010, the Debtors, John Polinghorn and Gretchen Fayerweather, filed a petition in this Court for relief under Chapter 7 of the United States Bankruptcy Code. (Doc. No. 1). The Debtors also, as required by the Bankruptcy Rules, filed an Official Form B22A, entitled “Chapter 7 Statement of Current Monthly Income and Means-Test Calculation.” This form implements the requirement of § 707(b)(2)(C), requiring a debtor to perform the ‘means test’ calculation of § 707(b)(2) so as to determine if granting relief in the case should be presumed to be an abuse. In completing Form B22A, the Debtors, who represented that they had a combined gross annual income of $73,365.96, determined that no presumption of abuse arose in their case, checking then the applicable box on the Form. (Doc. No. 1).

The Debtors later filed an Amended Form B22A. (Doc. No. 17). Among the amendments set forth in this Form, the Debtors made a significant upward adjustment to their income, reporting a combined annual income of $123,135.60. Based upon this adjustment, as well as other changes made to their expenses, the Debtors determined that, according to the ‘means test’ formula of § 707(b)(2), a presumption of abuse arose in their case. For this calculation, the Debtors determined that they had a monthly disposable income of $1,722.76, well exceeding the abuse threshold of 195.42. ¹ On June 28, 2010, the United States Trustee (hereinafter the “UST”) filed the Motion now before the Court to Dismiss this case. (Doc. No. 37). Although not recognizing the propriety of all the expenses utilized by the Debtors in their ‘means test’ calculation, the UST agreed with the Debtors' overall conclusion that the granting of relief in this case should be presumed to be an abuse for purposes of § 707(b)(2). The UST further maintained that the presumption of abuse had not been rebutted, thereby maintaining that “on that basis alone” this case should be dismissed. Id. at pg. 4. As now explained, the Court agrees.

DISCUSSION

This matter is before the Court on the Motion of the UST to Dismiss pursuant to 11 U.S.C. § 707(b)(1), § 707(b)(2) and § 707(b)(3). The determination of a matter such as this, concerning the dismissal of a case, which affects both the ability of a debtor to receive a discharge and directly affects the creditor-debtor relationship, is deemed to be core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(J)/(O). As such, this Court has jurisdiction to enter final orders and judgments in this matter. 28 U.S.C. § 157(b)(1).

Section 707(b)(1) provides for the dismissal of a bankruptcy case when it is determined that the granting of relief would be an abuse. Two methods are then prescribed in § 707(b) to assess whether “abuse” is present: (1) presumed abuse under the objective ‘means test’ set forth in § 707(b)(2); and (2) a subjective test found in § 707(b)(3) which considers whether the debtor filed their petition in bad faith and whether the totality of the circumstances surrounding the debtor's financial situation demonstrate abuse. If either of these methods results in a finding of abuse, the case becomes ripe for dismissal under § 707(b)(1). In re Longo, 364 B.R. 161, 164 (Bankr.D.Conn.2007).

In this case, the Debtors did not contest the veracity of their amended ‘means test’ calculation, showing that the presumption of abuse arises in their case. The Debtors, rather, in seeking to maintain their Chapter 7 bankruptcy, note that the income figures set forth in their ‘means test’ calculation, while accurate at the date of filing, no longer present an accurate picture of their financial situation. For example, the Debtors called attention to the fact that Mr. Polinghorn's income has declined since the filing of the petition. As such, the Debtors ask that the Court consider the realities of their financial condition when assessing whether to dismiss their case. (Doc. No. 45). On a related point, the Debtors also ask that they be allowed to expense in their ‘mean test’ calculation the costs necessary to service a student-loan debt as well as the costs associated with the repayment of a loan taken against a retirement account. Respectively, these costs total 196.00 and $704.00 per month.

As it concerns the application of § 707(b)(2), the Debtors first point, that the Court should consider postpetition changes to their financial situation, does not comport with the methodology prescribed by the ‘means test.’ In short, the ‘means test’ calculation of § 707(b)(2) is based on a “snapshot” of a debtor's financial situation as of the petition date. Thus, postpetition changes to a debtor's income and expenses, as well as a debtor's future intentions, while possibly relevant to a determination of abuse under § 707(b)(3), are not taken into consideration when determining whether the granting of relief should be deemed to be presumptively abusive for purposes of § 707(b)(2).

This was the approach previously taken by this Court in In re Haar, 360 B.R. 759 (Bankr.N.D.Ohio 2007), when, after examining the matter in-depth, it was determined that the ‘means test’ of § 707(b)(2) is a strict mechanical test, designed to present a snapshot of the debtor's financial situation as of the date the bankruptcy case if commenced. In addition, nearly all reported decisions which have had occasion to address this issue have reach the same result. See, e.g., Fokkena v. Hartwick, 373 B.R. 645, 655 (D.Minn.2007) ( “the means test is aimed at capturing a ‘snapshot’ of the debtor's financial state as of the date the petition is filed, rather than at constructing a forward-looking analysis of the debtor's financial situation.”); In re Rudler, 388 B.R. 433, 438 (1st Cir. BAP 2008) (when applying § 707(b)(2), a “ ‘snap-shot’ of the debtor's situation as of the petition date is a more appropriate approach, given the plain language of the statute.”); In re Maya, 374 B.R. 750, 753 (Bankr.S.D.Cal.2007) (“for purposes of the ‘means test’ analysis of § 707(b)(2) the appropriate measuring point in time is the petition date.”); In re Lindstrom, 381 B.R. 303, 308 (Bankr.D.Colo.2007) ( “means test [i]s a mechanical, backward-looking test, designed to measure the debtor's ability to fund a chapter 13 plan as of the petition date.”); In re Norwood-Hill, 403 B.R. 905, 910 (Bankr.M.D.Fla.2009) (“Congress chose to base the means test on historic income and expense figures that are in effect on the petition date, as opposed to figures that may change with the passage of time or with a change in the debtor's lifestyle.”); In re Perelman, 419 B.R. 168, 175 (Bankr.E.D.N.Y.2009) (“§ 707(b)(2)(A)(iii) is patent in its calling for a “snapshot” of the debtor's obligations or circumstances on the date the bankruptcy petition was filed.”).

Under the doctrine of stare decisis, a court, in the absence of any intervening change in the law or some other compelling reason, such as an obvious or manifest error in the precedent, is to abide by a principle of law laid down in a past decision to a present case having substantially the same facts. Irby v. Preferred Credit (In re Irby), 359 B.R. 859, 861 (2007). In this case, the Debtors did not offer any substantive reason as to why the “snapshot” approach is not proper when performing the ‘means test’ calculation under § 707(b)(2). Accordingly, postpetition changes to the Debtors' financial situation will be disregarded in assessing the existence of abuse under § 707(b)(2).

In addition to the postpetition changes that have occurred to their financial situation, the Debtors also asked that they be allowed to expense in their ‘means test’ calculation monthly payments they make to service a student-loan debt as well as to repay a loan taken against a retirement account. Together, these payments total $900.00 per month.

As just stated, the ‘means test’ is an objective, mechanical test. In this way, the expenses allowed by a debtor in the ‘means test’ formula of § 707(b)(2) are fixed by statute, and in many instances are set without regards to what may constitute a debtor's true monthly expenditures.

The test, therefore, may not comport with the reality of a debtor's financial situation.

The ‘means test,’ however, does constitute an explicit Congressional determination as to the reasonable level of financial resources a debtor, who seeks to completely discharge their unsecured debts, may devote for their own needs and at the expense of their unsecured creditors. It is also true that the “common theme in the Supreme Court's bankruptcy jurisprudence over the past two decades is that courts must apply the plain meaning of the Code unless its literal application would produce a result demonstrably at odds with the intent of Congress.” In re Lee, 530 F.3d 458, 470 (6th Cir.2008) (listing Supreme Court decisions). As such, this Court is without authority to permit a debtor to expense on the ‘means test’...