In re Koglman

IN RE: KATIE MARIE KOGLMAN, Debtor.

CASE NO. 18-60482

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION

February 26, 2020

The court incorporates by reference in this paragraph and adopts as the findings and orders of this court the document set forth below. This document was signed electronically at the time and date indicated, which may be materially different from its entry on the record.

CHAPTER 7

JUDGE RUSS KENDIG

MEMORANDUM OF OPINION

(NOT FOR PUBLICATION)

This case is a prime example of the unfairness of the rigid application of the so-called "means test" to a debtor under 11 U.S.C. § 707(b)(2).

Debtor and her husband were previously granted a dissolution of marriage. As part of a settlement agreement, Debtor's husband agreed to keep real property located at 10341 W. Old Lincoln Way, Wooster Ohio 44691 (the "Lincoln Way Property") and hold Debtor harmless on the mortgage. But Debtor's husband fell behind on the mortgage payments and eventually filed his own chapter 7 case. In re Chad R. Griffith, No. 17-61254 (Bankr. N.D. Ohio May 31, 2017). After her husband obtained a discharge, creditor Equity Trust Corporation garnished Debtor's wages for notes that her husband had signed by forging her name. Debtor's husband forged Debtor's signature on loans for various rental properties, and he admitted to the forgery in the Domestic Relations Division of the Wayne County Court of Common Pleas. (Debtor Hr'g Test., Dec. 16, 2019, 10:05 AM); see also Griffith v. Griffith, No. 15 DR 0186 (Wayne Cty. Dom. Rel. Ct. Mar. 20, 2018). As a result, the court invalidated the marriage dissolution due to his fraud and Debtor and her husband are still married. The primary reason Debtor filed this case was to stop the wage garnishment arising from a debt that she likely does not or should not owe.

The United States Trustee ("UST") filed a motion to dismiss this case for abuse pursuant to 11 U.S.C. § 707(b)(1)-(3) (the "Motion") on June 28, 2018. Debtor objected to the Motion on July 9, 2018. An evidentiary hearing was held on December 16, 2019, at which time Ronald Stanley, counsel for Debtor, and Tiiara Patton, counsel for the UST, attended. Debtor and Catherine Lowman ("Lowman") testified at the hearing. Lowman works as a bankruptcy auditor for the UST. The UST filed its amended post-hearing brief on January 9, 2020 and Debtor filed her post-hearing brief on January 31, 2020.

In rendering this decision, the court has considered the testimony of the witnesses and the exhibits admitted into evidence during the hearing. The court has also considered the joint stipulations filed by the parties before the hearing.

The court has subject matter jurisdiction under 28 U.S.C. § 1334 and the general order of reference entered in this district. This matter is a core proceeding and the court has authority to enter final orders. 28 U.S.C. § 157(b)(2)(A). Pursuant to 28 U.S.C. §§ 1408 and 1409, venue in this court is proper. This opinion constitutes the court's findings of fact and conclusions of law in accordance with Rule 7052 of the Federal Rules of Bankruptcy Procedure.¹

This opinion is not intended for publication or citation. The availability of this opinion, in electronic or printed form, is not the result of a direct submission by the court.

I. BACKGROUND

The following facts are derived from the joint stipulation of facts filed by the parties on October 24, 2019.

On March 13, 2018 (the "Petition Date"), Debtor filed a voluntary petition (the "Petition") for relief under chapter 7 of the Bankruptcy Code. On the Petition Date, Debtor filed her Statement of Current Monthly Income, schedules, and statement of financial affairs (collectively, the "Schedules") and means test (the "Means Test"). Debtor's debts listed on her Schedules are primarily consumer debts. On May 29, 2018, Debtor filed amended Schedules I and J. On November 26, 2018, Debtor further amended her Schedules I and J. The UST filed a Statement of Presumed Abuse on May 29, 2018.

Debtor is employed as the executive director at United Way of Wayne and Holmes Counties, Inc. According to Debtor's pay advice dated September 4, 2019, Debtor's average gross monthly income is $6,822.06, and average monthly net income is $4,437.82. Debtor is on track to earn a gross annual income of $81,864.72. Debtor voluntarily contributes approximately $230.80/month to a TDA, which is a retirement savings plan offered through her employer. Debtor's employer reimburses her $150/month for transportation costs in addition to her monthly wages. In addition, in 2017 Debtor received a tax refund in the amount of $3,000. In 2018, Debtor received a tax refund in the amount of $3,526.

Debtor resides with Adam Olp at 484 Woodland Avenue, Wooster, Ohio 44691. Mr. Olp is employed and financially contributes to household expenses in connection with the home that he shares with Debtor. Debtor does not include Mr. Olp's income on either her Statement of Currently Monthly Income or her Schedules.

II. LAW & ANALYSIS

Section 707(b) of the Bankruptcy Code provides in relevant part:

(1) After notice and a hearing, the court, on its own motion or on a motion by the United States trustee . . . may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor's consent, convert such a case to a case under chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions of this chapter . . . .

(2)(A)(i) In considering under paragraph (1) whether the granting of relief would be an abuse of the provisions of this chapter, the court shall presume abuse exists if the debtor's current monthly income reduced by the amounts determined under clauses (ii), (iii), and (iv), 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 $7,700, whichever is greater; or

(II) $12,850.

§ 707(b)(1), (2). Section 707(b)(2) sets forth a formula for determining whether a case is presumed to be an abuse. If the presumption of abuse arises, the debtor has the burden of rebutting it by demonstrating "special circumstances," such as a serious medical condition or a call or order to active duty in the armed forces. § 707(b)(2)(B)(i). The so-called "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 [is] commenced." In re Polinghorn, 436 B.R. 484, 488 (Bankr. N.D. Ohio 2010). The party moving to dismiss pursuant to § 707(b), here, the UST, bears the burden of proving abuse by a preponderance of the evidence. In re Weixel, 494 B.R. 895, 901 (B.A.P. 6th Cir. 2013) (citation omitted).

The UST contends that the presumption of abuse arises in this case. The UST's argument is based on its claim that Debtor understated her current monthly income and overstated several expenses on her Means Test.

First, the UST argues that Debtor's current monthly income is understated. At the hearing, Lowman's testimony showed that Debtor's gross wages on her Statement of Current Monthly Income should be increased from $5,944.44 to $6,499.99. Once this amount is increased, Debtor's annualized income increases to $77,999.88. Debtor appears to agree that her income was understated. (Debtor's Br. 1, ECF No. 99.) At the same time, Debtor mentions that the paystubs in the UST's income calculation were subject to a wage garnishment. (Id.) However, for purposes of determining a debtor's current monthly income, the debtor's gross income - prior to any deductions or garnishments - is used. See § 101(10A); see also Official Form B 122A-1. Therefore, the court agrees with the UST's assessment of Debtor's current monthly income.

Second, the UST successfully argues that Line 13d of the Means Test must be reduced from $485 to $0. Debtor included this deduction for a 1997 Dodge Dakota that is not subject to a lien or ongoing monthly payment. Debtor argues that this deduction is permitted by Hildebrand v. Kimbro (In re Kimbro), 389 B.R. 518 (B.A.P. 6th Cir. 2008). However, that decision was reversed by the Sixth Circuit in Hildebrand v. Kimbro (In re Kimbro), 409 F. App'x 930 (6th Cir. 2011). The Sixth Circuit reversed the BAP because of the Supreme Court's decision in Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 72 (2011), which held that a debtor cannot claim an allowance for vehicle-ownership costs unless the debtor has expenses falling within that category. See e.g., In re Reynolds, No. 10-63787, 2011 Bankr. LEXIS 3235, at *6 (Bankr. N.D. Ohio Aug. 18, 2011).

Third, the UST argues that Line 17 of the Means Test should be reduced from $193.33 to $0. The UST claims that this deduction is limited to payroll deductions required by a debtor's job and does not include voluntary 401(k) contributions. Debtor, relying on In re Tucker, 389 B.R. 535 (Bankr. N.D. Ohio 2008), suggests that voluntary contributions to her retirement account are not necessarily impermissible when determining whether to dismiss for abuse. But Debtor's reliance on Tucker is misplaced. The holding in Tucker was limited to a determination as to whether the totality of the debtor's financial circumstances was considered an abuse under § 707(b)(3). Here, the issue is whether Debtor was permitted to deduct voluntary 401(k) contributions on her Means Test for purposes of determining whether to dismiss under § 707(b)(2). She was not. See, e.g., In re Whitaker, No. 06-33109, 2007 Bankr. LEXIS 2527, at *7, 15 (Bankr. N.D. Ohio July 25, 2007) (debtor's discretionary contributions to 401(k) plan account were not a requirement of debtor's job and therefore not proper deductions).

Next, the UST argues that Line 23 of the Means Test should be reduced from $185 to $50. This deduction is titled "optional telephones and telephone services." Debtors are instructed to deduct:

The total monthly amount that you pay for telecommunication

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