In re Riggs

495 B.R. 704

In re Michael Lynn RIGGS and Virginia Harriet Riggs, Debtors.

No. 12–71761.

United States Bankruptcy Court,

W.D. Virginia,

Roanoke Division.

July 9, 2013.

John M. Lamie, Browning Lamie & Gifford, Abingdon, VA, for Debtors.

MEMORANDUM DECISION

WILLIAM F. STONE, JR., Bankruptcy Judge.

The United States Trustee has filed a Motion to Dismiss this case pursuant to 11 U.S.C. § 707(b)(3) (“the Motion”) asserting that “the totality of the circumstances ... of [their] financial situation demonstrates abuse” of the provisions of Chapter 7 of the Bankruptcy Code. The Motion presents a challenging issue of interpretation under the facts of this case because a part of that “totality of the circumstances” is the receipt by the male Debtor of Social Security income which under the § 707(b)(2) presumption of abuse is explicitly excluded from consideration. This question whether such income should be taken into account in the § 707(b)(3) “totality of the circumstances” test has elicited differing answers from the bankruptcy and appellate courts which have attempted to resolve it, some holding that it is appropriate under § 707(b)(3) to consider such income as unavoidably being one factor, often a very important one, in sizing up bankruptcy debtors' overall “financial situation,” ¹ while other authority has concluded that such consideration is improper and at odds with Congressional intent to shield Social Security benefits from being forcibly utilized, directly or indirectly, to pay creditors.² While arriving at a completely intellectually satisfying resolution of this conundrum is a daunting endeavor, this Court has been greatly assisted in that effort by the excellent briefs on this issue which have been provided by counsel and it wishes to note and express its appreciation to them for the quality of their advocacy. For the reasons hereafter noted and upon the facts determined below, the Court concludes that the Motion should be granted.

PROCEDURAL HISTORY

Michael and Virginia Riggs filed in this Court a petition under Chapter 7 of the Bankruptcy Code on September 26, 2012. On December 21, 2012 the United States Trustee filed pursuant to § 707(b) of the Bankruptcy Code a Motion to Dismiss Case for Abuse. The Motion states that the Debtors could afford a monthly payment of $442.28 for the benefit of their creditors in a Chapter 13 plan without adjusting their lifestyle or surrendering any property, which would result in a payment of 46.36% of their unsecured debt without the contribution of tax refunds. The Motion sets out:

By way of example and not limitation, the Debtors: (i) have the ability to pay a substantial distribution to their creditors without modifying their lifestyle; (ii) did not file his [sic] case as a result of some sudden calamity; and (iii) are making payments on luxury goods such as a camper and tractor instead of adjusting their budget to repay their creditors.On January 16, 2013 the Debtors filed a Response, which denied that the Debtors could make the payment as set forth by the United States Trustee and stated a number of changed circumstances comprised of an increased payroll tax and personal property tax, the necessity to purchase a new refrigerator, and an increase in health insurance premiums. A hearing was held on January 23 at which discovery deadlines were set and on January 29 the Court entered a scheduling order setting a trial date of March 20.

The United States Trustee filed a Supplement to the Motion on March 8, 2013 which alleged that the Debtors had additional income which was not disclosed on Schedule I. The Supplement set forth that the Debtors deposited $21,185.07 into their bank account which averages $5,296.26 in income per month. It also alleged that the Debtors knew or should have known that secured payments totaling $338 would be satisfied within a year and this fact should have been disclosed on Schedule J. In addition to the grounds for dismissal set forth in the original Motion, the Supplement added that the Debtors:

(iv) filed inaccurate schedules related to their income and expenses which failed to accurately reflect their true financial condition; (v) appear to have stable sources of income; and (vi) even outside of bankruptcy, appear to have the ability to pay their debts over time.

A trial was held on March 20 and both Debtors and a representative from the United States Trustee's office testified. Mr. Riggs stated that most of the secured debt was incurred between approximately April of 2010, when Mr. Riggs traded in his 2008 Ford F–150 for a 2010 Ford F–150, and December of 2011, ³ when Mr. Riggs used his unencumbered John Deere tractor as collateral to secure a loan of new money of $2,500 from Springleaf Financial Services which he used to buy truck tires. He did not specify the cost of such tires or explain the use made of the balance of the loan proceeds. During this time period after Mr. Riggs acquired the 2010 model Ford F–150 truck in April, the Debtors purchased a camper the next month, in September or October of 2011 the Debtors purchased household goods comprised of a dinette set and mattress from Grand Home Furnishings and approximately one month after that Mrs. Riggs purchased a 2011 Ford Fusion in November of 2011.⁴ Mr. Riggs also testified that they purchased the time share with Bluegreen Vacation Club in 2010.⁵

Prior to filing the Debtors participated in a debt consolidation program for about five months which began with them making a payment of approximately $600 followed by monthly payments of approximately $350. The timing of when this occurred was not pinned down at trial or in the schedules, but it must have taken place within one year prior to the petition date as the Debtors noted in their answer to question number 9 of the SOFA that they had paid a total of $2,076.03 to “Global Client Services” for payments related to debt counseling or bankruptcy in addition to the amount they had paid to their bankruptcy counsel in this case. After some time in the program, the Debtors began receiving calls from their creditors and learned that the debt consolidation company had not contacted them. Mr. Riggs testified that their credit card debt went from $22,000 to $30,000 during this period.⁶ At that point the Debtors, according to their testimony, decided to file for Chapter 7 relief.

THE DEBTORS' FINANCIAL SITUATION AND ITS ORIGINS

On the original Schedule A filed with their petition the Debtors listed their residence property as having an estimated value of $150,000 subject to mortgage indebtedness of $161,434.77. On Schedule B they listed a total of $65,792.35 in personal property.⁷ The total value of property claimed as exempt in Schedule C is $19,187.36. The value of all of the property on Schedule B was either listed as fully encumbered on Schedule D or exempted on Schedule C except the following: $50 in misc. pictures, $500 in cats and dogs, $628.75 equity in the various items of lawn equipment, and $50 equity in the replacement windows. The Debtors listed on Schedule D a number of secured claims: the already noted mortgage debt in the amount of $161,434.77; a debt of $21,013.34 owed to Eastman Credit Union secured by a 2010 Ford F–150 valued at $20,530; a debt of $22,073.99 owed to Ford Motor Credit Company secured by a 2011 Ford Fusion valued at $17,980; a debt of $3,950 owed to GECRB/Grand Home Furnishings secured by a dinette set and mattress valued at $1,300; a debt of $871.25 owed to John Deere Credit secured by various pieces of lawn equipment valued at $1,500; a debt of $1,986.89 owed to Kingsport Press Credit Union secured by a 2010 Flagstaff camper valued at $4,400; a debt of $1,899 owed to Springleaf Financial Services secured by a compact tractor valued at $5,000; and a debt of $950 owed to Springleaf Financial Services secured by replacement windows valued at $1,000.⁸ The Debtors did not show any priority claims on Schedule E. Their Schedule F showed a total of $30,906.76 in general unsecured claims ⁹ consisting of $29,406.34 of credit card debt involving thirteen separate accounts and $1,500.42 for medical services. ¹⁰

Schedule I represented that Mr. Riggs was “Disabled/Retired” and Mrs. Riggs was the manager of a convenience store. Mrs. Riggs' monthly gross income was stated as $2,982.89. Mr. Riggs listed monthly Social Security income of $1,227 and pension or retirement income of $1,487 for a total of $2,714. The Debtors listed a combined average monthly income of $4,965.93. Schedule J lists average monthly expenses as $4,942.25. Notable expenses include: $1,065.26 for rent/home mortgage, $341 for propane/cell phone/cable/internet (this is in addition to $200 for electricity and heating fuel), $152.09 for homeowner's insurance, window payments of $163, GECRB (household goods) $100, JD (lawn equipment) $175, KPCU (camper) $160, and SpringLeaf (tractor) $140. In answer to Question 19 regarding any increase or decrease in Schedule J expenses anticipated within one year of filing, the Debtors answered “None.” Schedule J showed monthly net income of $23.68. The Debtors filed Statements of Intention indicating their intent to retain and reaffirm the debts on their real property, the John Deere Tractor, the 2010 Ford F–150, the 2011 Ford Fusion, the 2010 Flagstaff camper, the lawn equipment, the dinette set and mattress, and the replacement windows. On October 9, 2012 the Debtors filed an Amended Schedule A to disclose a trust agreement in a time share with an unknown value and a secured claim of $8,658.96. The Debtors also filed an Amendment to the Creditor Matrix on the same day to add Bluegreen Mortgage Department.¹¹ The Debtors did not amend Schedule D to list the secured debt nor did they file a Statement of Intention with regard to either the retention or surrender of the time share. On October 25, 2012 the Debtors filed an Amended Schedule B to disclose Mr. Riggs' ownership of a “DR Power Grader w/ 4ft...