In re Slone

441 B.R. 274

In re Catherine M. SLONE, Debtor(s).

No. 10-31595.

United States Bankruptcy Court, N.D. Ohio.

Sept. 24, 2010.

Abbey M. Flynn, Toledo, OH, for Debtor(s).

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. 16). The Debtors filed a response to the Motion, objecting to the Dismissal of their case. (Doc. No. 24). A Hearing was then held on the matter. (Doc. No. 26).

At the conclusion of the Hearing, the Court deferred ruling on the Motion to Dismiss so as to afford the opportunity to farther consider the evidence and argumentssubmitted by the Parties. (Doc. No. 26). The Court also afforded the Debtor the opportunity to submit updated financial information. This information has since been submitted to the Court. Based upon a review of this information, as well as the entire record of this case, the Court finds, for the reasons now explained, that the Motion of the United States Trustee to Dismiss has merit.

FACTS

The Debtor, Catherine M. Slone, is a single woman, 45 years of age, with no dependents. On March 16, 2010, the Debtor filed a petition in this Court for relief under Chapter 7 of the United States Bankruptcy Code. (Doc. No. 1). At the time she filed for bankruptcy relief, the Debtor was employed with the United States Postal Services. The Debtor has worked for this employer for 25 years, and expects to continue working for her present employer for the foreseeable future.

From her employment, the Debtor earns a gross monthly salary of $5,344.13, equating to $64,129.56 annually. The Debtor did not disclose any other source of income. From her salary, the Debtor reported $1,867.66 in monthly withholdings, including a $133.73 deduction for life insurance, leaving the Debtor with a net monthly income of $3,476.47.

At the time she filed her bankruptcy petition, the Debtor reported that she had $3,427.17 in necessary, monthly expenses, thus leaving the Debtor with a slight surplus, $49.30 per month, in her household budget. After the Hearing held on Dismissal, however, the Debtor revised her necessary, monthly expenses upward to $3,856.67, thereby leaving the Debtor with a deficit of $380.20 in her monthly budget. Although not a complete list, the Debtor's revised budgetary figures included the following expenditures:

Telephone	$ 45.20
Cell Phone	$ 65.00
Home Maintenance	$350.00
Recreation	$130.00
Auto Insurance	$255.00
Student Loan	$444.00
Lawn Maintenance	$ 60.00
Snow Removal	$ 60.00

A few additional matters regarding the Debtor's income and expenses were also brought to the Court's attention.

First, the Debtor disclosed that she had $225.00 per month deducted from her salary as a "loan repayment for a health savings plan." (Doc. No. 33, at pg. 2). In addition, and although not itemized, the Debtor disclosed that she makes voluntary contributions to a retirement account. Finally, it was brought out at the Hearing that, for the 2009 tax year, the Debtor received a refund of between $2,000.00 and $3,000.00, and that a similar refund was expected for the 2010 tax year.

At the time she filed for bankruptcy relief, the Debtor reported that she had assets worth $116,408.00. The Debtor's assets consisted primarily of her residence, valued at $95,000.00, and a 2008 Ford Mustang valued at $10,000.00. The Debtor reported that both these assets are fully encumbered. In her statement of intention, the Debtor set forth that she intended to reaffirm the obligations secured against both her home and vehicle.

On the other side of the equation, the Debtor set forth that she had liabilities totaling $192,151.02. Of her liabilities, $107,541.00 constituted secured debt, with the remaining debt, totaling $84,610.02, being unsecured.

DISCUSSION

This matter is before the Court on the Motion of the United States Trustee to Dismiss. Matters concerning the dismissal of a case, which affects both the ability of a debtor to receive a discharge anddirectly affects the creditor-debtor relationship, are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(J)/(0). As a core proceeding, this Court has been conferred with the jurisdictional authority to enter a final order in this matter. 28 U.S.C. § 157(b)(1).

The Motion of the United States Trustee ("UST") to Dismiss is brought pursuant to 11 U.S.C. § 707(b)(1), § 707(b)(2) and § 707(b)(3). These sections operate together, with § 707(b)(1) first setting forth the foundational mandate, providing that, where the granting of relief under Chapter 7 would be an abuse, the debtor's case is to be dismissed. In the specific language of § 707(b)(1):

(b)(1) After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee (or bankruptcy administrator, if any), or any party in interest, 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.

This provision serves the purpose of preventing debtors from simply walking away from their legal obligations by limiting Chapter 7 relief to only those debtors truly in "need" of such relief. In re Oot, 368 B.R. 662, 670 (Bankr.N.D.Ohio 2007).

Sections 707(b)(2) and 707(b)(3) then set forth separate methodologies by which a determination of abuse is to be assessed under § 707(b)(1). First, under an objective 'means test' formula prescribed by § 707(b)(2), abuse will be presumed to exist when a 'disposable income' threshold is exceeded. In the alternative, § 707(b)(3) requires a court to undertake a subjective assessment of a debtor's financial situation, providing that abuse should be found to be present if it is determined that the debtor either filed their petition in bad faith or when the totality of the circumstances surrounding the debtor's financial situation demonstrate abuse. If either of the methods set forth in § 707(b)(2) or § 707(b)(3) then result 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).

For the two methodologies prescribed in § 707(b) for assessing abuse, the Court, having reviewed the Debtor's financial situation, finds that the dismissal of this case is warranted under § 707(b)(3). In full, this provision provides:

(3) In considering under paragraph (1) whether the granting of relief would be an abuse of the provisions of this chapter in a case in which the presumption in subparagraph (A)(i) of such paragraph does not arise or is rebutted, the court shall consider—

(A) whether the debtor filed the petition in bad faith; or

(B) the totality of the circumstances (including whether the debtor seeks to reject a personal services contract and the financial need for such rejection as sought by the debtor) of the debtor's financial situation demonstrates abuse.

For purposes of this provision, no allegations were made by the UST that the dismissal of the Debtor's case was warranted on account of "bad faith" as provided in § 707(b)(3)(A)—a position which this Court has no reason to question. However, the position of the UST, that the Debtor's case should be dismissed based on the totality of the Debtor's financial circumstances, as provided in § 707(b)(3)(B), is supported by the weight of the evidence in this case.

In bringing this action to dismiss the Debtor's case in accordance with § 707(b)(3)(B), the UST raised one overall ground for its position: "the Debtor has the ability to repay a portion of her unsecured debt." (Doc. No. 16, at pg. 1). This ground for dismissal, regarding a debtor's ability to repay their unsecured debts, is a prime and often dispositive consideration when determining whether, under the "totality of the circumstances" standard of § 707(b)(3)(B), a case should be dismissed for abuse. In re Masella, 373 B.R. 514, 518 (Bankr.N.D.Ohio 2007). In In re Krohn, the Sixth Circuit Court of Appeals, in addressing § 707(b), stated:

Among the factors to be considered in deciding whether a debtor is needy is his ability to repay his debts out of future earnings. That factor alone may be sufficient to warrant dismissal. For example, a court would not be justified in concluding that a debtor is needy and worthy of discharge, where his disposable income permits liquidation of his consumer debts with relative ease.

In re Krohn, 886 F.2d 123, 126 (6th Cir.1989).

A frequently utilized measure, when determining whether a debtor has the ability to repay their debts, is to ascertain whether, under a hypothetical Chapter 13 repayment plan, the debtor has the ability to repay a meaningful percentage of his or her unsecured debts. In re Behlke, 358 F.3d 429, 434-35 (6th Cir.2004). A debtor's ability to repay their debts is normally ascertained by reference to the amount of "disposable income" the debtor has available, and whether that income could adequately fund a Chapter 13 plan. Behlke v. Eisen (In re Behlke), 358 F.3d 429, 435 (6th Cir.2004). For purposes of bankruptcy law, the term "disposable income" is defined, generally, as that income received by a debtor which is not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor. Id., citing 11 U.S.C. § 1325(b)(2).

Within this definitional framework, the Debtor, relying on her revised budgetary figures, had put forth the position "that she does not have the income to proceed in a Chapter 13." (Doc. No. 33, at pg. 2). These revised figures show a monthly shortfall in the Debtor's monthly budget of $380.20.

However, whether a debtor has "disposable income" available to repay their debts is made exclusively by the court, and is thus not dependent on the financial figures put forth by the debtor or any other party. In re...