IN RE STUBBLEFIELD

430 B.R. 639

In re Karen Elizabeth STUBBLEFIELD, Debtor.

No. 09-38572-rld7.

United States Bankruptcy Court, D. Oregon.

June 21, 2010.

Jonathan C. Kuni, Portland, OR, for Debtor.

Vivienne Popperl, Portland, OR, for U.S. Trustee.

MEMORANDUM OPINION

RANDALL L. DUNN, Bankruptcy Judge.

On May 25, 2010, I heard evidence and argument at the final evidentiary hearing ("Hearing") on the United States Trustee's ("UST") Motion to Dismiss Case Pursuant to 11 U.S.C. §§ 707(b)(1) and (b)(3) ("Motion to Dismiss"). At the conclusion of the Hearing, I took the matter under advisement.

In deciding this contested matter, I have considered carefully the testimony presented and exhibits admitted at the Hearing, as well as arguments presented orally. I further have taken judicial notice of the docket and documents filed in the debtor's chapter 7 case for purposes of confirming and ascertaining facts not reasonably in dispute. Federal Rule of Evidence 201; In re Butts, 350 B.R. 12, 14 n. 1 (Bankr. E.D.Pa.2006). In addition, I have reviewed applicable legal authorities. In light of that consideration and review, this Memorandum Opinion sets forth the Court's findings of fact and conclusions of law under Federal Rule of Civil Procedure 52(a), applicable with respect to this contested matter under Federal Rules of Bankruptcy Procedure 9014 and 7052.¹

Factual Background

There is no substantial disagreement between the parties as to the facts. The debtor, Karen Stubblefield ("Ms. Stubblefield"), is a well-educated woman with substantial financial experience and historically high income.

A) Educational Background and Employment History

Ms. Stubblefield graduated from Whitworth College in 1993 with a bachelor's degree in business. Since that time, with limited exceptions, she has worked in the mortgage business for a number of employers, including ITT Residential, Washington Mutual, AIG United Guaranty, National City Mortgage, and from April 2006 to the present, with Wells Fargo Bank ("Wells Fargo").

Ms. Stubblefield's first position with Wells Fargo was as sales manager for the Home Equity Division, where she hired, trained and supervised 25 sales agents. From January 2008 until April 12, 2010, Ms. Stubblefield served as a market development consultant for Wells Fargo. As of April 13, 2010, Ms. Stubblefield began in a new position as a home mortgage consultant for Wells Fargo Home Mortgage. Her duties include originating consumer home mortgages and hiring sales agents. After hiring her first sales agent, her title will be sales supervisor.

B) Events Leading up to Bankruptcy Filing

In 2006, Ms. Stubblefield became a member of NSW Investments LLC ("NSW"), a three-member LLC formed to invest in real estate. NSW purchased and managed real property in Arizona. At its high water mark, NSW had acquired eight investment properties.

When the "housing bubble" recession hit in 2007-2008, the Arizona real estate market crashed. The NSW members found that they were not able to retain renters for their investment properties willing to pay rents adequate to service the secured debt on the properties. In fact, the values of NSW's investment properties decreased to the point where they could not be sold for amounts adequate to pay off the secured liens on the properties. Ultimately, all of NSW's investment properties were foreclosed, and NSW was dissolved in 2008.

During 2007 and 2008, Ms. Stubblefield and the other NSW members invested heavily in attempts to ride out what they expected to be a temporary downturn in the real estate market. Ms. Stubblefield withdrew substantial sums from her retirement accounts and incurred substantial credit card debt, attempting to maintain NSW's rental properties and pay her share of associated mortgage debt. However, she soon came to the realization that she could not maintain this pattern of spending in light of the more long-term implications of the decline in real estate values.

C) Decision to File a Bankruptcy Petition and Events in Bankruptcy

Ms. Stubblefield first contacted a bankruptcy attorney in 2008, but she did not file a chapter 7 petition until October 19, 2009. She considered filing for relief in chapter 13 but ultimately opted for chapter 7. Subsequent to her bankruptcy filing, Ms. Stubblefield entered into a reaffirmation agreement with OnPoint Community Credit Union ("Credit Union") to reaffirm $28,377.97 in debt secured by a 2007 Chevrolet Tahoe ("2007 Tahoe"), with payments of $491 a month bearing interest at 4.49%. The docket in Ms. Stubblefield's chapter 7 case does not reflect that an order has been entered approving her reaffirmation agreement with the Credit Union, and her attorney did not sign off on the reaffirmation agreement.

On December 7, 2009, the UST filed a notice stating its conclusion that Ms. Stubblefield's chapter 7 filing was not presumed to be an abuse under § 707(b)(2). However, the UST filed the Motion to Dismiss on January 25, 2010. Wells Fargo, as first lienholder on Ms. Stubblefield's condominium unit residence ("Residence") filed a motion for relief from stay ("RFS Motion") on May 13, 2010. Ms. Stubblefield responded to the RFS Motion, requesting a hearing, on May 27, 2010, but admitted in her response that she was in default of her mortgage payment obligations to Wells Fargo. EMC Mortgage, the second lienholder on the Residence, has not moved for relief from the stay.

D) Historical and Current Income Information

Ms. Stubblefield's income information represents a microcosm of the ups and downs (mostly downs) in the real estate business since 2006. In her Statement of Financial Affairs, Ms. Stubblefield reports her gross employment income for 2007 as $402,378. She received additional rental income in 2007 of $18,507. In 2008, Ms. Stubblefield's gross employment income fell to $120,799, but her rental income increased to $134,816. In 2009, Ms. Stubblefield reported estimated gross employment income of $108,229, with additional rental income of $17,000, plus contributions to expenses from her domestic partner estimated at $3,207.

In her Form B22A statement of current monthly income at the time of her bankruptcy filing, Ms. Stubblefield reported gross monthly income of $10,417.45. On her Schedule I and in her reaffirmation agreement with the Credit Union, Ms. Stubblefield stated her current monthly income as $9,137.04. Ms. Stubblefield testified that in 2009 and through April 10, 2010, she earned approximately $10,000 a month, or $120,000 a year.

At the time of her bankruptcy filing, Ms. Stubblefield knew that her income would be declining further; she just did not know when. At her new Wells Fargo job, Ms. Stubblefield's gross earnings through two pay periods for work performed from April 11 through May 8, 2010 totaled only $2,300.58. However, Ms. Stubblefield testified that she was going to try to increase her income as soon as possible, and she expected that her income would increase substantially over a six months to one year time frame. As she progresses in her new job and hires additional sales agents operating under her supervision, her compensation potentially will increase based on the performance of those she supervises.

On March 11, 2010, Ms. Stubblefield received a $36,266 bonus from Wells Fargo, based primarily on her 2009 performance. The net bonus proceeds, after withholdings, in the amount of $25,277.40 were deposited into her personal bank account at JP Morgan/Chase. The bonus was not unexpected: In March, 2009, Ms. Stubblefield received an annual bonus from Wells Fargo in the gross amount of $28,615. At her Rule 2004 examination on April 7, 2010, Ms. Stubblefield testified that the bonus proceeds were "paid out to medical expense right away." Ms. Stubblefield has a Health Savings Account through Wells Fargo, and in January, 2010, she elected a $5,000 contribution to her flexible spending account for the year.

Ms. Stubblefield has had two surgeries so far this year, including elective surgery through Oregon Weight Loss Surgery ("OWLS"). On March 23 and 25, 2010, Ms. Stubblefield withdrew $9,800 and $7,065.04 in cash from her JP Morgan/Chase account. She paid $7,065 to Legacy Emmanuel Hospital and $9,800 to the surgeon and OWLS. On March 18, 2010, Ms. Stubblefield paid out an additional $4,595 on a Bank of America credit card in her mother's name to cover use by Ms. Stubblefield of her mother's credit card for unreimbursed business expenses.

Through May 8, 2010, Ms. Stubblefield's 2010 earnings totaled $70,612.58.

E) 401(k)

Ms. Stubblefield contributes to a 401(k) plan through her employer, Wells Fargo. In her Schedule B, she reported $31,366.09 in her Wells Fargo 401(k) and an additional $56,160.99 in a Vanguard Retirement Account.

Ms. Stubblefield has borrowed from her 401(k) account as follows: $8,830 in August, 2008; $15,550.85 on August 11, 2009; and $5,550 on January 18, 2010. Ms. Stubblefield testified at her rule 2004 examination that she used the August 2009 401(k) loan proceeds to cover her housing expenses because she did not have enough money otherwise to make the trust deed payments for the Residence. Ms. Stubblefield also testified that she intended to continue to make a 6% contribution to her 401(k) plan each pay period. However, she acknowledged that her 401(k) contributions have changed over time as her expenses have changed. She stated that she is able to change her contribution amount each pay period, depending on her expenses. Her contributions have varied from $0 to $240.35 per pay period.

F) Rental Property

Since August 2001, Ms. Stubblefield has owned a duplex rental property ("Duplex") jointly with her father. The Duplex is rented on a month-to-month basis, with total rental proceeds of $1,700 per month.

The Duplex is encumbered with first and second mortgages. Monthly mortgage payments are $967 and $456 respectively. Additional expenses, including garbage, water and sewer, liability insurance and...