United States Tr. v. Campayno (In re Campayno)

In re: JESSE C. CAMPAYNO, Debtor.

UNITED STATES TRUSTEE, Movant, v. JESSE C. CAMPAYNO, Respondent.

No. 21-22319-GLT

Related to Dkt. Nos. 35, 38

United States Bankruptcy Court, W.D. Pennsylvania

April 27, 2022

Chapter 7

Jodi L. Hause, Esq. Office of the United States Trustee Pittsburgh, PA Attorney for the United States Trustee

Kathryn L. Harrison, Esq. Campbell & Levine, LLC Pittsburgh, PA Attorney for the Debtor

MEMORANDUM OPINION

GREGORY L. TADDONIO, UNITED STATES BANKRUPTCY JUDGE

Jesse C. Campayno pockets over $7, 296 each month after payment of his expenses, yet insists he needs chapter 7 relief to discharge a single $50, 000 business guaranty. In terms of abuse, this is not a close case. Indeed, the United States Trustee requests dismissal^[1] under section 707(b)(3) of the Bankruptcy Code, ^[2] though the Debtor claims immunity from such scrutiny. He theorizes that the bulk of his debt-mortgage obligations secured by his residence-are not "consumer debts" under the Bankruptcy Code because they were "incurred by" a tenancy by the entirety and not "an individual."^[3] Finding his protestations a mere smokescreen to distract from crystal clear abuse, the Court will grant the Motion to Dismiss.

I. BACKGROUND

The facts are undisputed and premised entirely on the bankruptcy schedules. The Debtor filed a voluntary chapter 7 petition on October 27, 2021 and indicated that his debts were "primarily business debts."^[4] On Schedules D and E/F, the Debtor listed six debts totaling $333, 800:^[5]

Creditor

Type

Amount

Wells Fargo Home Mortgage

First Mortgage on Residence

$75, 000

Dollar Bank

Second Mortgage on Residence

$120, 000

Toyota Financial Services

Motor Vehicle Loan

$29, 000

Internal Revenue Service

Income Tax

$50, 000

Pennsylvania Department of Revenue

Income Tax (pass through income from LLC)

$9, 800

Key Bank

Business Guaranty

$50, 000

The guaranty owed to Key Bank is marked as contingent, unliquidated, and disputed on Schedule E/F and is the only unsecured, non-priority debt subject to possible discharge in chapter 7.^[6] In fact, the sole purpose of this chapter 7 case is to discharge the Key Bank guaranty.^[7] Key Bank commenced a breach of contract action against the Debtor in the Court of Common Pleas for Allegheny County prepetition.^[8] He asserts that bankruptcy relief was necessary because he "could no longer sustain the financial burden of the litigation" and Key Bank "refused to permit . . . any type of monthly payment plan."^[9]

On Schedule A/B, the Debtor listed a Pittsburgh residence worth $250, 000 that he owns with his spouse as tenants by the entirety.^[10] He also disclosed two vehicles: a 2019 Toyota Highlander fully encumbered by a lien and a high-mileage 2005 Toyota Rav4 worth $2, 500.^[11]Beyond that, the Debtor's scheduled assets appear modest: $5, 000 in household goods, a $100 desktop computer, $200 golf clubs, ordinary clothes, a wedding band, and joint checking accounts totaling $5, 428.59.^[12] On Schedule C, he listed nearly all property from Schedule A/B, but in most instances failed to claim an amount as exempt other than $0.^[13]

The Debtor's household consists of himself, his wife, and his "adult" son.^[14] His wife is not employed and receives social security payments of $1, 566 per month.^[15] The record does not indicate whether his adult son is employed or contributes to the household. The Debtor is employed as a project director, but he neglected to specify on Schedule I how long he has been with his current employer.^[16] On his Statement of Financial Affairs, the Debtor listed annual gross income of $175, 989, $184, 741, and $165, 000 (through 10+ months of 2021) for the last three years.^[17] On Schedule I, the Debtor reported a combined monthly income of $16, 928.50 after payroll deductions, inclusive of social security payments of $3, 133 and an "averaged" lump-sum bonus in the amount of $2, 226.^[18] Although not included in his income itemization, the Debtor revealed that he will also earn an additional $8, 000 "this semester" teaching at the University of Pittsburgh, which he does "every other academic year for one semester."^[19]

There is a glaring inconsistency between Schedule A/B and Schedule I. The Debtor reported on Schedule A/B he has no retirement or pension accounts, ^[20] yet disclosed a monthly payroll deduction of $439.83 for "[m]andatory contributions for retirement plans" on Schedule I.^[21]In the Response, he reiterated his lack of retirement savings to help dispel the notion that this filing was abusive under the totality of the circumstances.^[22]

On Schedule J, the Debtor set down monthly expenses totaling $9, 631.56.^[23] These expenses are reproduced in the table below:

Monthly Expense

Schedule J

Rental or home ownership expense

$1, 970.00

Property, homeowner's, or renter's insurance

$120.00

Home maintenance, repair, and upkeep expenses

$400.00

Additional mortgage payments

$250.00

Electricity, heat, natural gas

$500.00

Water, sewer, garbage collection

$150.00

Telephone, cell phone, internet, satellite, and cable services

$400.00

Food and housekeeping supplies

$1, 200.00

Clothing, laundry, and dry cleaning

$500.00

Personal care products and services

$300.00

Medical and dental expenses

$400.00

Transportation

$550.00

Entertainment, clubs, recreation, newspapers, magazines, and books

$200.00

Charitable contributions and religious donations

$200.00

Life Insurance

$65.00

Health Insurance

$100.00

Vehicle Insurance

$176.00

Disability Insurance (deducted from payroll)

$240.00

IRS Repayment Plan

$750.00

Car Payments for Vehicle 1

$580.56

Citizens (Student Loan; recently consolidated)

$380.00

Other real property expenses: Maintenance, repair, and upkeep expenses

$200.00

Total Monthly Expenses

$9, 631.56

Even on a cursory examination, several listed expenses stand out. First, the monthly student loan expense of $380 is curious because the Debtor did not list any student loans on Schedule E/F. Second, considering only one real property is listed on Schedule A/B, it is unclear why there is a second line item for real property "maintenance, repair, and upkeep expenses."^[24] Third, at least $240 of insurance expenses listed on Schedule J are expressly duplicative of the insurance payroll deductions reflected on Schedule I.^[25]

Deducting all monthly expenses ($9, 631.56) from the Debtor's combined monthly income ($16, 928.50) yields monthly net income of $7, 296.94.^[26] But remember, his actual monthly net income is likely larger due to teaching income and the duplicative insurance expense.^[27] Following the meeting of creditors in January 2022, the chapter 7 trustee filed a report signaling there were no assets available for distribution.^[28] Weeks later, the Trustee filed the Motion to Dismiss, arguing that the Debtor's financial situation demonstrates that chapter 7 relief would be an abuse under section 707(b)(3).^[29] In response, the Debtor asserted section 707(b)(3) is not applicable because his debts are primarily business, not consumer, in nature.^[30] After a hearing on the Motion to Dismiss, the Court took the matter under advisement. Neither party requested an evidentiary hearing, agreeing instead that the Court could rely on the Debtor's schedules.^[31]

II. JURISDICTION

This Court has authority to exercise jurisdiction over the subject matter and the parties under to 28 U.S.C. §§ 157(a), 1334, and the Order of Reference entered by the United States District Court for the Western District of Pennsylvania on October 16, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(A).

III. POSITIONS OF THE PARTIES

A. The United States Trustee

The Trustee's position is simple: putting aside the Debtor's expenses, ^[32] it would be an egregious abuse to allow him to discharge a single $50, 000 debt that he could easily pay in less than a year from his monthly net surplus of $7, 296.94.^[33] The Trustee argues that the facts do not support the Debtor's characterization of his debts as primarily business in nature.^[34] Agreeing that neither the guaranty nor the income tax debt are "consumer debts, "^[35] the Trustee nonetheless asserts that the mortgage loans and vehicle loan indisputably are and account for most of the debt. The Trustee denies that the calculus is altered by the Debtor's tenancy by the entirety, contending that the Debtor is conflating property interests with obligations.^[36] In fact, the Trustee argues that recognizing such a tenancy by the entirety "loophole" would be an absurd result.^[37]

B. The Debtor

In contrast, the Debtor's position is somewhat confusing and contradictory. In essence, he theorizes that neither the mortgage obligations nor the taxes can be "consumer debts" as defined by the Code because they were not "incurred by an individual."^[38] The Debtor reasons that "individual," though undefined, must refer to a singular, natural person based on its usage in the Code.^[39] But he contends the term "individual" must also be defined under non-bankruptcy law "in the context of a married couple owning joint property."^[40] The Debtor urges that "[i]n Pennsylvania it is axiomatic [that] 'although there are two natural persons, tenants by the entirety are but one person in law.'"^[41] Thus, he argues that "the liability incurred to purchase the home is borne by that same marital entity [that took title], a separate legal entity from either the Debtor or his spouse."^[42] The Debtor submits that the tax debt similarly arose from joint tax returns filed by "[he] and his spouse as a unit."^[43] Yet he asserts that this separate legal entity is not an "individual, "^[44] despite his insistence that the term be defined by reference to state law.^[45] In any event, the Debtor concludes...