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Bankruptcy Abuse Prevention and Consumer Act: USDC-MN; Auto ownership exemption "not applicable" to debtor; OK to deduct secured payments on property

1
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
________________________________________________________________
HABBO G. FOKKENA,
United States Trustee,
Appellant,
v. MEMORANDUM OF LAW & ORDER
Civil File No. 06-4433 (MJD)
DANA M. HARTWICK,
Appellee.
________________________________________________________________
Michael E. Ridgway, Office of the United States Trustee, Counsel for Appellant.
John D. Lamey, III, and Ryan M. Pacyga, Lamey & Pacyga, PA, Counsel for
Appellee.
_________________________________________________________________
I. INTRODUCTION
This matter is before the Court on Appellant Habbo G. Fokkenas appeal of
the bankruptcy courts Order entered October 13, 2006, denying the United States
Trustees motion to dismiss. The stated issue on appeal is whether the bankruptcy
court erred by denying the United States Trustees motion to dismiss the Debtors
bankruptcy case under 11 U.S.C. 707(b)(1), based on the presumption of abuse
as determined under 11 U.S.C. 707(b)(2). The parties address the following two
issues:
1. Whether, under 11 U.S.C. 707(b)(2)(A)(ii), a debtor qualifies for an
expense allowance referred to as ownership costs under the Local
Transportation Standards issued by the Internal Revenue Service for
a vehicle that is owned free and clear of liens.
2
2. Whether, under 11 U.S.C. 707(b)(2)(A)(iii), a debtor qualifies for
an expense allowance for payments on secured debts when no
payments will be made because the debtor intends to surrender the
property securing the debt.
The Court heard oral argument on June 22, 2007.
II. FACTUAL BACKGROUND
On June 12, 2006, Appellee Dana M. Hartwick (Hartwick or Debtor)
filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code.
Also on June 12, 2006, in connection with her petition, Hartwick filed
schedules itemizing her assets and liabilities, an Official Form B22A, and a Chapter
7 Individual Debtors Statement of Intention. Official Form B22A is the Statement
of Current Monthly Income and Chapter 7 Means Test Calculation, commonly
referred to as the means test form that Chapter 7 debtors with primarily
consumer debt are required to file. These documents disclosed:
Hartwick identified an ownership interest in her residence located in Woodbury,
Minnesota. (Schedule A.) (On November 7, 2006, she filed a notice of change of
address, indicating that she no longer lived at that address.) Hartwick indicated
that she owned one automobile, a 2000 Hyundai Tiberon. (Schedule B.) She
indicated that her Woodbury home was secured by a first mortgage of
3,913.96 and a second mortgage of ,569.42, but did not identify any lien
on her automobile. (Schedule D.) She also indicated her intention to surrender
her interest in her Woodbury residence. (Chapter 7 Individual Debtors Statement
3
of Intention.)
On June 30, 2006, the holder of the first mortgage on the Debtors home
filed a motion with the bankruptcy court to permit foreclosure proceedings. It
argued that Hartwick had not made the required payments for May 2006 and
June 2006. On July 24, 2006, the bankruptcy court authorized the mortgage
holder to pursue foreclosure proceedings under state law.
On August 11, 2006, Appellant the United States Trustee Habbo Fokkena
(Trustee) filed a motion to dismiss the case under 11 U.S.C. 707(b), on the
grounds that it would be an abuse of Chapter 7 to grant a discharge to the Debtor
because she had sufficient disposable income to repay her unsecured creditors at
least 3.71 per month. 11 U.S.C. 707(b)(2). Specifically, the Trustee argued
that the Debtor did not qualify for allowances for certain expense amounts,
including (1) vehicle ownership costs under the Local Standards issued by the
Internal Revenue Service for a vehicle she owns free of any liens and on which she
is not making a monthly loan or lease payment; and (2) average monthly
mortgage payments on the Debtors residence that she had ceased making and
would never make in the future because she planned to surrender her residence
to secured creditors.
On September 12, 2006, the Debtor filed a second amended Official Form
B22A resulting in a negative monthly disposable income of 1.57, indicating
4
that the presumption of abuse did not arise.
On September 14, 2006, the bankruptcy court held a hearing on the
Trustees motion to dismiss. The parties agree that whether the presumption of
abuse arose depended on whether Hartwick was entitled to expense allowances
for vehicle ownership costs and average payments to secured creditors. Hartwick
sought to subtract 1 from her current monthly income as a vehicle ownership
cost although she does not make monthly loan or lease payments on her vehicle.
She also sought to subtract monthly mortgage payments of ,423.25, although
she had made no mortgage payment since April 2006 and had indicated her
intent to surrender the residence, and the mortgage holder had obtained an order
allowing it to pursue foreclosure remedies under state law.
On October 13, 2006, the bankruptcy court denied the Trustees motion. In
re Hartwick, 352 B.R. 867, 870 (Bankr. D. Minn. 2006). The court concluded that
the statute authorized Hartwick to reduce her current monthly income by both
the Local Standard for vehicle ownership costs for one car and the average
monthly amount of mortgagee payments on her surrendered residence.
The Trustee filed the current appeal. The Trustee requests that, if the
Court concludes that Hartwick is not eligible for either of the two expense
categories, the Court remand the case to the bankruptcy court for recalculation
under the means test without deductions for those expenses.
5
III. DISCUSSION
A. Standard of Review
This Court reviews the bankruptcy courts findings of fact for clear error and
its legal conclusions and conclusions involving mixed questions of law and fact de
novo. DeBold v. Case, 452 F.3d 756, 761 (8th Cir. 2006).
B. Means Testing under 11 U.S.C. 707(b)(2)
In a Chapter 7 bankruptcy case, trustees liquidate a debtors non-exempt
assets to pay creditors and then the debtor receives a discharge of her debts.
Section 707(b) of the Bankruptcy Code was enacted in 1984. . . . The
purpose for the amendment to section 707(b) was to limit the
chapter 7 bankruptcy remedy for consumer debtors to those debtors
who are honest and who need the remedy to preserve a decent
standard of living for themselves and their dependents. By this
enactment, persons who have primarily consumer debts and who
have financial resources in excess of their basic needs would be
forced to seek relief under a reorganization chapter or to otherwise
attempt to repay their creditors.
In re Goddard, 323 B.R. 231, 233-34 (Bankr. S.D. Ohio 2005) (citation omitted).
On October 17, 2005, the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 (BAPCPA) took effect. The BAPCPA, among other
things, amended 707(b) of the Bankruptcy Code, which governs dismissal of
Chapter 7 bankruptcy cases. One of the purposes of the amendment was to curb
abuse by dismissing cases filed by Chapter 7 debtors who seek discharge of their
debts even though they have the ability to repay their creditors and, thus, file
6
under Chapter 13, under which debtors usually repay some or all of their debts.
151 Cong. Rec. S1856 (Mar. 1, 2005) (statement of Sen. Charles Grassley), quoted
in Eugene R. Wedoff, Means Testing in the New 707(b), 79 Am. Bankr. L.J. 231,
231 (2005).
The BAPCPA amended 707(b) to replace a presumption in favor of
granting discharge with a presumption that a case was an abuse of Chapter 7 if a
mathematical formula set out in the statute, referred to as the means test, yields
a minimum amount of monthly disposable income. The means test calculates the
debtors current monthly income, as defined under 11 U.S.C. 101(10A), (CMI)
based on the debtors average income for the six months preceding the month of
the bankruptcy filing. If the debtors monthly disposable income, after reducing
the CMI by allowed expenses under 707(b)(2)(A)(ii)-(iv), is more than a
particular amount, the presumption of abuse arises.
The United States Trustee is required to review all materials filed by the
debtor. 11 U.S.C. 704(b). If the Trustee determines that the presumption of
abuse arises and the debtors income is not less than the median family income in
the debtors state, the Trustee is required to either file a motion to dismiss the
bankruptcy case or file a statement setting forth the reasons the Trustee does not
consider a motion to dismiss to be appropriate.
In this case, the issue is whether the Debtor qualifies for expense allowances
7
for two expense categories: vehicle ownership costs under Local Standards issued
by the IRS and average monthly future payments on account of secured debts.
C. Whether an Ownership Costs Expense Allowance Applies to
Vehicles Owned Free of Liens
1. Introduction to Vehicle Ownership Costs
Under 707(b)(2)(A)(ii)(I), a debtors monthly expenses under the means
test shall be the debtors applicable monthly expense amounts specified under the
National Standards and Local Standards, and the debtors actual monthly
expenses for the categories specified as Other Necessary Expenses issued by the
Internal Revenue Service for the area in which the debtor resides, as in effect on
the date of the order for relief. . . . The IRS Local Standards, found in the
Internal Revenue Service Financial Analysis Handbook, include both
transportation and housing related expenses. The IRS Local Standards apportion
transportation expenses into two components, one related to the costs associated
with financing vehicle acquisition, which the IRS refers to as ownership costs,
and the other component associated with the costs of vehicle operation, which the
IRS refers to as the operating costs. IRS Collection Financial Standards,
available at http://www.irs.gov/individuals/article/0,,id=96543,00.html. The
transportation ownership cost is standardized to be 1 for the first car and 8
for the second car. IRS Allowable Expenses for Transportation, available at
http://www.irs.gov/businesses/small/article/0,,id=104623,00.html.
8
The Trustee asserts that, before the specific IRS expense amounts may be
included in the debtors allowed monthly expenses, the expense itself must first be
applicable to the debtor. In other words, the vehicle ownership cost will not apply
unless a loan or lease payment obligation actually exists. Hartwick asserts that she
can deduct the car ownership expense even if she does not make a monthly car
payment because she owns a car.
2. Plain Language of the Statute
The starting point in discerning congressional intent is the existing
statutory text, and not the predecessor statutes. It is well established that when
the statutes language is plain, the sole function of the courts at least where the
disposition required by the text is not absurd is to enforce it according to its
terms. Lamie v. U.S. Trustee, 540 U.S. 526, 534 (2004) (citations omitted).
Hartwick asserts that the plain language of the statute provides that debtors
are permitted to claim the Local Standards ownership expenses based on the
number of vehicles they own, rather than on the number for which they make
payments. She argues that, with respect to car ownership expense, the term
applicable in the phrase applicable monthly expense amounts relates to a
determination of the number of vehicles owned by the debtor and the column to
use in finding the appropriate figure in the Local Standards table First Car or
Second Car. Hartwick claims that applicable does not mean actual, a term
9
Congress uses in the same sentence. 11 U.S.C. 707(b)(2)(A)(ii)(I) (The
debtors monthly expenses shall be the debtors applicable monthly expense
amounts specified under the National Standards and Local Standards, and the
debtors actual monthly expenses for the categories specified as Other Necessary
Expenses . . .) (emphasis added).
The Court agrees that, by using the two terms in the same sentence,
Congress signaled its intention that applicable and actual have different
meanings. However, that does not mean that Congress, by using two different
adjectives, meant that the two terms must have essentially opposite meanings. In
re Ross-Tousey, B.R. , 2007 WL 1466647, at *3 (E.D. Wis. May 21, 2007).
Rather, it is true that the debtors actual expense does not control the amount of
the deduction, but the debtor must still have some expense in the first place
before the Standard amount becomes applicable. The term applicable merely
means, in this context, that when a debtor has an automobile ownership expense,
his deduction is not based on that actual expense but on the applicable expenses
listed in the Standards. Id.
For some expenses, the statute allows debtors to take their exact
(actual) deductions. For other expenses, such as car ownership
expenses, the statutes fixed deduction simply treats all debtors who
make car payments the same. In other words, the statute allows
debtors to itemize certain of their expenses with particularity, but it
does not care whether a debtor drives a Mercedes or a Mercury. This
reading gives meaning to the important distinction between
applicable and actual without taking the further, unwarranted, step
10
of concluding that the expense may be applicable even though it does
not even exist.
Id. at *4.
The Court concludes that the plain meaning of the word applicable in the
phrase monthly expenses shall be the debtors applicable monthly expense
amounts specified under the . . . Local Standards, means that, before the expense
amount can be included in the debtors allowed monthly expenses, the expense
itself must actually be applicable to the debtor in other words, the debtor must
actually have a loan or lease payment obligation.
Following IRS policy, if the debtor has no loan or lease payment obligation,
then the vehicle ownership cost is not applicable and only the operating cost
expense applies; if the debtor has a loan or lease payment obligation, then both
the ownership cost and the operating cost are applicable and are applied in the
dollar amount specified by the IRS. See, e.g., In re Barraza, 346 B.R. 724, 728-29
(Bankr. N.D. Tex. 2006) (holding debtor not entitled to standard ownership
allowance for vehicle owned free of loan or lease payment).
3. IRS Definition of Standards
Additionally, in order to determine whether the expense Standards issued
by the IRS are applicable, the most logical resource to consult is the IRS. See,
e.g., In re Slusher, 359 B.R. 290, 309 (Bankr. D. Nev. 2007) (Congress decision to
use the IRS standards within the Bankruptcy Code strongly suggests that courts
11
should look to how the IRS determined those standards; that is, as to how the IRS
would have applied them in similar circumstances.) (footnote omitted).
In the IRS Collection Financial Standards, under the heading
Transportation, the IRS provides:
The transportation standards consist of nationwide figures for
monthly loan or lease payments referred to as ownership costs, and
additional amounts for monthly operating costs broken down by
Census Region and Metropolitan Statistical Area (MSA). Public
transportation is included under operating costs. A conversion chart
has been provided with the standards which shows which IRS
districts fall under each Census Region, as well as the counties
included in each MSA. The ownership cost portion of the
transportation standard, although it applies nationwide, is still
considered part of the Local Standards.
The ownership costs provide maximum allowances for the lease or
purchase of up to two automobiles if allowed as a necessary expense.
The operating costs are derived from BLS data.
If a taxpayer has a car payment, the allowable ownership cost added
to the allowable operating cost equals the allowable transportation
expense. If a taxpayer has no car payment, or no car, only the
operating costs portion of the transportation standard is used to
come up with the allowable transportation expense.
IRS Collection Financial Standards, available at
http://www.irs.gov/individuals/article/0,,id=96543,00.html (emphasis added).
The IRSs Internal Revenue Manual supports this interpretation because it
requires the taxpayer to have an actual loan or lease payment obligation on a
vehicle before the Local Standard ownership cost applies:
The transportation standards consist of nationwide figures for loan or
12
lease payments referred to as ownership cost, and additional amounts
for operating costs. . . . If a taxpayer has a car payment, the allowable
ownership cost added to the allowable operating cost equals the
allowable transportation expense. If a taxpayer has no car payment
only the operating cost portion of the transportation standard is used
to figure the allowable transportation expense. Under ownership
costs, separate caps are provided for the first car and second car. If
the taxpayer does not own a car a standard public transportation
amount is allowed.
Internal Revenue Service Manual, Financial Analysis Handbook, Pt. 5, ch. 15,
5.15.1.7(4.B), available at
http://www.irs.gov/irm/part5/ch15s01.html#d0e182771.
In fact, the IRS calculates the ownership cost based on the five-year
average of new and used car financing data compiled by the Federal Reserve
Board of Governors. IRS Collection Financial Standards. Thus, the ownership
costs is intended to account for the reasonable expense of financing a vehicle over
five years and is not applicable if a debtor has no such acquisition financing
expense.
The Court agrees that,
[h]ad Congress intended to indiscriminately allow all expense
amounts specified in the National and Local Standards, it would have
written 707(b)(2)(A)(ii)(I) to read, The debtors monthly expenses
shall be the monthly expense amounts specified under the National
Standards and Local Standards . . . rather than The debtors
monthly expenses shall be the debtors applicable monthly expense
amounts specified under the National and Local Standards . . .
Slusher, 359 B.R. at 309 (citation omitted).
13
Congress has deemed transportation and car ownership to be among
the necessities of life that a debtor is entitled to fund before he must
pay back his creditors. Thus, the statute excludes these amounts
from the monthly pot of money that the creditors can get their hands
on. Whats important, therefore, is not how many cars a debtor
owns, but how many cars he makes payments on every month it is
only the payments that affect the debtors ability to repay his
creditors. The statute is only concerned about protecting the debtors
ability to continue owning a car, and if the debtor already owns the
car, the debtor is adequately protected. Section 707(b)(2)(A)(ii)(I)
only achieves the statutes goal of protecting debtors ability to fund
the necessities of life when the debtor is actually shouldering a
monthly auto expense. When the debtor has no monthly ownership
expenses, it makes no sense to deduct an ownership expense to shield
it from creditors.
In re Ross-Tousey, 2007 WL 1466647, at *4.
4. Policy Implications
Hartwick argues that limiting the ownership allowance to debtors who
make car payments will have a disparate impact on those debtors who are more
likely to purchase older, used cars. She also asserts that a car for which the debtor
no longer makes payments is more likely to require major repairs or replacement.
The operating cost component under the Local Standards includes insurance,
registration fees, normal maintenance, fuel, parking, and tolls. Internal Revenue
Manual 5.19.1.4.3.4. Hartwick notes that operating costs do not include major
repairs. However, additional repair costs may be offset by the additional 0
permitted under the Internal Revenue Manual for older and high mileage cars.
Additionally, the argument that limiting the ownership allowance to debtors who
14
make car payments will have a disparate impact on debtors ignores the fact that
the means test merely creates a [rebuttable] presumption of abuse. In re
Barraza, 346 B.R. 724, 729 (Bankr. N.D. Tex. 2006).
Hartwick also argues that allowing all debtors to deduct the ownership
allowance avoids arbitrary distinctions. She provides the following hypothetical:
Debtor A and Debtor B own vehicles of the same make, model, and year. Debtor
A paid off her car loan the month before filing while Debtor B has one payment
remaining after filing. Hartwick asserts that, under the Trustees theory, Debtor B
is entitled to a car ownership allowance but Debtor A is not.
While the Court agrees that the distinction in Hartwicks hypothetical does
appear to be somewhat arbitrary, a line must be drawn somewhere, and any
interpretation will result in some unfairness. Under Hartwicks interpretation of
the statute, debtors who own two unusable cars rusting in their back yard would
be entitled to the windfall benefit of both ownership and operating expense
deductions although they, in fact, incur no expenses by owning the vehicles. In re
Ross-Tousey, 2007 WL 1466647, at *6. See also In re Howell, 366 B.R. 153, 157
(Bankr. D. Kan. 2007) (Allowing debtors to deduct from their disposable income
a fictional ownership allowance would give debtors with unencumbered vehicles a
windfall at the expense of their unsecured creditors.). Hartwicks hypothetical
does not give the Court a basis for ignoring the plain language of the statute.
15
The Court understands the bankruptcy courts frustration with the BAPCPA,
which is a poorly written statute; however, the Courts task is to interpret the
statute as Congress has written it. In this case, the plain language of the statute
requires that [t]he term applicable merely means, in this context, that when a
debtor has an automobile ownership expense, his deduction is not based on that
actual expense but on the applicable expenses listed in the Standards. . . . [I]f a
debtor does not own or lease a vehicle, the ownership expense is not applicable
to that debtor. In re Ross-Tousey, 2007 WL 1466647, at *3 (citation omitted). In
this case, the ownership expense is not applicable to Hartwick. The bankruptcy
courts Order is reversed to the extent that it found that Hartwick was entitled to
subtract the ownership expense from her CMI.
D. Whether an Expense Allowance Applies to Payments on Secured
Debt when the Debtor Intends to Surrender the Property
Securing the Debt
1. Introduction to Mortgage Deduction
Under 707(b)(2)(A)(iii), [t]he debtors average monthly payments on
account of secured debts shall be calculated as the sum of (I) the total of all
amounts scheduled as contractually due to secured creditors in each month of the
60 months following the date of the petition . . . divided by 60. Hartwick
included her monthly mortgage payments of ,423.25 on her Second Amended
Official Form B22A, although she had stopped making payments two months
16
earlier and had indicated her intent to surrender her homestead property. The
bankruptcy court authorized Hartwick to reduce her CMI by the amounts she
would have had to pay had she retained the mortgage and continued making
monthly payments on the property.
The Trustee asserts that Hartwick cannot deduct this amount because it
was not scheduled as contractually due. He notes that Hartwick had not made a
payment for months before filing bankruptcy; had notified the bankruptcy court
that she would be surrendering her residence; disclosed in her bankruptcy papers
that she had no intention of making any monthly mortgage payments postpetition;
and vacated the premises on November 7, 2006.
2. Statutory Language
When interpreting a statute, the Court starts with the statutes plain
language. Watson v. Ray, 192 F.3d 1153, 1155 (8th Cir. 1999). When no specific
definition for a term is given in the statute itself, [the Court] look[s] to the
ordinary common sense meaning of the words. Absent clearly expressed
legislative intent to the contrary, the language is regarded as conclusive. Id. at
1156 (citations omitted).
The Trustee argues that the plain meaning of the statute supports his
interpretation. The Trustee asserts that the word scheduled and the phrase in
each of the 60 months following the date of the petition should be read to have
17
equal meaning. See Negonsott v. Samuels, 507 U.S. 99, 106 (1993) (noting that
when interpreting a statute, courts should give effect to every clause and word of
[the] statute) (citation omitted). The Trustee concludes that the only relevant
amounts are not just those that are contractually due, but those that are also due
in each month of the 60 months following the date of the petition. See In re
Skaggs, 349 B.R. 594, 600 (Bankr. E.D. Mo. 2006) (To focus on the single term
contractually due without due consideration of the import of the term
scheduled and the phrase in each of the 60 months following the date of the
petition will miss the actual meaning and the intent of 707(b)(2). A primary
intent of Congress in the passage of BAPCPA was to ensure that those debtors who
can pay their debts do so.).
The Trustee also argues that Congress uses the phrase scheduled as
several times in the Bankruptcy Code to refer not to the common dictionary
meaning of the word schedule, to plan for a certain date, but rather to signify
whether a debt is identified on a debtors bankruptcy schedules. See, e.g., 11
U.S.C. 1111(a) (A proof of claim or interest is deemed filed under section 501
of this title for any claim or interest that appears in the schedules filed under
section 521(1) or 1106(a)(2) of this title, except a claim or interest that is
scheduled as disputed, contingent, or unliquidated.).
The Trustee also argues that scheduled as contractually due does not
18
mean those debts scheduled as contractually due as of the petition date based on
the debtors historical expenses. He claims that expenses should be forwardlooking.
See In re Love, 350 B.R. 611, 614 (Bankr. M.D. Ala. 2006) ([T]he means
test is based upon historic income figures. Section 101(10A) clearly indicates that
the term current monthly income is the average of the debtors income for six
months preceding the date of the petition. But the language used on the expense
side of the equation is all forward looking. The terms projected disposable
income, 1325(b)(1)(B), and scheduled payments both indicate a forecast of
future events and not historic data.).
The Court concludes that the plain language of 707(b)(2)(A)(iii) dictates
that a debtor must be permitted to deduct secured payments on property even if
that debtor intends to surrender that property post-petition.
The Court rejects the Trustees argument that scheduled as should be
interpreted as a term of art under the Bankruptcy Code meaning that the expense
will appear on a schedule. As the court cogently explained in In re Randle, 1:07-
cv-631, slip op. at 11-12 (N.D. Ill. July 20, 2007), the only other place in the
Bankruptcy Code that uses the phrase scheduled as also explicitly refers to
bankruptcy schedules before using the phrase scheduled as in the same
sentence. See 11 U.S.C. 1111(a). In other portions of the Bankruptcy Code,
when Congress used the terms scheduled or schedule and explicitly referred to
19
a bankruptcy schedule through reference to 11 U.S.C. 521(a)(1), the term of art
meaning applied, but when Congress used the terms schedule or scheduled
without explicitly referring to bankruptcy schedules, the statute clearly intended
schedule to have its ordinary meaning. In re Randle, slip op. at 11-12. In this
case, 707(b)(2)(A)(iii) does not refer to bankruptcy schedules at all, and there is
no bankruptcy schedule that requires a debtor to list all amounts contractually
due to secured creditors in each month of the 60 months following the date of the
petition. Id. at 12 (citation omitted).
Moreover, there is no conditional language in 707(b)(2)(A)(iii) that
requires that a debtor must intend to continue to pay the contractually due
amounts in order to claim the expense, and a debtors intent to surrender her
collateral does not alter her contractual obligation to make payments. In re
Randle, slip op. at 13.
Additionally, this section specifically addresses secured debt payments
rather than general expenses. If Congress intended to limit secured debt
payments contractually due from debtors on the petition date to those where
actual future payments will be made in Form B22C calculations, it knew how to
do so, as reflected, for example, by the inclusion of the terms actual monthly
expenses and actual expenses elsewhere within section 707(b)(2)(A)(ii)(I) and
(II). In re Oliver, No. 06-30076RLD13, 2006 WL 2086691, at *3 (Bankr. D. Or.
20
June 29, 2006) (unpublished).
Finally, the Court rejects the Trustees assertion that the Court should find
that the means test is forward-looking and, thus, ignore the plain language of the
statute. The Court concludes that the plain language of the section at issue is
clear. Also, the Court concludes that the means test is aimed at capturing a
snapshot of the debtors financial state as of the date the petition is filed, rather
than at constructing a forward-looking analysis of the debtors financial situation.
See, e.g., In re Randle, 1:07-cv-631, slip op. at 14-15 (N.D. Ill. July 20, 2007).
3. Legislative History
The Trustee admits that the legislative history of 707(b)(2)(A)(iii) does
not specify whether it is the existence of a contractual obligation on the petition
date or a present intention to make payments that is determinative of eligibility.
However, he argues that Congresss general goal behind amending 707(b) was
to ensure that those who can afford to repay some portion of their unsecured
debts be required to do so. The Trustee concludes that, by completing Form
B22A, the debtor is roughly estimating the amount of monthly disposable income
available and whether it is above the threshold amount deemed to be a
meaningful repayment to unsecured creditors. This estimate is designed to steer
debtors who have monthly disposable income above the threshold amount to file
their petition under Chapter 13 instead of under Chapter 7. He concludes that the
21
Form B22A only has utility if the debtor is required to estimate the residual
income available each month after the deduction of the projected monthly
expenses at the time the case is filed. The Trustee asserts that excluding from the
means test monthly payments the debtor has no intention of paying would
ensure that debtors repay creditors the maximum they can afford, a primary
goal of BAPCPA. In re Lenton, 358 B.R. 651, 660 (Bankr. E.D. Pa. 2006) (quoting
H.R. Rep. 109-31, pt. 1 at 1, as reprinted in 2005 U.S.C.C.A.N. 88, 89 (2005)).
First, the Court notes, as previously stated, that [t]he starting point in
discerning congressional intent is the existing statutory text, and [i]t is well
established that when the statutes language is plain, the sole function of the
courts at least where the disposition required by the text is not absurd is to
enforce it according to its terms. Lamie v. U.S. Trustee, 540 U.S. 526, 534 (2004)
(citations omitted). The Court has already determined that the plain language of
the statute requires that a debtor be permitted to claim an expense allowance for
payments on secured debts that are contractually due, regardless of whether she
intends to surrender the property securing the debt.
Second, Congress had more than one purpose when creating the means
test. Not only did Congress seek to require debtors to repay as much of their
debts as they could, but also, it sought to to create a mechanical formula for
presuming abuse of Chapter 7. In re Randle, 358 B.R. 360, 363 (Bankr. N.D. Ill.
22
2006) (citations omitted). This intent is visible throughout 707(b)(2) where
most expenses to be deducted are based on IRS Standards rather than on actual
expenses. 707(b)(2); see also In re Randle, 358 B.R. at 364. The Trustees
interpretation of 707(b)(2)(A)(iii) would require bankruptcy courts to conduct
an individualized inquiry into each debtors intent and individual circumstances,
which would be at odds with Congresss purpose of creating a mechanical means
test.
The Court affirms the bankruptcy courts interpretation of
707(b)(2)(A)(iii). Congress did not state that the subsection at issue applied
only to payments estimated to be actually paid, even though it used the term
actual elsewhere in the statute. A natural reading of subsection (iii)(I) is that it
applies to payments that the debtor is under contract to make, and Hartwick was
still under a contractual obligation to pay her mortgage at the time she filed her
bankruptcy petition and at the time the Trustee filed the motion to dismiss.
Based on the foregoing, and the files, records, and proceedings herein, IT
IS HEREBY ORDERED that
1. The bankruptcy courts Order denying the Trustees motion to dismiss
the Debtors bankruptcy case under 11 U.S.C. 707(b), filed October
13, 2006, is REVERSED IN PART and AFFIRMED IN PART as
follows:
a. The bankruptcy courts Order is reversed with regard to its
holding that, under 11 U.S.C. 707(b)(2)(A)(ii), a debtor
23
qualifies for an expense allowance referred to as ownership
costs under the Local Transportation Standards issued by the
Internal Revenue Service for a vehicle that is owned free and
clear of liens.
b. The bankruptcy courts Order is affirmed with regard to its
holding that, under 11 U.S.C. 707(b)(2)(A)(iii), a debtor
qualifies for an expense allowance for payments on secured
debts when no payments will be made because the debtor
intends to surrender the property securing the debt.
2. This matter is REMANDED to the bankruptcy court for recalculation
under the means test, consistent with this Order.
Dated: August 20, 2007 s / Michael J. Davis
Judge Michael J. Davis
United States District Court
 

 
 
 

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