ANN M. NEVINS, Bankruptcy Judge.
Carol M. Consiglio ("Ms. Consiglio," or the "Defendant") filed a chapter 7 bankruptcy case, (the "Main Case"), on November 20, 2015 (the "Petition Date"). John G. Mitrano ("Mr. Mitrano"), pro se, filed several motions in the Main Case, and commenced an adversary proceeding, Mitrano v. Consiglio, AP No. 16-3013, against Ms. Consiglio. Mr. Mitrano's motions in the Main Case, as well as his complaint in the adversary proceeding, are based on a common set of facts and, with the consent of the parties, they were tried on the same day. Having considered the evidence, argument and testimony of the parties, the court issues this memorandum of decision.
Ms. Consiglio, represented by counsel, filed the Main Case on November 20, 2015.
Mr. Mitrano appeared at the meeting of creditors on December 18, 2015, and briefly examined Ms. Consiglio.
On February 16, 2016, Mr. Mitrano filed an adversary complaint (the "Adversary Complaint"), objecting to the Ms. Consiglio's discharge, commencing case number 16-3013. AP-ECF No. 1. Mr. Mitrano also examined the Debtor pursuant to Fed.R.Bankr.P. 2004, and a transcript of the examination was admitted into evidence at the October 27, 2016 hearing. Pl. Ex. 1 (the "2004 Exam Transcript").
Both the Motion to Dismiss the Main Case and the Adversary Complaint contain several common allegations, specifically, that Ms. Consiglio understated the value of several assets, including furniture, clothing, her home, and a vehicle. ECF No. 9, ¶¶ 4, 5, 6; AP-ECF No. 1, ¶¶ 4, 5, 6, 7. Additionally, the Adversary Complaint alleged Ms. Consiglio committed bankruptcy fraud in a prior case.
Given the obvious overlap between the Motion to Dismiss, the Adversary Complaint, and Mr. Mitrano's other objections, the parties consented to adjudicating all causes of action against the debtor in one proceeding. ECF No. 33, 00:12:30-00:14:30.
An evidentiary hearing and trial was held on October 27, 2016, at which time the Debtor, and the Debtor's daughter, Christina Consiglio, testified. ECF No. 33. Mr. Mitrano represented to the court that he had subpoenaed Lindy Perrelli, Ms. Consiglio's mother, for her testimony and for her "financials." ECF No. 34, 00:01:30-00:03:30. However, Ms. Perrelli did not appear at the October 27, 2016, and the court granted her motion to quash Mr. Mitrano's subpoena. ECF No. 60, 61.
The court held closing argument in the matter on July, 27, 2017, at which time the matter was taken under advisement. AP-ECF No. 26.
As the objecting party in the Main Case, and the plaintiff in the adversary proceeding, Mr. Mitrano had the burden of proof. In his challenge to Ms. Consiglio's exemptions, Mr. Mitrano also had the burden to prove Ms. Consiglio's exemptions "are not properly claimed," by a preponderance of the evidence. Fed.R.Bankr.P. 4003(c); In re Woerner, 483 B.R. 106, 112 (Bankr. W.D. Tex. 2012). Likewise, as the party moving to dismiss the Main Case, Mr. Mitrano had the burden to demonstrate the extent to which income received by Lindy Perrelli or Christina Consiglio should be considered part of the Debtor's current monthly income. In re Justice, 404 B.R. 506, 519 (Bankr. W.D. Ark. 2009).
The heart of this dispute concerns a personal loan Mr. Mitrano gave to Ms. Consiglio in the summer of 2010. 2004 Exam Transcript, pgs. 6-7. While Mr. Mitrano did not filed a proof of claim in the case, Ms. Consiglio scheduled an unsecured $20,000.00 debt to Mr. Mitrano on Schedule F of her petition.
Several facts were not in dispute. Mr. Mitrano conceded that Ms. Consiglio's household consisted of three people, including her mother, Lindy Perrelli, and her daughter Christina Consiglio. AP-ECF No. 26, 00:10:15-00:10:50; 00:24:20-00:26:00. Rather, Mr. Mitrano's principal challenge was that the sum total of the income of all three persons constituting the debtor's household, exceeded the median income for a household of three, and "forms a presumption of abuse" warranting dismissal of the Main Case pursuant to § 707(b). AP-ECF No. 26, 00:05:00-00:06:20.
Section 707(b) provides that a debtor's chapter 7 case may be dismissed if it presents an "abuse" of the chapter 7 process.
In re Longo, 364 B.R. 161, 164 (Bankr. D. Conn. 2007). But though the means test is one way to determine whether a debtor's cases constitutes an "abuse" of chapter 7, § 707(b)(7) provides a "safe harbor."
Under § 707(b)(7), if a debtor's current monthly income is less than the "highest median family income," of the debtor's state of residence, then no presumption of abuse exists under § 707(b)(2).
Mr. Mitrano's assertion that Ms. Consiglio's total household income did not "pass the means test," and that the case must therefore be dismissed, conflates the means test of § 707(b)(2), and the application of the safe harbor of § 707(b)(7). ECF No. 34, 00:08:45-00:09:15. The means test of § 707(b)(2) is one method by which the Code determines whether a case constitutes an "abuse" of chapter 7. In contrast, if a debtor qualifies for the § 707(b)(7) safe harbor, no presumption of abuse exists. The two are independent. In essence, Mr. Mitrano's argument is that Ms. Consiglio's household income exceeds the amount permitted under the (b)(7) safe harbor, and that Ms. Consiglio's case is therefore is abusive, warranting dismissal.
The question therefore is not whether Ms. Consiglio's case constituted "abuse," but whether Mr. Mitrano had standing to bring the Motion to Dismiss in the first place. "If the Debtor's annualized [current monthly income] falls below the applicable median income, [a] Creditor[] [is] not eligible to bring a motion under § 707(b)." Curcio, 387 B.R. at 282. The court must determine whether the "current monthly income" of the Debtor's household of three, (on the Petition Date) was "equal to or less than" "the highest median family income" of Connecticut, which, as of the Petition Date, was $91,131.00.
"Current monthly income includes, inter alia, `any amount paid by any entity other than the debtor . . . on a regular basis for the household expenses of the debtor or the debtor's dependents.'" In re Persaud, 486 B.R. 251, 262 (Bankr. E.D.N.Y 2013) (quoting § 101(10A)(B)). But,
Collier on Bankruptcy ¶ 101.10A (Alan Resnick & Henry J. Sommer, eds. 16th ed., 2013). With respect to Lindy Perreli or Christina Consiglio, only their contributions to the Debtor's household expenses are counted towards determining the Debtor's current monthly income. In re Ellringer, 370 B.R. 905, 911-12 (Bankr. D. Minn. 2007); Fraleigh, 474 B.R. at 102 ("[§ 101(10A)(B)] plainly limits third-party income, when computing `current monthly income,' to amounts paid `on a regular basis for the household expense of the debtor or the debtor's dependents . . .'"). While this case is somewhat unique, it is analogous to cases where only spouse files for bankruptcy. In such cases, only the non-filing spouses' income that contributes to household expenses is counted towards the debtor-spouses' current monthly income. Persaud, 486 B.R. at 262 ("Income of a non-filing spouse can therefore be excluded only to the extent it is not regularly contributed to household expenses.")
It is not disputed that Ms. Consiglio's current monthly income, as of the Petition Date, annualized, totaled at least $70,988.40. Mr. Mitrano also conceded that Ms. Consiglio's household consisted of three people.
However, Mr. Mitrano is incorrect is asserting that every penny of income received by Lindy Perrelli and Christina Consiglio must be counted towards Ms. Consiglio's current monthly income. Ellringer, 370 B.R. at 911-12. Although Lindy Perrelli and Christina Consiglio were members of Ms. Consiglio's household on the Petition Date, not all of their income was included in Ms. Consiglio's current monthly income for the § 707(b)(7) purposes. "[O]nly the amount of such third-party income to the extent it is used to support the debtor or the debtor's dependents" is included in "current monthly income." In re Fraleigh, 474 B.R. 96, 106 (Bankr. S.D.N.Y. 2012); see Montalto, 537 B.R. at 151-52 (noting that only income from the non-filing spouse "contributed on a regular basis for household expenses is included in the debtor's `current monthly income.'").
Mr. Mitrano, as the party seeking dismissal, bears the burden to demonstrate income from other members of Ms. Consiglio's household should be attributed to her current monthly income. Justice, 404 B.R. at 519 ("As the objecting party [creditor] had the burden of proving that a portion of the amounts [the debtor] received were paid on a regular basis and paid for the household expenses of the debtor and his dependents."); Montalto, 537 B.R. at 153 ("The general rule is that the [United States Trustee] bears [the] burden of proof in demonstrating that there is a presumption of abuse under § 707(b)(2)"). Likewise, Mr. Mitrano bears the burden of proof on his § 727 objection to discharge, which he must prove by a preponderance of the evidence. Fraleigh, 474 B.R. at 105.
Christina Consiglio's contributions to the household were the subject of conflicting evidence. At the meeting of creditors, the Defendant testified that her daughter made $19,000.00 per year. 341 Transcript, pg 25; Testimony of Carol Consiglio, ECF No. 33, 03:07:00-03:08:00. However, at the October 27, 2016 hearing, Christina Consiglio herself testified she made "about" $30,000.00 "last year." Testimony of Christina Consiglio, ECF No. 33, 03:18:00-03:19:00. But it is not clear to what time frame Christina Consiglio's estimate of $30,000.00 in annual income applied, as she later clarified that, as of the petition date, "it would be less." Testimony of Christina Consiglio, ECF No. 33, 03:20:45-03:21:45.
Christina testified she did not contribute any of her own income towards the Defendant's household expenses. Testimony of Christina Consiglio, ECF No. 33, 03:21:30-03:22:00. The Defendant testified that she provided "75%" support of Christina Consiglio, and received, at most $300.00 per year from her daughter, towards the Defendant's cell phone bill. Testimony of Carol Consiglio, ECF No. 33, 03:08:15-03:08:45; 03:09:50-03:10:15. Christina Consiglio corroborated the testimony regarding the payments towards the cell phone bill. Testimony of Christina Consiglio, ECF No. 33, 03:23:30-03:24:15. When asked by Mr. Mitrano "Do you pay rent [to the Defendant] or contribute to the household in any way," Christina Consiglio answered, "No." Testimony of Christina Consiglio, ECF No. 33, 03:21:30-03:22:15. The uncontroverted evidence further shows Christina Consiglio did not pay rent or contribute to the mortgage on the Defendant's residence. Testimony of Carol Consiglio, ECF No. 33, 03:11:30-03:12:00. While the evidence regarding Christina Consiglio's salary and income was imprecise, there was no evidence that she contributed any more than the $300.00 per year towards the Defendant's household. While Christina Consiglio did testify that she uses a vehicle that is registered in her name and the Defendant's name, (but for which the Defendant pays the insurance), there was no testimony that Christina's contributions towards the vehicle contribute to the household expenses of the Defendant. Testimony of Christina Consiglio, ECF No. 33, 03:21:45-03:22:45. Therefore, on an annual basis, Christina Consiglio's $300.00 contribution to the Defendant's household is attributable to the Defendant's current monthly income.
Lindy Perrelli did not testify at the hearing, and all of the evidence regarding her contributions to the Defendant's household was provided by Ms. Consiglio's own testimony. The uncontroverted evidence was that Lindy Perrelli is substantially dependent on the Defendant for support. Testimony of Carol Consiglio, ECF No. 33, 03:06:00-03:07:25. The Defendant acknowledged Lindy Perrelli received some income, half of which was from social security payments, and the other half from a pension, but could not identify how much she received each month. Testimony of Carol Consiglio, ECF No. 33, 03:07:00-03:08:00. Lindy Perrelli used that income to pay for her own medical bills and personal expenses. Testimony of Carol Consiglio, ECF No. 33, 03:12:00-03:12:45. Lindy Perrilli did not pay rent of contribute to the mortgage on the Defendant's residence. Testimony of Carol Consiglio, ECF No. 33, 03:11:30-03:12:00. However, the Defendant conceded that Lindy Perrelli contributed $540 per month towards groceries for the household. ECF No. 34, 00:11:00-00:11:45. Therefore, on an annual basis, Ms. Perrelli's $6,480.00 contribution to the Defendant's household is included the Defendant's current monthly income.
Christina Consiglio's $300.00 annual contribution to the Defendant's household, plus Lindy Perrelli's $6,480.00 annual contribution to the Defendant's household, increases the Defendant's annualized current monthly income to $77,778.40. This amount is substantially less than the highest median income for a household of three, $91,131.00, for the state of Connecticut as of the petition date. Because the Defendant's household income is less than $91,131.00, she qualifies for the safe harbor of § 707(b)(7), and as such, there is no presumption of abuse. Paret, 347 B.R. at 14. Accordingly, § 707(b)(7) deprives Mr. Mitrano of standing to seek dismissal pursuant to § 707(b)(2). Curcio, 387 B.R. at 282, 285.
Additionally, Mitrano's remaining objections to the Ms. Consiglio's exemptions are overruled. ECF No. 9, ¶¶ 4, 5, 6; AP-ECF No. 1, ¶¶ 4, 5, 6, 7. As the party bearing the burden, Mr, Mitrano was required to establish, by a preponderance of the evidence, which exemptions were not property claimed. Fed. R. Bankr. P. 4003(c); Woerner, 483 B.R. at 112. "`To deny a debtor an exemption which is based upon a dollar limitation, the objecting party cannot carry its burden of proof by merely impeaching the Debtors' valuation. Competent evidence, which affirmatively demonstrates a higher valuation by a preponderance of the evidence, is required.'" Woerner, 483 B.R. at 112 (quoting In re Shurley, 163 B.R. 286, 291 (Bankr. W.D. Tex. 1993)). Because Mr. Mitrano simply challenged the valuation of Ms. Consiglio's exemptions, without providing any alternative valuation of the exempted property, Mr. Mitrano failed to carry his burden of proof, and his objections must therefore be denied.
Mr. Mitrano's challenge to Ms. Consiglio's "expenses," which the court interprets as an objection to the expenses listed on Schedule J, is overruled. AP-ECF No. 26, 00:16:00-00:17:15. To the extent Mr. Mitrano seeks to object to Ms. Consiglio's discharge under § 707(b)(3), that she filed her bankruptcy petition in bad faith, or that the totality of the circumstances demonstrates abuse, the objection is barred by § 707(b)(6). Section 707(b)(6) provides that "only the judge or United States trustee" may make such a motion, where, as here, Ms. Consiglio's current monthly income is less than the highest median family income of her home state. 11 U.S.C. § 707(b)(6).
Finally, the court notes Mr. Mitrano did not present specific evidence or argument in pursuit of his objection to Ms. Consiglio's discharge under § 727, the cause of action in the adversary proceeding. Therefore, the court concludes Mr. Mitrano failed to carry his burden on that claim. Fraleigh, 474 B.R. at 105
For the reasons stated, Mr. Mitrano's objections, ECF No. 8 are OVERRULED, the Motion to Dismiss, ECF No. 9, is DENIED, and judgment shall be entered in FAVOR of the Defendant in Adversary Proceeding No. 16-2013.
