MARGARET H. MURPHY, UNITED STATES BANKRUPTCY JUDGE
Debtors filed a petition for relief under Chapter 7 of the Bankruptcy Code, initiating this case April 21, 2014; with the petition, Debtor filed initial documents
Pursuant to 11 U.S.C. § 707(b), the court "may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts ... if it finds that the granting of relief would be an abuse of the provisions of this chapter." The "Means Test" embodied in 11 U.S.C. § 707(b)(2)(A) provides
Subsection (iii) provides that Debtors' current monthly income may be reduced by
divided by 60.
The Means Test is not the final word on whether granting relief would be an abuse of the bankruptcy process; it merely provides a mechanical approach for determining if a presumption of abuse arises. If a presumption arises, a debtor may rebut that presumption pursuant to § 707(b)(2)(B). If a presumption does not arise under § 707(b)(2)(A), the Court may consider whether the "totality of the circumstances... of the debtor's financial situation demonstrates abuse" under § 707(b)(3). However, at the hearing, the parties sought to limit their arguments to whether a presumption of abuse arises under § 707(b)(2)(A) and reserved their arguments with respect to §§ 707(b)(2)(B) and 707(b)(3). More specifically, the parties dispute whether the Means Test allows Debtors to deduct mortgage and arrearage payments on their residence, which Debtors intend to surrender, and payments on a tax lien. At the hearing, Debtors' counsel also raised the issue of what the applicable household size is for purposes of the Means Test in this case.
On Line 42
Trustee relies on Hamilton v. Lanning, 560 U.S. 505, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010) and Ransom v. FIA Card Services, N.A., 562 U.S. 61, 131 S.Ct. 716, 178
The Supreme Court's decision in Ransom held that, for the purposes of the Chapter 13 Means Test, a debtor should not be allowed to deduct from his income the IRS guideline expense for car ownership because he did not make loan or lease payments on a vehicle. Although § 707(b)(2)(A)(ii), made applicable to a Chapter 13 case by § 1325(b), allows a debtor to deduct "applicable monthly expense amounts specified under the National Standards and Local Standards," the Supreme Court reasoned in Ransom that the expenses listed in the National Standards and Local Standards are "applicable" "only if the debtor has costs corresponding to the category covered by the table."
Courts have disagreed about the application of Lanning and Ransom to a chapter 7 means test calculation. In In re Hardigan, 2012 WL 9703097 (Bankr. S.D.Ga. December 20, 2012) (Davis, J.), the court discussed the question at issue — whether Debtor may claim expenses on the Means Test even with the intent to surrender the collateral — in the context of Lanning and Ransom. The court read the Supreme Court's decisions narrowly: "[Lanning and Ransom] only recognized that once a debtor is in chapter 13, the test for confirmation is a forward-looking one." Noting that both cases turned on interpretation of "projected disposable income" — a phrase not present in § 707(b)(2) — the Hardigan court declined to extend the reasoning of the Supreme Court to § 707(b)(2); as a result, for the purposes of the Means Test, Hardigan allowed the debtor to deduct from income future payments on a secured debt even though the debtor planned to surrender the collateral. Id. at *3; see, also, In re Rivers, 466 B.R. 558 (Bankr.M.D.Fla.2012); In re Sonntag, 2011 WL 3902999 (Bankr.N.D.W.Va. Sept. 6, 2011); In re Ng, 2011 WL 576067 (Bankr.D.Hawaii Feb. 9, 2011); In re Grinkmeyer, 456 B.R. 385, 387-89 (Bankr. S.D.Ind.2011). At least one court has attributed this mechanical approach to "the majority of cases" which have considered the issue at hand. In re Fredman, 471 B.R. 540 (Bankr.S.D.Ill.2012) (collecting cases, but disagreeing with the "majority.")
Other courts have argued that the realistic approach of Lanning and Ransom should be applied to § 707(b)(2). "[W]here the debtors have indicated they are not paying the ... mortgages on Schedule J and line 20B(b) of form B22A, have filed a Statement of Intention to surrender the ... property, have not contested the lifting of the automatic stay by the mortgage holder, and all other indicia reflect that surrender is forthcoming, it would be absurd to ignore that evidence." In re Fredman, 471 B.R. 540 (Bankr.
The analyses in Lanning and Ransom turned on language not applicable to the question at hand. In Lanning, the Supreme Court hinged its analysis on its interpretation of the phrase "projected disposable income" as used in § 1325; as the court in Hardigan correctly noted, that phrase does not appear in § 707(b)(2). Moreover, the analysis in Ransom was based on the Court's interpretation of the word "applicable" as used in § 707(b)(2)(A)(ii). While the analysis in Ransom may certainly speak to application of § 707(b)(2)(A)(ii) in Chapter 7 cases, the instant question involves the language of § 707(b)(2)(A)(iii), which is markedly different. Subsection (ii) refers repeatedly to a Debtor's "applicable expenses" and "actual expenses"; subsection (iii), however, refers to "amounts scheduled as contractually due" and "payments ... necessary ... in a plan under chapter 13 of this title, to maintain possession of the debtor's primary residence." The reasoning of the Lanning and Ransom decisions simply does not apply to 11 U.S.C. § 707(b)(2)(A)(iii).
Unfortunately, distinguishing Hamilton and Lanning leaves a dearth of controlling authority, and few cases in this district have considered the issue at hand. In In re Walker, 2006 WL 1314125 (Bankr. N.D.Ga. May 1, 2006), Judge Drake analyzed the language of § 707(b)(2)(A)(iii) and determined that the "plain language of the statute does not require the debtor to reaffirm the secured debt in order to deduct the payment." In re Hummel, 2007 WL 7142576 (Bankr.N.D.Ga. Oct. 1, 2007) (Murphy, J.) cited Walker and similarly-decided cases in other districts as the majority view and adopted that rule without discussion.
Contrary to Walker's "plain language" analysis, the court in Fredman determined that the language of § 707(b)(2) is ambiguous
The Thompson opinion does highlight potential ambiguity in the language of § 707(b)(2)(A)(iii)(I) by applying a forward-looking approach to the phrase "contractually due to secured creditors in each month of the 60 months following the date of the petition." The Thompson court concludes that, if the collateral is surrendered, the creditors are no longer "secured creditors," and the debtor would no longer owe
Fredman's interpretation of "scheduled as contractually due" is problematic because a debtor's bankruptcy schedules do not list monthly payments "contractually due to secured creditors in each month of the 60 months following the date of the filing of the petition." In Schedule D, a debtor must list secured creditors and the amount of their claim, but not monthly payments, and certainly not a schedule of payments to be made over the next 60 months. In Schedule J, a debtor must list monthly expenses. By comparing expenses listed on Schedule J to creditors listed on Schedule D, one might be able to determine which payments are due to secured creditors, and, in ideal circumstances and with an amortization table in hand, might be able to extrapolate the schedule of payments over 60 months. However, all of that asks quite a lot of the finder of fact to review the accuracy of the Means Test, and assumes Congress used a "term of art" without defining it
2006 WL 1314125 at *3 (internal citations omitted). Debtor's intent to surrender the property does not affect the Chapter 7 Means Test. Id.; In re Hummel, 2007 WL 7142576 (Bankr.N.D.Ga. Oct. 1, 2007) (Murphy, J.).
Notably, even if the statutory language were ambiguous, the Fredman court acknowledges that "little legislative history [exists] to assist the Court." Cases to discuss legislative intent focus on a tension between "the drafters' desire to eliminate judicial discretion, e.g. In re Rudler, 576 F.3d 37, 47 (1st Cir.2009) ], with the goal of requiring debtors to pay their debts to the fullest extent they are able. E.g., In re Ransom, 131 S.Ct. at 725." Fredman, 471 B.R. at 550. Walker's interpretation of § 707(b)(2)(A)(iii) meets those goals, because §§ 707(b)(2)(B) and 707(b)(3) provide a means to consider the debtor's circumstances
In addition to the "contractually due" payments discussed above, Debtors list on Line 42 of the Means Test monthly payments of $2,977.38 owed to the IRS and secured by a Federal tax lien. On Line 43,
Trustee argues that payments on a tax lien may not be listed on Line 42 or pursuant to § 707(b)(2)(A)(iii)(I) because those payments are not "contractually due." Moreover, the arrearage payments on the Property may not be listed on Line 43 or pursuant to § 707(b)(2)(A)(iii)(II) because that subsection allows a debtor to list "payments to secured creditors necessary for the debtor, in filing a plan under chapter 13 of this title, to maintain possession of the debtor's primary residence, motor vehicle, or other property necessary for the support of debtor and debtor's dependents, that serves as collateral for secured debts." Trustee argues Debtors cannot avail themselves of that subsection because they are ineligible to be debtors in a case under chapter 13.
Debtors briefly argued that payments on the tax lien may be listed because they are secured debts, and that arrearage payments may be listed because nothing in § 707(b)(2)(A)(iii)(II) requires that a debtor be eligible for chapter 13. Instead of arguing those points thoroughly, Debtors moved on to argue that Debtors' relevant household size is 7, rather than the 5-person household size listed on their Means Test. Because these issues have not been briefed thoroughly, the parties will be given the opportunity to do so.
The parties should also clarify the interplay between § 707(b)(2)(A)(iii) and the instructions on the Means Test. Insofar as part (I) of that subsection corresponds to Line 42 and part (II) corresponds to Line 43, the Means Test form seems to impose restrictions not imposed by the statute. For example, Line 43 instructs debtors to list additional payments to creditors listed on Line 42, if such payments are required to maintain possession of the property. If only secured creditors to which payments are contractually due may be listed on Line 42, and the instructions for Line 43 refer to creditors listed on Line 42, Line 43 would seem to carry over the requirement that additional payments listed must be owed to creditors with contractually-due claims. However, § 707(b)(2)(A)(iii)(II) allows debtors to deduct "any payments to secured creditors" necessary to maintain possession of certain items; part (II) does not appear to qualify the term "secured creditors." This apparent conflict between the Means Test instructions might be remedied by listing all secured creditors on Line 42, but listing an "Average Monthly Payment" of $0 to the extent payments are not "contractually due" as that phrase is used in § 707(b)(2)(A)(iii)(I) and the instructions for Line 42. That reading would leave the additional question of whether payments on the tax lien may be listed on Line 43 of
ORDERED that, within 21 days from the date of entry of this order, the United States Trustee may file a brief in support of the Motion. Debtors shall have 14 days to file a responsive brief within 14 days thereafter. The United States Trustee is permitted, but not required, to file a reply brief within 14 days after service of Debtors' response.
IT IS SO ORDERED this the 10th day of February, 2015.