MARY D. FRANCE, Chief Judge.
The United States Trustee (the "UST") requests dismissal of the bankruptcy petition
On July 30, 2010, Debtors filed a voluntary petition for relief under Chapter 7. Debtors are individuals whose reported debts are primarily consumer in nature. At the time they filed their Chapter 7 petition, Debtors' annual income was below the state median income for their household size.
The parties have stipulated to two sets of facts regarding Debtors' expenses. The first category pertains to Debtors' housing expenses. As reported in their schedules, Debtors have net monthly income of $5004 and net monthly expenses of $5192. Their expenses include a monthly mortgage payment of $1173 for a property located in Florida, where they lived until September 2008. Debtors were unable to sell the Florida property because its fair market value was significantly less than the liens against it; specifically, the home was valued at $69,500 with liens of $201,269. Debtors rented the property in 2008, 2009, and 2010, but filed a statement with the Court that they intend to surrender their former residence to the mortgagee.
The second category of relevant facts concern educational expenses for Debtors' child. Debtors make a monthly student loan payment of $564 and a monthly college
The Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA") was enacted by Congress in 2005 "to correct perceived abuses in the bankruptcy system." Ransom v. FIA Card Services, N.A., ___ U.S. ___, 131 S.Ct. 716, 721, 178 L.Ed.2d 603 (2011). BAPCPA includes a Means Test "to help ensure that debtors who can pay creditors do pay them." Id. Prior to BAPCPA's enactment, consumer debtors could elect either to file a plan to repay creditors under Chapter 13 or seek straight bankruptcy in Chapter 7. A debtor's ability to elect a particular bankruptcy chapter is now more limited.
To ensure that debtors who can pay do pay, Congress made significant modifications to § 707(b).
In the Factual Findings, the parties have stipulated that Debtors' current monthly income is below the median income for a four-person household in Pennsylvania. Therefore, under 11 U.S.C. § 707(b)(2), they were not required to complete the Means Test when they filed their Chapter 7 petition, and their case is not subject to the statutory presumptions regarding abuse. Debtors' argument is correct as far as it goes. However, Debtors further argue that because their case is not subject to the Means Test, the Court may not examine their schedules of income and expenses to determine whether, when considering the totality of the circumstances, they have the ability to pay a significant portion of their unsecured debt. The UST counters that a court may find a case to be abusive under § 707(b)(3) even when the § 707(b)(2) presumptions regarding abuse are inapplicable. As I have ruled in a prior decision, I agree with the UST.
Id. at 15 (citing In re Pak, 343 B.R. 239, 244 (Bankr.N.D.Cal.2006).
Section 707(b)(7) limits the application of § 707(b)(2) to above median debtors, but there is no provision in either (b)(2) or (b)(3) that limits the review of a debtor's financial circumstances when determining whether a case is abusive under the totality of the circumstances. "Section 707(b)(2)(A) creates a statutory presumption of abuse in certain circumstances but offers no safe harbor to those debtors with respect to whom this statutory presumption does not arise." In re Zaporski, 366 B.R. 758, 770 (Bankr.E.D.Mich.2007) (quoted in In re Boule, 415 B.R. 1, 4 (Bankr.D.Mass.2009)). Other courts holding that § 707(b)(3) may be applied to dismiss the case of a "below-median" debtor include: In re Corridori, 2010 WL 3522122 (Bankr.D.Mass. Sept. 1, 2010), In re Riley, 2010 WL 3718017 (Bankr. D.Mass. Sept. 14, 2010); In re Myers, 2009 WL 1456921 (Bankr.M.D.N.C. May 22, 2009), In re Hageney, 422 B.R. 254 (Bankr. E.D.Wash.2009), In re Latone, 2008 WL 5049460 (Bankr.D.Ariz. Oct. 23, 2008), In re Pfiefer, 365 B.R. 187 (Bankr.D.Mont.2007), In re Richie, 353 B.R. 569, 574 (Bankr. E.D.Wis.2006), In re Pak, 343 B.R. 239, 241 (Bankr.N.D.Cal.2006), In re Hill, 328 B.R. 490, 507 (Bankr.S.D.Tex.2005).
Debtors have asked me to revisit my holding in Athens because in In re Walker, 381 B.R. 620 (Bankr.M.D.Pa.2008), Judge Opel reached the opposite conclusion on similar facts. In Walker, Judge Opel held that because a debtor's income and expenses are analyzed within the Means Test under § 707(b)(2), a debtor's ability to pay may not be considered when reviewing a case for abuse under § 707(b)(3). Judge Opel based his decision, in part, on the reasoning of the Court of Appeals for the Third Circuit in Perlin v. Hitachi Capital America Corp. (In re Perlin), 497 F.3d 364 (3d Cir.2007). In Perlin, the Court of Appeals ruled that the statutory canon of negative implication was not useful when construing the meaning of § 707(a) within the context of the section because subsections (a) and (b) address different issues. Because the inclusion of the Means Test in § 707(b) did not create an implication that a debtor's income and expenses could not be considered in § 707(a), the Circuit
The canon of negative implication provides that the enumeration of a group or series of items excludes items not mentioned. United States v. Vonn, 535 U.S. 55, 65, 122 S.Ct. 1043, 152 L.Ed.2d 90 (2002). It "applies only when the expressed and unmentioned items are part of a `commonly associated group or series.'" Perlin, 497 F.3d at 370 (quoting Vonn, 535 U.S. at 65, 122 S.Ct. 1043). In finding that the doctrine was inapplicable, the Third Circuit held that there was a significant difference between dismissals under subsection (a), which applies to all debtors, and dismissals under subsection (b), which applies only to consumer debtors.
Judge Opel interpreted the guidance of the Third Circuit to mean, conversely, that the doctrine would be applicable to paragraphs within subsection (b) because both paragraph (2) and (3) apply to cases filed by consumer debtors. Although dicta in Perlin may be understood as supporting this conclusion, I do not find the canon of negative implication to be helpful in this case. Clear guidance provided by the Supreme Court on the application of the canon demonstrates that the doctrine is inapposite to an analysis of § 707(b)(2) and (b)(3). In Chevron U.S.A. Inc. v. Echazabal, 536 U.S. 73, 122 S.Ct. 2045, 153 L.Ed.2d 82 (2002), the Court observed that the canon of negative implication should not be invoked when its application would conflict with the text of the statute. For example, if a statute uses expansive language to describe categories, significant discretion resides in the decision-maker. Id. at 80, 122 S.Ct. 2045. When a court is given broad discretion, it is difficult to conclude that an unspecified item was intentionally omitted. Also, application of the canon generally is limited to situations when "a series of two or more terms or things . . . should be understood to go hand in hand. . . ." Id. at 81, 122 S.Ct. 2045 (citations omitted).
Section 707(b)(3) uses the expansive categories of "bad faith" and the "totality of the circumstances." Neither of these terms have precise definitions and bankruptcy courts have developed numerous formulations to define both terms. Further, each subsection addresses a different issue and there is no series of terms or things that "go hand in hand" in one subsection that is omitted in the other. Section 707(b)(2) creates a presumption of abuse for certain above median debtors and § 707(b)(3) provides for the dismissal of a case filed by any consumer debtor if the case was filed in bad faith or if the totality of the circumstances of the debtor's financial situation demonstrates abuse. Thus, I find no basis to conclude that Congress intended to exclude consideration of a debtor's ability to repay debts when considering a motion to dismiss under § 707(b)(3). Finding that it is inappropriate to apply the doctrine of negative implication to an analysis of the text, I decline to reconsider my earlier holding that the existence of disposable income available to pay creditors may be considered
Debtors do not dispute that their current expenses do not include a housing expense. Further they admit that they are surrendering their interest in a Florida timeshare. By eliminating these two expenses Debtors have reduced their expenditures from $5192 per month to $3764. With these adjustments alone Debtors have $1240 in disposable income each month that could be committed to a Chapter 13 plan.
The UST also has asserted that it is an abuse of Chapter 7 for Debtors to expend $1110 per month in student loan and tuition payments for the benefit of their adult daughter rather than commit those funds to the payment of creditors. It is well established in this district that expenditures for the benefit of persons whom a debtor has no duty to support are not reasonable and necessary expenses. In re Shores, at *4 (citing In re Miller, 302 B.R. 495, 502 (Bankr.M.D.Pa.2003)); In re Boyd, 378 B.R. 81 (Bankr.M.D.Pa.2007) (Judge Thomas); In re Ponce, 2009 WL 3335871 (Bankr.M.D.Pa. Oct.19, 2009) (Judge Opel) (college tuition and other expenses for adult child not reasonable in context of disposable income calculation under § 1325(b)(1)(B)). See also McGowan v. McDermott, 2011 WL 834046, *1 (N.D.Ohio); U.S. Trustee for Western District of Virginia v. Harrelson, 323 B.R. 176, 179 (W.D.Va.2005); In re Coleman, 231 B.R. 760, 763 (Bankr.D.Neb.1999); but see In re Mitchell, 2010 WL 5375954, *8 (Bankr.E.D.N.C.) (Young adult children studying for undergraduate degrees considered debtors' dependents). I reiterate my holding that bankruptcy debtors are responsible for paying their creditors before they may make discretionary expenditures on behalf of their of adult children. Accordingly, the $1110 Debtors are paying for their daughter's school expenses should be paid to creditors. Adding these educational expenditures to the non-existent housing expenses, Debtors have approximately $2500 in disposable income per month with which to fund a plan. I note further that a plan funded with a payment of $1,467 per month for thirty-six months would repay all of Debtors' unsecured debts, which total $52,788.
When deciding a motion to dismiss under § 707(b)(3), I have analyzed the totality of the circumstances according to a list of factors developed by the Courts of Appeals for the Fourth and Sixth Circuits.
An appropriate order will be entered.
In re Miller, 302 B.R. 495 (Bankr.M.D.Pa.2003)(citing In re Krohn, 886 F.2d 123, 126 (6th Cir.1989) and In re Green, 934 F.2d 568, 572 (4th Cir.1991)). In Miller I stated that I would not automatically dismiss a case solely because a debtor's monthly income exceeded his expenses, but would consider whether a debtor can repay to unsecured creditors either: (1) a significant percentage of his total unsecured debt, or (2) a significant amount of money regardless of the percentage that would be paid. Miller, 302 B.R. at 500.