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ch 7 substantial abuse issue
This is consistent with Robles' ruling in my 707(b)(3) case which I posted a
few days ago. I got him to agree that he can't substitute his discretion
when the means test requires deduction of secured debt payments that are
contractually due on the petition filing date.
Sounds like as long as your client can show evidence of the loan
modification, the UST Motion will be denied.
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Hello all:
Issue, high income commission earning debtor in 13. Business down, chap 13 tanks. Convert to 7, UST wants to dismiss.
Ust took the position the debtor no longer could count her mortgage paymets in the 7, and therefore substantial abuse.
I argued the debtor still gets her deduction because she was requesting a loan modification to keep the house.
Robles tentative:
Judge Ernest Robles, Presiding
.MOVANT: U.S. TRUSTEE
Hearing: [45] Motion to Dismiss Case Pursuant to 11 U.S.C. 707(b)(1), (b).(2) and (3)(B);...
For the reasons set forth below, the motion is continued to May 21, 2009 at 11:00 a.m.
The United States Trustee ("UST") moves for an order dismissing the Debtor's Chapter 7 petition on the grounds that the Debtor fails the 707(b)(2) Means Test. United States Trustee's
Notice of Motion and Motion to Dismiss Chapter 7 Case Pursuant to 11 U.S.C. 707(b)(1) , (b)(2) and (3)(B) ("Motion to Dismiss") at 11. Dkt. #45. The UST contends that in computing the 707(b)
(2) presumption of abuse, the Court should substitute the IRS locality standard for housing expense for the amount set forth by the Debtor for her monthly mortgage payments. Motion to Dismiss 14.
Absent the proposed substitution of the IRS housing locality standards, the Means Tests' presumption of abuse does not arise; performing the proposed substitution triggers the presumption
of abuse.
The UST argues that using the Debtor's monthly mortgage payment would be inappropriate because the Court granted relief from stay to the Debtor's secured lender with respect to the Debtor's principal residence. See Order Granting Motion for Relief from the Automatic Stay ("Order") (Dkt. #50) (entered December 15, 2008). The UST also notes that the evidence submitted in support of the motion for relief-from stay indicates that the Debtor had failed to make thirteen post-petition payments on the property. Motion to Dismiss 13.
The Debtor opposes the substitution of the IRS locality standard for the housing expense listed on her petition. Response to United States Trustee's Motion to Dismiss ("Opposition"). The Debtor
states that she has applied for a loan modification and will be required to pay approximately $4,000 per month if the modification is approved. Opposition 3. (Debtor's bankruptcy schedules list
monthly mortgage payments of $5,000.)
Notwithstanding the Debtor's attempt to secure a loan modification, the UST contends that dismissal is appropriate. Reply of the United States Trustee to Debtor's Response to United States Trustee's Motion to Dismiss ("Reply") at 2. The UST notes that the Debtor "has not provided any evidence that and has not attached "documentation of this alleged loan modification [or] any details including the date of the request or the identity of the lender." Reply 2. The UST further notes that the Court previously
granted a motion for relief from the automatic stay against the residence that is the subject of the
loan modification. Id.
The Court declines the UST's invitation to substitute the IRS locality housing payment for the
Debtor's scheduled monthly mortgage debts in performing the 707(b)(2) Means Test. The plain
language of 707(b)(2) does not permit the Court to make the requested adjustment. Section 707(b)
(2)(A)(iii)(I)the relevant portion of the Means Test for calculations respecting debtors' home
mortgage paymentsprovides that the "debtor's average monthly payments on account of secured
debts shall be calculated as the sum of 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" (emphasis added).
However, the Court remains free to consider the circumstances of the Debtor's housing situation in determining whether "the totality of the circumstances of the debtor's financial situation demonstrates abuse." 707(b)(3). The Court feels that conducting the 707(b)(3)
determination before the status of the Debtor's loan modification is known would be premature. If the loan modification is approved, the Debtor will not have any surplus income to pay to unsecured
creditors. However, if the loan modification is denied and the Debtor is unable to maintain her current residence, the Debtor would possibly have remaining income to pay unsecured creditors.
Accordingly, the Court CONTINUES the Motion to May 21, 2009 at 11:00 a.m. By no later than May 15, 2009, the Debtor shall file and serve a declaration regarding the status of her loan modification request and include copies all relevant communications with the lender. The UST shall have until May 20, 2009 to file and serve (by fax) a further response.
No appearance is required if submitting on the court's tentative ruling.
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