FILED AUG 23 2016 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-15-1441-KuFD ) 6 DESIREE H. DRURY, ) Bk. No. 2:15-bk-17125 ) 7 Debtor. ) ______________________________) 8 ) DESIREE H. DRURY, ) 9 ) Appellant, ) 10 ) v. ) MEMORANDUM* 11 ) UNITED STATES TRUSTEE, ) 12 ) Appellee. ) 13 ______________________________) 14 Argued and Submitted on July 28, 2016 at Pasadena, California 15 Filed – August 23, 2016 16 Appeal from the United States Bankruptcy Court 17 for the Central District of California 18 Honorable Thomas B. Donovan, Bankruptcy Judge, Presiding 19 Appearances: Stephen R. Wade argued for appellant Desiree H. 20 Drury; John Postulka argued for appellee United States Trustee. 21 22 Before: KURTZ, FARIS and DUNN, Bankruptcy Judges. 23 24 25 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8024-1. 1 INTRODUCTION 2 When a debtor does not own an automobile but makes monthly 3 lease or loan payments as a prerequisite to his or her continued 4 possession and use of a vehicle, may the debtor claim an expense 5 allowance under the means test for car “ownership” expenses? We 6 answer this question in the affirmative. Even though the debtor 7 Desiree H. Drury is not the owner of the automobile, is not the 8 borrower under the automobile loan and is not legally obligated 9 to repay that loan, it is undisputed that Drury will lose 10 possession of the automobile unless she continues to make 11 payments to the lender. This undisputed fact establishes for 12 means test purposes that the relevant IRS local transportation 13 expense standard of $517 for car ownership expenses is 14 “applicable” to Drury and thus she is entitled to claim this 15 amount for purposes of determining whether her chapter 71 case 16 filing was presumptively abusive under § 707(b)(2). 17 The bankruptcy court incorrectly disallowed Drury’s car 18 ownership expense claim. As a result, it incorrectly determined 19 that Drury’s chapter 7 case should be dismissed as presumptively 20 abusive under § 707(b)(1) and (2). 21 Additionally, the bankruptcy court rendered insufficient 22 findings to support its determinations that the chapter 7 23 petition was filed in bad faith under § 707(b)(3)(A) and that the 24 chapter 7 case was abusive under the totality of the debtor’s 25 26 1 Unless specified otherwise, all chapter and section 27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all "Rule" references are to the Federal Rules of Bankruptcy 28 Procedure, Rules 1001-9037.
2 1 financial circumstances pursuant to § 707(b)(3)(B). Accordingly, 2 the bankruptcy court’s dismissal order is VACATED and this matter 3 is REMANDED for further proceedings. 4 FACTS 5 In May 2015, Drury commenced her bankruptcy case by filing a 6 voluntary chapter 7 petition. This was not Drury’s first 7 bankruptcy case. In fact, she had filed six prior bankruptcy 8 cases in the past five years, all of which were dismissed for 9 failure to comply with various Bankruptcy Code provisions and 10 Rules. In addition, she also had filed a chapter 7 case in 2001, 11 in which she obtained a discharge order. 12 The U.S. Trustee filed his motion to dismiss her most recent 13 case in October 2015. The U.S. Trustee asserted that Drury had 14 over $800 in monthly disposable income that she could use to 15 repay her creditors and that, based on this amount, granting 16 Drury relief under chapter 7 would be an abuse of the Bankruptcy 17 Code. 18 According to the U.S. Trustee, the information provided on 19 Drury’s Official Form 22A reflected that Drury had over $100,000 20 in annual income and current monthly income (as defined in 21 § 101(10A)) of $8,580 per month. However, Drury’s initial 22 Form 22A omitted some of her income. She only later disclosed 23 that, in addition to her annual salary, she also received child 24 support in the amount of $175 per month. 25 This is only one of several errors and omissions in the 26 financial information Drury provided in her bankruptcy schedules 27 and in her other bankruptcy filings. She also claimed in her 28 initial Form 22A that she paid $60 per month for telephone
3 1 services and $40 per month in charitable contributions. Both of 2 these claimed expenses turned out to be inaccurate. Similarly, 3 Drury claimed $550 per month, in aggregate, for child care 4 expenses and minor-child education expenses, but the only 5 evidence she ever offered for these claimed expenses was a letter 6 from a family friend stating that Drury paid her $75 per week for 7 picking up two of Drury’s children from school and for helping 8 them with their homework. 9 In addition, in her Schedule B, Drury claimed to own a 2008 10 Toyota Camry worth $3,000. She also represented in her statement 11 of intention regarding secured debts that the Toyota was property 12 of her bankruptcy estate. She later admitted that she does not 13 own the car and that she never has owned it. Instead, she 14 informed the U.S. Trustee that her sister bought the car on 15 credit on Drury’s behalf because Drury did not have the credit to 16 obtain an automobile loan in her own name. Nonetheless, Drury 17 maintained that she drives the car and pays $540 every month to 18 cover the loan payment for the vehicle. 19 The most hotly-disputed issue between the parties concerned 20 the automobile expenses Drury claimed in her form 22A. 21 Notwithstanding her admission that she did not own the 2008 22 Toyota Camry, Drury continued to contend that she was entitled to 23 deduct from her income a vehicle “ownership” expense of $517 and 24 a vehicle operating expense of $400. The U.S. Trustee contested 25 these expense claims. According to the U.S. Trustee, Drury only 26 was entitled to claim a $295 vehicle operating expense, and no 27 vehicle ownership expense, because she did not own the Toyota. 28 As the U.S. Trustee put it, the allowed $295 vehicle
4 1 operating expense was a standard deduction permitted for debtors 2 operating vehicles in the Los Angeles metropolitan area, and no 3 vehicle expenses above that amount – ownership or operating 4 expenses – could be claimed in the absence of ownership.2 5 The U.S. Trustee assailed Drury for her inflated and 6 inaccurate expense claims and for her inaccurate and incomplete 7 information regarding her income. He also challenged Drury’s 8 claim that she was entitled to deduct tax-related expenses of 9 roughly $2,000. The U.S. Trustee instead insisted that she was 10 entitled to deduct from her income, at most, roughly $1,500 for 11 tax expenses.3 12 Based on these contentions, the U.S. Trustee asserted that 13 Drury’s bankruptcy case should be dismissed as a presumptively 14 abusive bankruptcy filing under § 707(b)(2) and, alternately, 15 16 2 The U.S. Trustee posited, without citing any authority, 17 that the age of the Toyota would have entitled Drury to a $200 older vehicle operating expense if Drury had actually owned the 18 vehicle. We disagree. In Drummond v. Luedtke (In re Luedtke), 19 508 B.R. 408, 411 (9th Cir. BAP 2014), we held that this older vehicle operating expense is not part of the Internal Revenue 20 Service's National Standards or its Local Standards, which generally control which expenses above-median-income debtors may 21 claim for purposes of calculating their disposable income under 22 11 U.S.C. § 1325(b)(2). Given our decision in In re Luedtke, there is no legal or logical reason why a chapter 7 debtor should 23 be able to claim an older vehicle operating expense for chapter 7 means test purposes. See In re Willingham, 520 B.R. 818, 823 24 (Bankr. E.D. Cal. 2014). 25 3 The U.S. Trustee stated in his responsive appeal brief that 26 the bankruptcy court did not render any findings regarding Drury’s tax-related expense claim and did not rely on the tax- 27 related expense issue to support its ruling. In light of our analysis and resolution of this appeal, there is no need for us 28 to consider further Drury’s tax-related expenses.
5 1 that her case should be dismissed as abusive under the totality 2 of Drury’s financial circumstances pursuant to § 707(b)(3)(B). 3 Oddly, the U.S. Trustee’s dismissal motion contained no argument 4 under § 707(b)(3)(A) specifically asserting that Drury filed her 5 bankruptcy in bad faith, even though the U.S. Trustee’s moving 6 papers asked for relief under both § 707(b)(3)(A) and (B), as 7 well as under § 707(b)(2). 8 The bankruptcy court held a hearing on the U.S. Trustee’s 9 motion to dismiss. At the hearing, Drury admitted that she is 10 not legally obligated to make the car loan payment every month. 11 She nonetheless insisted that her continued possession and use of 12 the Toyota depends upon her continued monthly payments on the 13 automobile loan. According to Drury, if she stopped making the 14 monthly loan payments, the lender would repossess the vehicle. 15 The U.S. Trustee never challenged Drury’s factual assertion 16 regarding the consequences of her not making the loan payments. 17 Instead, the U.S. Trustee argued that, as a matter of law, 18 debtors cannot claim a loan or lease payment as a car ownership 19 expense under the IRS’s local transportation expense standard 20 unless they are legally obligated to make that payment. The 21 U.S. Trustee contended that, without such a legal obligation, the 22 debtor can stop making the car payments at any time, and thus 23 counting the payment for means test purposes would not accurately 24 reflect what Drury can afford to pay her creditors. 25 At the conclusion of the hearing, the bankruptcy court 26 determined that the U.S. Trustee’s position on the vehicle 27 ownership expense was correct. The court also found that “[t]he 28 Debtor clearly has violated her duty of truthful disclosure
6 1 notwithstanding her lengthy experiences with the bankruptcy 2 system and in spite of her right to amend her Schedules.” 3 Findings of Fact and Conclusions of Law (Dec. 14, 2015) at p. 2. 4 In addition, the court further found that Drury had a 5 “substantial ability” to repay her debts, especially in light of 6 the substantial amount of her income, “though her financial 7 habits have been to some extent careless.” Id. 8 While the bankruptcy court specified that the U.S. Trustee 9 had established grounds for dismissal under § 707(b)(1), (b)(2), 10 (b)(3)(A) and (b)(3)(B), the bankruptcy court made no explicit 11 findings regarding Drury’s bad faith. Nor did the bankruptcy 12 court comment on Drury’s bad faith at the dismissal motion 13 hearing. 14 On December 14, 2015, the bankruptcy court entered its order 15 dismissing Drury’s bankruptcy case, and Drury timely appealed. 16 JURISDICTION 17 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 18 §§ 1334 and 157(b)(2)(A) and (O). We have jurisdiction under 19 28 U.S.C. § 158. 20 ISSUE 21 Did the bankruptcy court abuse its discretion when it 22 dismissed Drury’s bankruptcy case under § 707(b)(1), (b)(2), 23 (b)(3)(A) and (b)(3)(B)? 24 STANDARDS OF REVIEW 25 We review dismissals under § 707(b) for an abuse of 26 discretion. Ng v. Farmer (In re Ng), 477 B.R. 118, 125 (9th Cir. 27 BAP 2012); Ceniceros v. Yaqub (In re Ceniceros), 2012 WL 2017969, 28 at *5 (Mem. Dec.) (9th Cir. BAP June 5, 2012).
7 1 The bankruptcy court abuses its discretion if it applies an 2 incorrect legal rule or its factual findings are illogical, 3 implausible or without support in the record. See United States 4 v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc). 5 DISCUSSION 6 1. The Means Test and Its Expense Allowance Standards – Generally 7 As amended in 2005, the Bankruptcy Code authorizes 8 bankruptcy courts to dismiss as abusive certain chapter 7 cases 9 and presumes that abuse is present when the debtor fails what 10 commonly is known as the “means test.” See § 707(b)(1) & 11 (b)(2)(A); see also Egebjerg v. Anderson (In re Egebjerg), 12 574 F.3d 1045, 1048 (9th Cir. 2009). The means test measures the 13 debtor’s “current monthly income”4 and determines whether that 14 income (less certain allowed expenses and then multiplied by 60) 15 exceeds threshold amounts designated in the statute. 16 § 707(b)(2)(A). At the time of Drury’s bankruptcy filing, the 17 relevant designated statutory threshold amount was $12,475. Id. 18 There is no genuine dispute regarding the amount of Drury’s 19 current monthly income. Instead, this appeal hinges on the 20 transportation expense amounts Drury attempted to deduct from her 21 current monthly income and whether the bankruptcy court correctly 22 disallowed most of Drury’s claimed transportation expenses. But 23 before we look at any of the transportation expense claims, a bit 24 of background on the means test and its expense standards will 25 4 26 Generally speaking, the term “current monthly income” means the debtor’s average monthly income, regardless of source, and 27 includes amounts paid by others on a regular basis for the debtor’s household expenses. For the full definition of “current 28 monthly income” please see § 101(10A).
8 1 provide some helpful context. 2 Before the passage of the Bankruptcy Abuse Prevention and 3 Consumer protection Act of 2005, Pub. L. 109–8, 119 Stat. 23 4 (2005) (“BAPCPA”), the Bankruptcy Code instructed the bankruptcy 5 courts to employ a presumption that chapter 7 debtors were 6 entitled to chapter 7 relief. In re Egebjerg, 574 F.3d at 1048. 7 But the 2005 BAPCPA amendments replaced this presumption with an 8 emphasis on maximizing the recovery for the debtor’s creditors. 9 Id. As In re Egebjerg explained, BAPCPA accomplished this sea 10 change in chapter 7 practice by introducing the means test to 11 determine if the debtor could repay at least some amount to his 12 or her creditors. Id. 13 The expense side of the means test equation, 14 § 707(b)(2)(A)(ii)(I), was novel. Prior to BAPCPA, there was no 15 need for chapter 7 debtors to prove routinely that they had no 16 ability to repay their creditors over time, so there was no 17 routine need to measure the debtor’s allowable expenses for 18 purposes of calculating the debtor’s disposable income (if any). 19 See In re Egebjerg, 574 F.3d at 1048. For purposes of 20 determining the debtor’s allowable expenses, the means test 21 provides in part: 22 The debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the 23 National Standards and Local Standards, and the debtor's actual monthly expenses for the categories 24 specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the 25 debtor resides, as in effect on the date of the order for relief . . . . 26 27 28
9 1 § 707(b)(2)(A)(ii)(I).5 2 While there is no pre-BAPCPA history of routinely measuring 3 chapter 7 debtors’ allowable expenses, the measuring of 4 chapter 13 debtors’ expenses, for the purpose of determining 5 whether they were paying all of their disposable income to their 6 creditors during the term of their chapter 13 plan, predates 7 BAPCPA. See Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 65 & 8 78 (2011); In re Luedtke, 508 B.R. at 413. Before BAPCPA, 9 bankruptcy courts had broad discretion to determine which 10 expenses were reasonable and necessary for individual chapter 13 11 debtors to claim on a case-by-case basis. Ransom, 562 U.S. at 12 65. 13 Apparently unhappy with the “varying and often inconsistent 14 determinations” that resulted from the pre-BACPA case-by-case 15 approach, id. at 65, Congress specified in its BAPCPA amendments 16 that the means test’s standardized and mathematical approach for 17 determining allowable expenses would be utilized to calculate the 18 disposable income of both chapter 7 debtors and chapter 13 19 debtors whose income exceeded certain benchmarks. Id. at 65, 78; 20 see also In re Luedtke, 508 B.R. at 413 (“BAPCPA replaced [the 21 bankruptcy courts’] discretion with the ‘means test’ — a 22 formulaic and mechanical method of assessing debtors’ ability to 23 pay.”). 24 Indeed, Congress referred to its adoption of its means test 25 5 26 In addition to the amounts provided for in the National Standards, the Local Standards and in the Other Necessary 27 Expenses categories issued by the Internal Revenue Service, debtors can claim payments on account of secured and priority 28 debt to the extent permitted by § 707(b)(2)(A)(iii) and (iv).
10 1 as “[t]he heart of [BAPCPA's] consumer bankruptcy reforms,” 2 because it would “help ensure that debtors who can pay creditors 3 do pay them” and thereby would help prevent those abuses of the 4 bankruptcy system that BAPCPA was intended to prevent. Ransom, 5 562 U.S. at 64 (emphasis in original) (citing H.R. Rep. 6 No. 109–31, pt. 1, p. 2 (2005)). 7 2. Proper Application of the Means Test Expense Allowance 8 Standards to Transportation Expenses 9 Having considered the background behind the means test and 10 its expense allowance standards, we next consider the correct 11 application of those standards to transportation expenses. The 12 National Standards and Local Standards referenced in 13 § 707(b)(2)(A)(ii)(I) (quoted above) are “tables that the IRS 14 prepares listing standardized expense amounts” that are used to 15 determine a taxpayer’s ability to pay past-due tax liability. 16 Ransom, 562 U.S. at 61. But the National Standards and Local 17 Standards are not self-explanatory. Bankruptcy courts sometimes 18 must consult the IRS’s Financial Analysis Handbook (IRM 5.15.1) 19 in order to correctly interpret and apply the National Standards 20 and Local Standards. In re Luedtke, 508 B.R. at 411, 415; see 21 also Ransom, 562 U.S. at 72-73 & n.7 (stating that the IRS's 22 Financial Analysis Handbook is persuasive – but not controlling – 23 authority for determining how bankruptcy courts should apply the 24 IRS’s National Standards and Local Standards). So long as the 25 relevant portion of Financial Analysis Handbook is not 26 inconsistent with the Bankruptcy Code, bankruptcy courts may 27 refer to the Handbook as an aid in applying the National 28 Standards and Local Standards. Id. at 72.
11 1 The relevant version of the Local Standards tables for 2 transportation expenses merely state that a taxpayer may claim an 3 expense of $517 in vehicle ownership costs and an expense of $295 4 in vehicle operating costs. See IRS Local Transportation Expense 5 Standards - West Census Region – for Cases Filed Between April 1, 6 2015 and May 14, 2015, Inclusive, as reported in, U.S. Trustee’s 7 website, https://www.justice.gov/ust/means-testing/means-testing- 8 cases-filed-between-april-1-2015-and-may-14-2015-inclusive (last 9 visited Aug. 16, 2016). The commentary accompanying these tables 10 states in part as follows: 11 b. Transportation Expense Standards for taxpayers with a vehicle consist of two parts: nationwide figures for 12 monthly loan or lease payments referred to as ownership costs, and additional amounts for monthly operating 13 costs broken down by Census Region and Metropolitan Statistical Area (MSA). A conversion chart has been 14 provided with the standards that lists the states that comprise each Census Region, as well as the counties 15 and cities included in each MSA. The ownership cost portion of the transportation standard, although it 16 applies nationwide, is still considered part of the Local Standards. The ownership costs provide maximum 17 allowances for the lease or purchase of up to two automobiles if allowed as a necessary expense. A 18 single taxpayer is normally allowed one automobile. 19 The operating costs include maintenance, repairs, insurance, fuel, registrations, licenses, inspections, 20 parking and tolls. 21 If a taxpayer has a car payment, the allowable ownership cost added to the allowable operating cost 22 equals the allowable transportation expense. If a taxpayer has a car, but no car payment, only the 23 operating costs portion of the transportation standard is used to figure the allowable transportation expense. 24 In both of these cases, the taxpayer is allowed the amount actually spent, or the standard, whichever is 25 less. 26 Census Bureau, IRS Data and Administrative Expenses Multipliers 27 for Cases Filed Between April 1, 2015 and May 14, 2015, Inclusive 28 as reported in, U.S. Trustee’s website, https://www.justice.gov/
12 1 ust/means-testing/means-testing-cases-filed-between-april-1-2015- 2 and-may-14-2015-inclusive (last visited Aug. 16, 2016) (emphasis 3 added). 4 After reviewing substantially similar IRS materials, Ransom 5 held: (1) that the IRS’s vehicle ownership expenses provided for 6 in its Local Standards only consist of lease payments or loan 7 payments; and (2) that a debtor who does not make payment on a 8 car lease or a car loan cannot claim vehicle ownership expenses. 9 Ransom, 562 U.S. at 71-72. In so holding, Ransom explained that 10 vehicle ownership expense amounts are not “applicable” within the 11 meaning of § 707(b)(2)(A)(ii)(I) (and hence not allowable as 12 claimed) unless the debtor incurred some vehicle ownership 13 expenses of the type enumerated in the IRS’s Local Standards for 14 transportation expenses. Id. at 69-72. 15 3. Proper Treatment of Drury’s Claimed Transportation Expenses 16 Here, Drury conceded that she does not own the Toyota she 17 originally listed on her Schedule B and that she is not indebted 18 under any car lease or car loan. According to the U.S. Trustee, 19 Drury cannot claim the loan payments she makes because she is not 20 legally obligated to make those payments. Without any legal 21 obligation, the U.S. Trustee reasons, Drury could stop making the 22 car payments at any time she wants, so the amount of her car 23 payments could be made available to pay back her creditors. 24 We disagree. Nothing in the Bankruptcy Code or in the IRS 25 Collection Financial Standards suggests that debtors only may 26 claim as local transportation expenses car loan or lease payments 27 they make for which they are personally liable. In fact, the 28 language of the statute points in the opposite direction:
13 1 "Notwithstanding any other provision of this clause, the monthly 2 expenses of the debtor shall not include any payments for debts." 3 Although the meaning of the "notwithstanding" provision is murky, 4 it cuts against the argument that a car "ownership" expense only 5 counts if the debtor is legally obligated to pay it, because in 6 that case the debtor's car payments are "payments for debt[]." 7 Further, when one considers the means test as a whole and its 8 underlying purpose – to assure that debtors pay what they can to 9 their creditors – it makes no sense to focus on the absence or 10 presence of a legally enforceable debt. Most necessities of life 11 – including most of those accounted for in the IRS Collection 12 Financial Standards – are not debts.6 And yet it still is 13 essential for debtors to pay these amounts in order to maintain a 14 certain minimal standard of living – as the IRS Collection 15 Financial Standards explicitly recognize. See Wedoff, supra at 16 253 & n.57; see also Ransom, 562 U.S. at 70 (“Congress intended 17 the means test to approximate the debtor’s reasonable 18 expenditures on essential items.”). 19 Even without a legally binding obligation to make the 20 payments for the car loan in her sister’s name, if Drury is going 21 to continue to use the car, she needs to continue to make the 22 payments. Otherwise, the lender will repossess the vehicle, and 23 Drury will be forced to get around Los Angeles without an 24 automobile – an automobile that the IRS’s Collection Financial 25 26 6 For a complete description of the types of expenses the 27 IRS Collection Financial Standards cover, please see Eugene R. Wedoff, Means Testing in the New § 707(b), 79 Am. Bankr. L.J. 28 231, 253–65 (2005).
14 1 Standards (and the means test) permit her to use (and pay for) 2 even if this means that she will have less funds to pay her 3 creditors. 4 Nor does Drury’s lack of title to the automobile persuade us 5 otherwise. We do not read the Local Standards’ reference to car 6 “ownership” expenses as making ownership of the automobile 7 essential to claiming this transportation expense. In order to 8 claim this transportation expense, the key determinant is whether 9 the debtor makes a car lease payment or a car loan payment. 10 Ownership of the car is no more essential to the necessity of 11 this expense than a legally enforceable debt. Automobile lessees 12 do not "own" the cars they drive. The Local Standards’ reference 13 to car “ownership” expenses can and should be considered a 14 misnomer. Indeed, the Executive Office for U.S. Trustees has 15 made this exact point in a published law journal article. See 16 Mark A. Redmiles, The Supreme Court Interprets the Means Test, 17 Am. Bankr. Inst. J., April 2011, at 18, 93 n.21. 18 Moreover, nothing in Ransom requires a different result. 19 Ransom answered a different question: whether a debtor who does 20 not make any car lease or car loan payments can claim under the 21 means test a car ownership expense. Ransom in essence held that 22 car ownership was not sufficient to entitle a debtor to claim 23 this expense. Ransom did not address whether car ownership was 24 necessary to entitle a debtor to claim this expense. For the 25 reasons set forth above, we hold that debtors who make monthly 26 car loan payments or car lease payments as a prerequisite to 27 their continued use of the vehicle may claim this expense under 28 the means test even if they do not own the vehicle.
15 1 4. Correct Calculation of Drury’s Disposable Income 2 Aside from Drury’s disallowed vehicle ownership expense of 3 $517, Drury continues to claim an inflated $400 for vehicle 4 operating expenses, which should not have exceeded $295 under the 5 relevant version of the IRS’s Local Standards for transportation 6 expenses. Likewise, Drury continues to claim an inflated $550, 7 in aggregate, for childcare and minor-child education expenses. 8 Drury only substantiated $300 per month for child-related 9 expenses, which she pays to a family friend for picking up two of 10 her kids from school and helping them with homework. When the 11 excess amounts from these expense categories is summed together 12 ($105 + $250), the total reflects that Drury continues to 13 overstate her allowable monthly expenses by $355 and thereby 14 continues to understate her monthly disposable income by that 15 same amount. 16 Drury has calculated her monthly disposable income as a 17 negative amount – a negative $364.79. When the above-referenced 18 $355 is added back into her understated monthly disposable income 19 figure, the correct amount of Drury’s monthly disposable income 20 is roughly a negative $15. Because this amount, when multiplied 21 by 60, does not exceed § 707(b)(2)(A)(i)(II)’s threshold amount 22 of $12,475, the presumption of abuse under § 707(b)(2)(A)(i) is 23 not triggered. Therefore, the bankruptcy court abused its 24 discretion when it dismissed Drury’s bankruptcy case as 25 presumptively abusive. 26 5. Dismissal of Drury’s Bankruptcy Case under § 707(b)(3)(A) and 27 (B) 28 Because we have concluded that the bankruptcy court’s
16 1 dismissal of the bankruptcy case under § 707(b)(1) and (b)(2) was 2 an abuse of the bankruptcy court’s discretion, we also need to 3 address the bankruptcy court’s alternate grounds for dismissal 4 under § 707(b)(3)(A) and (B). See In re Egebjerg, 574 F.3d at 5 1048 (“the statute is framed to consider the presumptive abuse 6 question first, and resorts to the totality of circumstances 7 analysis [and the bad faith analysis] only if the debtor survives 8 the means test.”). 9 Under § 707(b)(3)(A), a chapter 7 case may be dismissed as 10 abusive if the debtor filed his or her chapter 7 petition in bad 11 faith. The Bankruptcy Code does not define bad faith. In the 12 chapter 13 context, the Ninth Circuit has held that bankruptcy 13 courts in determining bad faith should consider all relevant 14 factors and, to aid bankruptcy courts in the bad faith 15 assessment, set forth the following non-exhaustive list of 16 factors to consider: (1) whether the debtor has stated inaccurate 17 facts in his or her bankruptcy filings, attempted to improperly 18 manipulate the Bankruptcy Code, or otherwise pursued bankruptcy 19 relief in an inequitable manner; (2) the debtor's prior 20 bankruptcy case filings and dismissals; (3) the motivation for 21 the debtor’s bankruptcy case filing, including any intent to 22 impede state court litigation; and (4) any egregious conduct. 23 Leavitt v. Soto (In re Leavitt), 171 F.3d 1219, 1224 (9th Cir. 24 1999). 25 These same factors are equally pertinent to the bad faith 26 inquiry in the chapter 7 context. In re Mitchell, 357 B.R. 142, 27 154 (Bankr. C.D. Cal. 2006); see also Franco v. United States 28 Trustee (In re Franco), 2016 WL 3227154, at *5 (Mem. Dec.) (9th
17 1 Cir. BAP June 2, 2016) (“Although Leavitt involved a chapter 13 2 case, we see no reason why the standards for a finding of bad 3 faith in a chapter 7 case should be any different.”). 4 Here, the only findings of the bankruptcy court arguably 5 applicable to its bad faith determination were as follows: 6 The Debtor clearly has violated her duty of truthful disclosure notwithstanding her lengthy experiences with 7 the bankruptcy system and in spite of her right to amend her Schedules. 8 Debtor nevertheless has a substantial ability to pay 9 her creditors, especially as her income is substantial, though her financial habits have been to some extent 10 careless. 11 Findings of Fact and Conclusions of Law (Dec. 14, 2015) at 12 2:25-28. The bankruptcy court did not specifically find that 13 Drury acted in bad faith, nor is there any indication that the 14 bankruptcy court considered all of the Leavitt factors or all 15 relevant factors. While there are other facts in the record that 16 might support a finding of bad faith, we cannot say on this 17 record, and in light of the limited findings the bankruptcy court 18 made, that we have a clear and complete understanding of the 19 basis for the bankruptcy court’s bad faith ruling. 20 In re Leavitt, 171 F.3d at 1223. More importantly, on this 21 record, we cannot ascertain whether the bankruptcy court applied 22 the correct legal standard. Consequently, vacating the 23 bankruptcy court’s bad faith determination and remanding for 24 further findings is necessary. 25 Under § 707(b)(3)(B), a chapter 7 case may be dismissed as 26 abusive under the totality of the debtor’s financial 27 circumstances. In assessing the totality of the debtor’s 28 financial circumstances, we consider the same non-exhaustive list
18 1 of factors used by the Ninth Circuit for the determination of 2 substantial abuse under pre-BAPCPA law. In re Ng, 477 B.R. at 3 126 (citing Price v. United States Trustee (In re Price), 4 353 F.3d 1135, 1139–40 (9th Cir. 2004)). These factors include: 5 (1) Whether the debtor has a likelihood of sufficient future income to fund a Chapter 11, 12, or 13 plan 6 which would pay a substantial portion of the unsecured claims; [2] Whether the debtor's petition was filed as 7 a consequence of illness, disability, unemployment, or some other calamity; (3) Whether the schedules suggest 8 the debtor obtained cash advancements and consumer goods on credit exceeding his or her ability to repay 9 them; (4) Whether the debtor's proposed family budget is excessive or extravagant; (5) Whether the debtor's 10 statement of income and expenses is misrepresentative of the debtor's financial condition; and (6) Whether 11 the debtor has engaged in eve-of-bankruptcy purchases. 12 Id. “[A] ‘debtor’s ability to pay his debts will, standing 13 alone, justify a section 707(b) dismissal.’” Id. (quoting 14 In re Price, 353 F.3d at 1140). 15 Here, the bankruptcy court found that Drury had “a 16 substantial ability to pay her creditors.” But the bankruptcy 17 court did not explain how it reached this conclusion for purposes 18 of § 707(b)(3)(B). It very well might have been based on the 19 bankruptcy court’s erroneous disallowance of Drury’s car loan 20 payments as an actual and necessary transportation expense. For 21 the same reasons we rejected this disallowance in the context of 22 determining whether there was presumption of abuse under 23 § 707(b)(2), we also reject this disallowance for § 707(b)(3)(B) 24 purposes.7 Because the bankruptcy court’s findings were 25 7 26 To be clear, the legal standards governing expense allowance under the means test (§ 707(b)(2)) and under the 27 totality of the debtor’s financial circumstances (§ 707(b)(3)(B)) are different. Compare Ransom, 562 U.S. at 65-66, with In re Ng, 28 (continued...)
19 1 insufficient on the record presented to afford us with a clear 2 and complete understanding of the basis for the bankruptcy 3 court’s totality of the circumstances ruling, we must vacate the 4 bankruptcy court’s § 707(b)(3)(B) determination and remand for 5 further findings regarding the totality of the debtor’s financial 6 circumstances. 7 CONCLUSION 8 For the reasons set forth above, we VACATE the bankruptcy 9 court’s dismissal order, and we REMAND this matter for further 10 proceedings consistent with this decision. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 7 (...continued) 27 477 B.R. at 126. Nonetheless, the bankruptcy court here did not sufficiently justify the disallowance of Drury’s car ownership 28 expense under either standard.