In re Suttice

487 B.R. 245, 2013 Bankr. LEXIS 171, 2013 WL 100199
CourtUnited States Bankruptcy Court, C.D. California
DecidedJanuary 9, 2013
DocketNo. 6:12-bk-21006-SC
StatusPublished
Cited by7 cases

This text of 487 B.R. 245 (In re Suttice) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, C.D. California primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Suttice, 487 B.R. 245, 2013 Bankr. LEXIS 171, 2013 WL 100199 (Cal. 2013).

Opinion

ORDER AND AMENDED OPINION DENYING MOTION TO DISMISS FOR ABUSE

SCOTT C. CLARKSON, Bankruptcy Judge.

Before this Court is a Motion to Dismiss Case for Abuse pursuant to 11 U.S.C. § 707(b)(1) and (b)(3)1 (the “Motion to Dismiss”), filed by Movant Peter C. Anderson, the United States Trustee for the Central District of California (the “U.S. Trustee”).

BACKGROUND

Mr. Rufus Suttice and Mrs. Karen Pol-ley-Suttice, 85 and 69 years old respectively, filed a chapter 7 bankruptcy petition on May 3, 2012. [Dk. 1]. The Debtors included a Chapter 7 Statement of Current Monthly Income and Means-Test Calculation, indicating that a presumption of abuse under § 707(b)(2) did not arise. [Dk. 1 at 51]. The Debtors’ Second Amended Schedule I and J reflect a combined monthly income of $8,532.90, consisting of: $1,072.90 from social security benefits, combined pension or retirement income of $6,572.00, Veteran Affairs Benefits of $488.00, and family contributions of $400.00 [Dk. 66 at 3], and expenses totaling $7,635.96 per month [Dk. 66 at 4], leaving a net balance of $896.94 per month in surplus income. [Dk. 66 at 4],

On June 18, 2012,2 the U.S. Trustee filed a statement of presumed abuse. [Dk. 21], On July 16, 2012,3 the U.S. Trustee filed the Motion to Dismiss, arguing that the Debtors have a monthly surplus income of $1,874.75, based upon the Debtors’ First Amended Schedules, and that their case should be dismissed for abuse. [Dk. 29 at 4:18-19]. On September 7, 2012, a substitution of attorney was filed, substituting-in the Debtors’ current counsel. [Dk. 49]. On October 3, 2012, the Debtors filed an opposition stating that their prior counsel had both overstated their income and understated their expenses. [Dk. 58 at 6]. Specifically, the expenses omitted from Schedule J included an additional mortgage payment, HOA dues, homeowner’s [248]*248insurance, and personal grooming, which would reduce the Debtors’ net surplus income to $1,116.07 per month. [Dk. 58 at 5:13]. The Debtors later filed a Second Amended Schedule I and Schedule J, which reflect a current net surplus income of $896.94 per month. [Dk. 66 at 4],

The hearing on the Motion to Dismiss was held on November 14, 2012. Relying on the Ninth Circuit case In re Price, 353 F.3d 1135 (9th Cir.2004), the U.S. Trustee argued that the Debtors’ chapter 7 should be dismissed as abusive based on the totality of the circumstances of the Debtors’ financial situation pursuant to § 707(b)(3)(B). The U.S. Trustee focused its argument on one of several factors enumerated in Price for determining abuse — the Debtors’ ability to fund a chapter 13 plan. The U.S. Trustee further argued that social security benefits may be taken into account when assessing the ability of the Debtors to fund a chapter 13 plan for purposes of § 707(b)(3)(B). [Dk. 29, 3 n. 4]. The U.S. Trustee argued that Price remains operative law post-enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), and that subsequent cases in the Ninth Circuit continue to honor Price as guiding authority.

The Debtors’ counsel argued in his opposition brief that “a debtor’s case should not be dismissed solely due to surplus income which is not otherwise included in the means test,” and that including social security income in a § 707(b)(3)4 analysis would circumvent the means test of § 707(b)(2). [Dk. 58 at 7:5-7], Debtor’s counsel asserted that if the Debtors converted to chapter 13, they would not be compelled to remit their social security income to the plan. [Dk. 58 at 7:8-12] (citing In re Welsh, 465 B.R. 843, 852-55 (9th Cir.BAP2012)).5 Debtors’ counsel concluded that because, under Welsh, a finding of bad faith in chapter 13 under § 1325(a)(3) may not be based solely on “the mere fact that the debtor has excluded income or deducted expenses that the Code allows” (Welsh, 465 B.R. at 855), therefore, the same principle applies in chapter 7. [Dk. 58 at 7:7-8]. At the hearing, Debtors’ counsel further argued that the “ability to pay” factor from Price was abrogated by BAPCPA. Debtors’ counsel argued in the alternative that even if Price [249]*249was not abrogated by BAPCPA, the totality of the circumstances of this case do not demonstrate abuse, based on the Debtors’ live testimony regarding current and future anticipated expenses related to then-age, health, and medical conditions.

DISCUSSION

Under § 707(b)(1), the Court may dismiss a chapter 7 case of an individual debtor whose debts are primarily consumer debts if the court finds that granting a discharge would be an abuse6 of chapter 7. Section 707(b)(2) provides two standards for determining “abuse” under § 707(b)(1). First, abuse is presumed if the debtor fails the means test of § 707(b)(2), based on his current monthly income.7 Second, the Court may find actual abuse if the petition was filed in bad faith (§ 707(b)(3)(A)) or if “the totality of the circumstances ... of the debtor’s financial situation demonstrates abuse” (§ 707(b)(3)(B)). The instant Motion to Dismiss seeks dismissal based only on the totality of the circumstances test of § 707(b)(2)(B).8

The phrase “totality of the circumstances” is not defined in the Bankruptcy Code, and § 707(b)(3)(B) itself provides no guidance as to what factors might bear on the bankruptcy court’s inquiry, other than its plain text, which states that the totality of circumstances should relate to “the debtor’s financial situation.” In re Ng, 477 B.R. 118, 126 (9th Cir. BAP 2012). Nonetheless, the Ninth Circuit case of Price provides several non-exhaustive factors indicative of abuse under § 707(b)(3)(B), namely:

1. Whether the debtor has a likelihood of sufficient future income to fund a chapter 11, 12, or 13 plan which would pay a substantial portion of the unsecured claims;
2. Whether the debtor’s petition was filed as a consequence of illness, disability, unemployment, or some other calamity;
3. Whether the schedules suggest the debtor obtained cash advancements and consumer goods on credit exceeding his or her ability to repay them;
4. Whether the debtor’s proposed family budget is excessive or extravagant;
5. Whether the debtor’s statement of income and expenses is misrepresen-tative of the debtor’s financial condition; and
6. Whether the debtor has engaged in eve-of-bankruptcy purchases.

In re Price, 353 F.3d 1135, 1139-40 (9th Cir.2004). Under the first Price factor— ability to fund a chapter 13 plan — the Court is invited to consider the likelihood of the Debtors being able to fund a chapter 13 plan based on future income. Although the ability to fund a chapter 13 plan is an important factor that, “standing alone,” will justify a § 707(b) dismissal, it “does not compel a section 707(b) dismissal of the petition as a matter of law.”

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Cite This Page — Counsel Stack

Bluebook (online)
487 B.R. 245, 2013 Bankr. LEXIS 171, 2013 WL 100199, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-suttice-cacb-2013.