Opinion
23-30368
05-23-2023
In re: CHERRELLE DENE VANCE, Debtor.
MaryAnne Wilsbacher (Assistant United States Trustee). Jeremy Shane Flannery (Counsel for the United States Trustee).
MaryAnne Wilsbacher (Assistant United States Trustee).
Jeremy Shane Flannery (Counsel for the United States Trustee).
ORDER GRANTING APPLICATION TO HAVE THE CHAPTER 7 FILING FEE WAIVED (DOC. 9)
GUY R. HUMPHREY, UNITED STATES BANKRUPTCY JUDGE.
This matter is before the court on the Debtor's Application to Have the Chapter 7 Filing Fee Waived (doc. 9) (the "Application") and the Chapter 7 Trustee's Objection to Debtor's Application to Have the Chapter 7 Filing Fee Waived (doc. 19) (the "Objection"). The Objection argues that "Debtor received a 2022 federal and state tax refund of approximately $8,082.00 before filing . . . [and] has the ability to pay the filing fee with a small portion of the 2022 tax refund." Id. at 2. Upon the request of the court (doc. 22), the Trustee filed a status report explaining that the Debtor's tax refund consisted of "an Earned Income Credit of $4,440 and a Child Tax Credit of $4,419, and was to receive a total Federal refund of $9,142." Doc. 26 at 1. The Debtor indicated to the Trustee that $1,800 of the tax credits was offset for prior taxes owed. Id. Doc. 26 at 1. In addition, the Debtor "received a refund of $740 from [the State of] Ohio." Id. It is unclear to the court whether or how the refundable portion of these refunds have been spent.
In 2005, Congress authorized fee waivers for Chapter 7 debtors when the court finds that the debtor "has income less than 150 percent of the income official poverty line . . . and is unable to pay that [filing] fee in installments." 28 U.S.C. § 1930(f)(1). The first prong of this analysis is strictly quantitative. The court reviews line 10 of the debtor's schedules to determine whether her household income falls below 150% of the federal poverty guideline for her household size. Compare Guide to Judicial Policy, § 820.20(a)(2)(B) ("The income for comparison to the poverty guidelines is the "Total Combined Monthly Income" as reported . . .on Schedule I) with Schedule I, line 10 (explaining that in order to "Calculate Monthly Income" to combine lines 7 and 9, and providing a separate box to list the total household income).
The court examined both the Application (Doc. 9) and the income and expense information scheduled in the Debtor's Schedules I and J and finds them mostly consistent. The Debtor's gross monthly income is $2,543, her monthly take-home pay from Line 10 of Schedule I is $1,366 and her family size is 4. Doc. 1 at 31-35. The Trustee asserts the Debtor's gross income listed on her 2022 tax return was $31,962.00 (or $2,663.50 per month for 12 months). Doc. 19 at 2. The Trustee indicates that it appears the Debtor's income is "understated" but the gross income on Schedule I is similar. Id. at 1. The court notes that 150% of the official poverty line for a family size of 4 is currently $3,750 per month. See Annual Update of the HHS Poverty Guidelines, 88 FR 3424, 3424-3425 (Jan. 19, 2023); Bankruptcy Case Policies § 820.20(a)(1)(A). Even applying the higher gross income figure of $2,663, the Debtor's adjusted income is below 150% of the poverty guideline.
The court turns to the second prong of the waiver eligibility test and considers whether the Debtor is nevertheless able to pay the filing fee in installments. To make this determination, bankruptcy courts employ a totality of the circumstances analysis. In re Stickney, 370 B.R. 31, 40 (D.N.H. 2007) (discussing the review guidelines promulgated by the Judicial Conference). The burden rests on the Debtor to show "by a preponderance of the evidence that her circumstances satisfy both parts of the Waiver test." Stickney, 370 B.R. at 39; In re Spisak, 361 B.R. 408, 412 (Bankr. D. Vt. 2007) (same). Courts consider a variety in factors, including the reasonableness of the debtor's expenses, payments promised to the debtor's attorney, and whether the debtor has any exempt property from which the filing fee could be paid. Stickney, 370 B.R. at 40, Spisak, 361 B.R. at 414. The consideration of these factors and the weight given to each is a matter of judicial discretion. At least some courts have found that exempt tax refunds should be used to pay the filing fee despite the debtor having an income below 150% of the federal poverty guideline. See In re Downey, No. 18-62284, 2019 Bankr. LEXIS 1133, at *6, 2019 WL 1559869, at *2 (Bankr.N.D.Ohio Apr. 10, 2019). However, while the "existence and value of exempt property are salient factors in the fee waiver eligibility analysis, these factors should not be determinative of the issue and must be weighed judiciously. Neither one, alone, would be a proper basis for denying an application for a fee waiver." Spisak, 361 B.R. at 414.
This court recognizes that other bankruptcy courts that have addressed this issue have sometimes undertaken extensive analyses of debtors' incomes and spending choices. For example, in In re Lineberry, a bankruptcy court concluded that a family could pay the filing fee in installments despite having an income below 150% of the federal poverty guideline, receiving food stamps, and having no significant assets because they had received a tax refund and planned to spend a portion of those funds to purchase a class ring for their 14 year old son. 344 B.R. 487, 491-93 (Bankr. W.D. Va. 2006). This court respectfully disagrees with this approach. The court does not intend to engage in audits of indigent debtors' expenses and historic spending patterns absent an unusual set of facts. Instead, this court will employ an objective test and will consider whether the debtor's expenses as scheduled appear reasonable, and, if so, whether the monthly breakdown of the tax refund leaves the debtor with any meaningful disposable income that could be used to make installment payments toward the filing fee.
Here, the court notes that the debtor is appearing pro se and has not paid or agreed to pay an attorney for services. The court also views the debtor's monthly expenses of $2,671 for a household of four as modest and reasonable. The debtor's schedules do not show any bank accounts or any other significant assets except a $4,000 vehicle and other very modest personal property scheduled with a $1,000 value. Doc 1 at 11. In addition, the debtor's federal tax refund (excepting what was setoff) consists entirely of refundable tax credits created by Congress to assist those with children and with low incomes. See In re Maine, 461 B.R. 723, 733 (stating that "the Ohio exemption for those credits is to provide maintenance and support for the debtor taxpayer and her dependents"). Brasher v. McGregor (In re Brasher), 253 B.R. 484, 489 (M.D. Ala. 2000) (explaining why refundable tax credits are a form of public assistance); In re Jones, 107 B.R. 751, 752 (Bankr. D. Idaho 1989) (concluding that the Earned Income Tax Credit is in the nature of "social welfare relief"); Flanery v. Mathison, 289 B.R. 624, 628-29 (W.D. Ky. 2003) ("The EITC is a public assistance grant used to combat poverty. It is an essential and significant component of the work support system which has replaced the old welfare system."); In re Koch, 299 B.R. 523, 527-28 (Bankr. C.D. Ill. 2003) (discussing the public assistance nature of the CTC). In In re Maine, this court examined the purpose and utility of these tax credits in the context of exemptions and stated:
The exemption [in EIC and CTC credits] would be worthless if creditors and bankruptcy trustees could attach such funds as soon as the debtor received them because the debtor would have no means to protect those funds once they are received and prior to needing to expend those funds for her bare necessities.461 B.R. at 729. The same logic is applicable here. The mere existence of these funds, even when in lump sum, does not necessarily evidence an ability to pay the filing fee when the Debtor's reasonable expenses result in a monthly shortage and her household income, even when supplemented with the federal and state tax refund, remains near or below 150% of the poverty guideline as it is here. The federal and state tax refunds (even including the non-refundable portion) provide $824.33 a month of additional income [$9,892 divided by 12]. Even using the "apples to oranges" monthly gross income figure of $2,663 without deducting taxes, her total monthly household income would be $3,487.33 [$2,663 + 824.33], which is still below 150% of the income poverty guideline. In reality, the Debtor's combined monthly income appears much closer to $2,190.33 [$1,366 + $824.33]. But even beyond those realities, almost the entire federal refund is not based on the Debtor's income and taxes paid throughout the year. Instead, most of the refund is based on refundable tax credits Congress intended to combat poverty and encourage work. Absent some other relevant factor, the court will not require the filing fee to be paid under these circumstances.
In conclusion, considering all the relevant factors, the Debtor does not evidence an ability to pay the filing fee in installments. For these reasons, the court determines that the Debtor does not have the means to pay the filing fee in installments and grants the waiver application.
IT IS SO ORDERED.