Opinion
No. 03-15248.
April 13, 2007
William G. Schwall, Chattanooga, Tennessee, Attorney for Debtors.
Kimberly C. Swafford, Office of the United States Trustee, Chattanooga, Tennessee, Attorney for United States Trustee.
MEMORANDUM OPINION ON MOTION TO DISMISS BY UNITED STATES TRUSTEE
This case is before the court on the United States Trustee's motion to dismiss pursuant to Section 707 of the Bankruptcy Code. Having considered the proof and arguments of the parties, the court now reports its findings of fact and conclusions of law pursuant to Rules 9014(c) and 7052 of the Federal Rules of Bankruptcy Procedure.
Findings of Fact
The debtors both have stable employment and income. Mr. Harris has worked at Shaw Industries for approximately 19 years. Mrs. Harris is a registered nurse. She has worked at Hutcheson Medical Center for 9 years.
At the time the petition was filed, the debtors showed combined monthly net income of $6,087.08, of which $2,953.73 was attributable to Mrs. Harris. After the United States Trustee's motion to dismiss was filed, the debtors amended Schedule I to indicate a total combined monthly income of $5,529.93. This substantial decrease was all attributable to Mrs. Harris. She explained at trial that prior to the petition having been filed, she was earning substantial overtime pay. She testified the project on which she had been working to earn overtime was terminated shortly after the filing of the petition, thereby decreasing her income.
The debtors' list of current expenditures (Schedule J) appears to have been modified after it was prepared and signed by the debtors. The debtors' attorney acknowledged that the handwritten figures on Schedule J are his. Accepting this Schedule as accurate, the debtors' total monthly expenses are $6,400.00. As compared to the debtors' current income, this would leave a net deficit of approximately $900.00 each month.
There is no doubt that the handwritten notes on Schedule J drew particular attention to the expenses listed there. For example, the home maintenance repairs have been increased from $150 each month to $400 each month. Likewise, charitable contributions increased by $80 monthly. While the United States Trustee has questioned several items of expenses listed by the debtors, the real issue seems to be a projected expense of $1,000 each month for tuition, books, and school expenses.
The debtors' 22-year-old son lives at home and is a full-time college student. The debtors live in Georgia, just a few miles from the Tennessee/Georgia boundary. The debtors' son attends college at the University of Tennessee at Chattanooga. He commutes and pays out-of-state tuition. Mrs. Harris testified that there is no four-year Georgia college within commuting distance from their home. According to her testimony, it is more economical for them to pay the out-of-state tuition and have their son commute than it would be for him to attend a Georgia school with in-state tuition but incur room and board at such a school.
There was also credible testimony that one or more members of this family have alcohol-dependency problems. This has resulted in higher medical expense than usual, as well as higher automobile liability expense.
The debtors have listed unsecured debts totaling $56,501. All of these debts appear to be consumer debts on personal loans and credit cards. The United States Trustee argues that granting discharge relief in this case would be a substantial abuse of the provisions of Chapter 7 because the debtors can easily afford to pay a large portion of their debts in a chapter 13 plan.
Conclusions of Law
The United States Trustee's motion is based on the provisions of Section 707(b) of the Bankruptcy Code, which provide as follows:
After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, but not at the request or suggestion of any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts if it finds that the granting of relief would be a substantial abuse of the provisions of this chapter. There shall be a presumption in favor of granting the relief requested by the debtor. In making a determination whether to dismiss a case under this section, the court may not take into consideration whether a debtor has made, or continues to make, charitable contributions (that meet the definition of "charitable contribution" under section 548(d)(3)) to any qualified religious or charitable entity or organization (as that term is defined in section 548(d)(4)).
There is no dispute that the debtors are individuals or that their debts are primarily consumer debts, and the United States Trustee does not question the debtors' charitable contributions. Accordingly, the issue before the court is whether this case constitutes a "substantial abuse" of Chapter 7 of the Bankruptcy Code.
The Sixth Circuit has explained the meaning of that term:
Those courts which have reviewed the legislative history, have generally concluded that, in seeking to curb "substantial abuse," Congress meant to deny Chapter 7 relief to the dishonest or non-needy debtor. In determining whether to apply § 707(b) to an individual debtor, then, a court should ascertain from the totality of the circumstances whether he is merely seeking an advantage over his creditors, or instead is "honest," in the sense that his relationship with his creditors has been marked by essentially honorable and undeceptive dealings, and whether he is "needy" in the sense that his financial predicament warrants the discharge of his debts in exchange for liquidation of his assets. Substantial abuse can be predicated upon either lack of honesty or want of need.
In re Krohn, 886 F.2d 123, 126 (6th Cir. 1989) (citations omitted). The court went on to list some of the factors to be considered in evaluating a debtor's honesty and some of the factors to be considered in evaluating a debtor's need for Chapter 7 relief. In the latter regard, the "totality of the circumstances" include (a) the debtor's "ability to repay his debts out of future earnings," (b) "whether the debtor enjoys a stable source of future income," (c) whether the debtor is "eligible for adjustment of his debts through Chapter 13 of the Bankruptcy Code," (d) "whether there are state remedies with the potential to ease [the debtor's] financial predicament," (e) "the degree of relief obtainable through private negotiations," and (f) whether the debtor's "expenses can be reduced significantly without depriving him of adequate food, clothing, shelter and other necessities." Id. at 126-27.
In determining the debtors' ability to repay their debts, the court must determine the amounts of monthly living expenses "reasonably necessary to maintain the debtor or the debtor's dependents." It has been held that "Debtor's amendment of the schedules when faced with the U.S. Trustee's motion to dismiss also renders their veracity suspect." In re Lee, 162 B.R. 31, 43 (Bankr. N.D. Ga. 1993). The importance of filing accurate schedules at the outset of the case cannot be overemphasized. "The veracity of the statements filled out by the debtor is essential to the successful administration of the Bankruptcy Code." Job v. Calder (In re Calder), 93 B.R. 734, 738 (Bankr. D. Utah 1988), aff'd, 907 F.2d 953 (10th Cir. 1990) (citing Chalik v. Moorefield (In re Chalik), 748 F.2d 616, 618 (11th Cir. 1984)); accord, e.g., Bailey v. Ogden (In re Ogden), 251 B.R. 441 (Table), 1999 WL 282732, at **14 (B.A.P. 10th Cir. Apr. 30, 1999). "[T]he petition, including schedules and statements, must be accurate and reliable, without the necessity of digging out and conducting independent examinations to get the facts." Mertz v. Rott, 955 F.2d 596, 598 (8th Cir. 1992); accord, e.g., Ogden, 1999 WL 282732, at **14; Camacho v. Martin (In re Martin), 88 B.R. 319, 323 (D. Colo. 1988). "To a substantial extent, the trustee's ability to perform the duties set forth in 11 U.S.C. § 704 depends on the accuracy and completeness of the debtor's disclosures." In re Colvin, 288 B.R. 477, 481 (Bankr. E.D. Mich. 2003). The bankruptcy system's need for accurate schedules would not be fulfilled were a debtor free to "correct" the schedules once they are called into question.
Having observed her demeanor as a witness, the court finds that Mrs. Harris was truthful in her testimony. In the court's opinion, she is an honest but unfortunate debtor entitled to bankruptcy relief. The court finds that the debtors' schedules as amended accurately reflect their current income and expenses. The court recognizes a split of authority among courts with respect to support of an emancipated child. See, e.g., In re Coleman, 231 B.R. 760 (Bankr.D.Neb. 1999) (substantial abuse where debtor proposed to pay tuition, room, board and expenses of emancipated 19 year old son). But see In re Zaleta, 211 B.R. 178 (Bankr.M.D.Penn. 1997) (providing support for a 20 year old daughter is not so unreasonable as to override the presumption in favor of granting a discharge). It is not necessary in this case to decide that issue. If the $1,000 were deducted from the expenses of the debtors, they still would not have the ability to repay their debts out of future earnings. Further, because of the medical problems of Mr. Harris, the debtors' expenses cannot be reduced significantly without depriving them of adequate food, clothing, shelter, and other necessities. A discharge in this case would not represent a substantial abuse of the relief afforded by Chapter 7 of the Bankruptcy Code. Accordingly, the court will enter a separate order denying the United States Trustee's motion to dismiss.