Opinion
In Bankruptcy Case No. 03-73942
April 20, 2004
OPINION
The issue before the Court is whether the Debtor's bankruptcy petition should be dismissed on the grounds of substantial abuse pursuant to 11 U.S.C. § 707 (b).
The Debtor, Sheryl Mack, filed a petition pursuant to Chapter 7 of the Bankruptcy Code on September 30, 2003. The Debtor is 49 years of age, divorced, and has no dependents. Her schedules showed that she was a 20-year employee of the Illinois Department of Revenue with net monthly income of $4,142.72. She scheduled monthly expenses of $3,766.16. Her schedules showed secured debt of $129,970.92 and unsecured debt of $46,125 (which includes a $33,000 student loan).
The United States Trustee filed a Motion to Dismiss pursuant to 11 U.S.C. § 707(b). According to the United States Trustee's calculations, the Debtor could pay 91% of her unsecured debt in a 36-month Chapter 13 plan.
The Debtor filed amended schedules on March 3, 2004. The amended schedules show her net monthly income reduced to $2,893.59 and her expenses increased to $3,848.16.
The Debtor testified at a hearing on the Motion to Dismiss that she was laid off from her position with the Department of Revenue after she filed her petition. She obtained another position with the Department, but she is now serving a probationary period and she may be let go at any time. She also works three hours a week at $14 per hour doing bookkeeping, typing, and cleaning for a local attorney. (Her amended schedules show $42 per month for this part-time work, but the Debtor conceded that she makes more than $100 per month from her part-time job.)
The Debtor testified that she only filed for bankruptcy because her ex-husband also filed. Her ex-husband got the house and the boat; she got two vehicles — a Pontiac Grand Am and a 1993 Chevrolet Corvette. She pays $500 per month for the Corvette. The Debtor has signed and filed a reaffirmation agreement on the Corvette even though she claims that is worth less than what is owed on it. While the Court does not approve reaffirmation agreements where the collateral is worth less than what is owed on it, the reaffirmation agreement did not require Court approval because the Debtor's attorney signed an affidavit which satisfied the requirements of 11 U.S.C. § 524(c)(3). It is not clear why the Debtor's attorney would sign off on such an imprudent reaffirmation agreement.
The Debtor pays $4,200 per year in car insurance. This high figure is the result of owning a sports car and an accident in 2001 that was the result of her DUI.
The Debtor stated that she owes the IRS $750. This debt was not listed in her schedules for reasons that she could not explain. She is repaying this debt at the rate of $250 per month.
The Debtor's son attended DeVry Institute from 1995 to 1998 and he is now working for Cisco Systems in Denver, Colorado. The Debtor could not offer a cogent explanation as to why she is still paying the college bills of her emancipated and employed son.
Section 707(b) of the Bankruptcy Code provides that the court may dismiss a case filed by an individual debtor under Chapter 7 where that debtor's debts are primarily consumer debts if the Court finds that the granting of the relief would be a substantial abuse of the provisions of Chapter 7 of the Bankruptcy Code. This Court has held "that the decision whether a bankruptcy filing was a substantial abuse must be determined on the date the petition was filed and not the date of the hearing on the § 707(b) motion." In re Penny, Case No. 02-75199 (Bankr. C.D. Ill. August 8, 2003).
Section 707(b) affords a presumption in favor of granting the relief sought, i.e. a Chapter 7 discharge. 11 U.S.C. § 707(b). Thus, the U.S. Trustee bears the burden of overcoming the presumption by proving that the Chapter 7 filing should be dismissed because it is abusive and that the level of abuse is substantial. In re Farrell, 150 B.R. 116 (Bankr. D. N.J. 1992). In determining whether substantial abuse of the bankruptcy process would be sustained if a case is not dismissed, the Court must utilize a totality of the circumstances test and, in doing so, consider all relevant mitigating and aggravating factors. In re Pilgrim, 135 B.R. 314, 319 321 (C.D. Ill. 1992). When considering the totality of the circumstances, courts typically apply the following factors:
1. Whether the bankruptcy petition was filed because of sudden illness, calamity, disability, or unemployment;
2. Whether the debtor incurred cash advances and made consumer purchases far in excess of his ability to repay;
3. Whether the debtor's schedules and statement of current income and expenses reasonably and accurately reflect his true financial condition;
4. Whether the debtor enjoys a stable source of future income;
5. Whether he is eligible for adjustment of his debts through Chapter 13;
6. Whether there are state remedies with the potential to ease his financial predicament;
7. The degree of relief obtainable through private negotiations;
8. Whether his expenses can be significantly reduced without depriving him of adequate food, clothing, shelter, and other necessities, and
9. Whether the petition was filed in good faith.
In re Ditch, 2002 WL 32001245 at p. 2 (Bankr. C.D. Ill), citing In re Green, 934 F.2d 568 (4th Cir. 1991) and In re Krohn, 886 F.2d 123 (6th Cir. 1989).
Bankruptcy courts frown upon debtors who want to maintain an extravagant lifestyle and receive a discharge while intending to pay nothing to general unsecured creditors. In re Duncan, 201 B.R. 889, 898 (Bankr. W.D. Pa. 1996); Matter of Ploegert, 93 B.R. 641, 644 (Bankr. N.D. Ind. 1988). In particular, courts have routinely dismissed cases on grounds of substantial abuse where the debtor would rather drive a luxury vehicle than repay debts. In re Lacrosse, 244 B.R. 583, 588-89 (Bankr. M.D. Pa. 1999) (two leased luxury vehicles — Cadillac and Grand Cherokee); In re Butler, 277 B.R. 917, 922 (Bankr. N.D. Iowa 2002) ($34,000 Silverado and $60 per month for cleaning and waxing); In re Struggs, 71 B.R. 96, 98 (Bankr. E.D. Mich. 1987) (Cadillac Fleetwood); In re Bell, 56 B.R. 637 (Bankr. E.D. Mich. 1986). See also In re Rogers, 65 B.R. 1018 (Bankr. E.D. Mich. 1986) ($440 per month payment for a Corvette not a reasonably necessary expense for a debtor proposing a Chapter 13 plan). Courts have also found that debtors could fund a Chapter 13 plan by eliminating payments on the college loans of their grown children.In re Summer, 255 B.R. 555, 561 (Bankr. S.D. Ohio 2000);In re Coleman, 231 B.R. 760, 762-63 (Bankr. D. Neb. 1999).
In the case at bar, it is difficult for the single Debtor to justify owning two cars. This is especially true when one of the cars is a Corvette. The Court views the Corvette as an expensive toy. The $500 per month that the Debtor is spending on the Corvette would go a long way towards funding a Chapter 13 plan. The additional savings on car insurance from getting rid of the Corvette could also make a substantial contribution to funding a Chapter 13 plan. Further, the Court finds that the Debtor could redirect thee payments she is making on her grown son's college loan to her unsecured creditors. Based on the foregoing, the Court finds that the Debtor has disposable income which she could use to fund a Chapter 13 plan.
For the foregoing reasons, and based upon the totality of the circumstances, the Court finds that the United States Trustee's Motion to Dismiss should be granted.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
ORDER
For the reasons set forth in an Opinion entered this day,
IT IS HEREBY ORDERED that the United States Trustee's Motion to Dismiss pursuant to 11 U.S.C. § 707(b) be and is hereby granted.