Opinion
Case No. 00-12995, Chapter 7.
February 28, 2001
ORDER GRANTING MOTION TO DISMISS
This matter is before the Court on the United States Trustee's motion to dismiss pursuant to 11 U.S.C. § 707(b) (Doc. 17) and the Mitmans' response (Doc. 18). A hearing was held on February 13, 2001.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and the general order fo reference entered in this district. This is a core proceeding under 28 U.S.C. § 152(b)(2)(A).
Section 707(b) provides in pertinent part:
After notice and hearing, the court . . . 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.
As explained by the Sixth Circuit, substantial abuse under § 707(b) may be predicated upon either lack of honesty or want of need. In re Krohn, 886 F.2d 123, 126 (6th Cir. 1989). In making its analysis, the Court should look at the totality of the circumstances. Id. Factors that may be relevant include the debtor's good faith and candor in filing his schedules, whether the debtor made any purchases on the eve of bankruptcy, whether the debtor was forced into bankruptcy by an unforeseen or catastrophic event, the debtors' ability to repay his debts out of future earnings with relative ease, whether the debtor enjoys a stable source of future income, whether the debtor is eligible for debt adjustment under chapter 13, the availability of state remedies, the availability of relief through private negotiations, and whether the debtor can significantly reduce his expenses without depriving himself of adequate necessities. Id. at 126-27.
The United States Trustee has the burden of proof by a preponderance of the evidence. In re Summer, 255 B.R. 555, 563 (Bankr.S.D.Ohio 2000).
The vase majority of the Mitmans' total unsecured debt of $147,000 arises from Mr. Mitman's previous gambling problem. Admirably, Mr. Mitman has received counseling for this problem and has not gambled since 1992. Although the Mitmans have made substantial payments on these debts over the years, they have been unsuccessful in fully reducing the debt.
Mr. Mitman, who is 55 years old, has been a loan officer with Provident Bank for 31 years and earns $73,000 annually. Mrs. Mitman has been a personnel director for a management recruitment firm for five years and earns $32,000 annually.
The Mitmans list the following assets on their Schedule B: $333,512 in a Provident Bank ESOP, $89,861 in a Provident Bank 401(k), $10,000 in a Donohue 401(k), and $17,000 in Provident Bank stock options.
The Mitmans have a $51,000 loan against their Provident Bank 401(k) which was made for the purpose of paying off some of the gambling debt. At the time of the hearing, the balance on this loan had been reduced to $15,500.
The Mitmans lease a 2000 Toyota Solara and a 1997 Toyota Rav 4 sport utility vehicle. They live in a condominium valued at $165,000. There are first and second mortgages on the condominium vastly exceeding its value.
Mr. Mitman takes medicine for depression, anxiety, and high cholesterol. He has recently been diagnosed with hypertension. Mrs. Mitman has had a hysterectomy, a gall bladder operation, and three precancerous breast masses removed in the past 5 years. She takes medicine for depression and hypertension. Mrs. Mitman's mother is 70 and lives on social security. She depends on Mrs. Mitman for financial help. Mrs. Mitman's son, who recently left the military, has been diagnosed with leukemia. He has no health insurance.
Both Mr. And Mrs. Mitman offered credible testimony about their risk of possible termination by their respective employers.
At the time the United States Trustee filed the motion to dismiss, it appeared as though the Mitmans had close to $3,000 a month with which to fund a chapter 13 plan. This calculation was based on the Mitmans' stated intention to surrender the condominium, which would have made available $1,593 per month ($2,343 monthly mortgage payments less $750 anticipated monthly rent), in addition to their 401(k) loan repayment of $1,050 per month, see In re Harshbarger, 66 F.3d 775 (6th Cir. 1995) (401(k) loan repayment money constitutes disposable income), and certain questionable expenses on Schedule J. Further, we note that the Debtors' combined voluntary monthly contributions into their respective retirement plans is $300. See In re Summer, 255 B.R. at 559 (voluntary contribution into retirement plan is disposable income); see also In re Anes, 195 F.3d 177, 180-81 (3rd Cir. 1999).
The United States Trustee questioned the Mitmans' payment of $170 monthly for life insurance above that which is available through an employer sponsored plan and their $250 monthly expense for clothing and dry cleaning. Also, the listed fees of $100 monthly for home maintenance and $160 monthly for condominium fees would not be paid if the condominium was surrendered.
At the hearing, however, the Mitmans expressed their present intention to retain the condominium due to the possibility of Mrs. Mitman's mother or son or both moving in with them at some future date. Thus, not taking into account any of the Mitmans' questionable expenses, the Mitmans' have, at a minimum, $1,050 of monthly disposable income with which to fund a chapter 13 plan.
The Mitmans have been honest in their filings and they have made no eve of bankruptcy purchases. For a time period, both Mr. And Mrs. Mitmans had second jobs to assist in the repayment of their debts. Thus, there is no question that the Mitmans are honest debtors.
On the other hand, and especially compared to other chapter 7 debtors, the Mitmans also have a sizeable annual income. Although we acknowledge that the Mitmans' retirement monies appear protected under § 541(c)(2), we cannot ignore the sizeable amount of said retirement savings. Given the amount of the Mitmans' annual income and their sizeable monthly disposable income of at least $1,050, the Court is obligated to conclude that the Mitmans may repay at least a portion of their debts out of future earnings with relative ease. See In re Krohn, 886 F.2d at 126.
The Mitmans contend that they have probably paid in excess of $380,000 in interest over the past eight years to their various creditors and that they have just been unsuccessful in reducing the principal. This situation is typical of the debtor who incurs too much credit card debt. While the payment of so much interest may indicate that the Mitmans have been "honest" to their creditors, it does reflect on their lack of "need" or ability to repay a portion of their debts.
The Mitmans also contend that they might not qualify for chapter 13 relief due to the amount of their unsecured debt. The fact that the Mitmans have decided to retain their condominium appears to render this contention moot. In any event, inability to qualify under chapter 13 is not dispositive. In re Krohn, 886 F.2d at 127.
We note, however, there is a very real prospect of worsening conditions for the Mitmans that may make it impossible for them to repay their debts with relative ease. If their conditions do so worsen, conversion back to a chapter 7 case would be appropriate. The United States Trustee intimated at the hearing that, if properly grounded, such a conversion would not be opposed.
For example, if either Mr. or Mrs. Mitman are terminated from their jobs and are unable to find comparable employment or are unable to work due to health reasons, conversion may be appropriate.
Accordingly, the United States Trustee's motion to dismiss will be GRANTED. The Mitmans have twenty (20) days from the entry date of this order to convert the case or the chapter 7 case will be DISMISSED.
IT IS SO ORDERED.