Opinion
Case No. 18-55964
08-06-2019
In re: Peter J. Utrata Rene R. Utrata, Debtors.
Chapter 7
ORDER REGARDING UNITED STATES TRUSTEE'S MOTION TO DISMISS (DOC. NO. 35)
This Order addresses a distinct legal issue raised by the United States Trustee's Motion to Dismiss (UST), and the Response of Peter J. and Rene R. Utrata (Debtors). The UST asks this Court to dismiss Debtors' case on the grounds that they have the ability to repay creditors given the totality of their financial circumstances. Thus, their case constitutes an abuse of the bankruptcy system. 11 U.S.C. §707(b)(3)(B). The sole issue now before the Court, however, is whether Debtors' Social Security Insurance benefits (SSI) constitute income to calculate their ability to pay. Based upon a review of facts in this case, pleadings, statements of counsel, and review of statutory and caselaw authority, the Court says no. A brief discussion follows.
On September 20, 2018, Debtors filed this case under Chapter 7 of the United States Bankruptcy Code (Code). Debtor, Peter J. Utrata, is a 78-year-old physician specializing in eye surgery. His wife, Rene R. Utrata does not work outside the home. Their sole source of employment income is Dr. Utrata's gross monthly wages of $8,666.00. However, Debtors also receive monthly SSI benefits that total $3,254.65. Combining employment income with the SSI, produces a grand total of $11,920.65 in gross monthly resources. After allowing for expenses as adjusted by the UST, a case can be made that Debtors have the ability to pay something to their creditors that are owed $1,761,033.04. On its face it appears that this case should be dismissed as an abusive filing. This would force Debtors to convert to either Chapters 13 or 11 of the Code, offering creditors some recovery over three to five years.
However, it's not that simple. First, despite Debtors' relatively high income, they are not eligible to file under Chapter 13, given the size of their debt. 11 U.S.C. §109(e). Even if they were eligible, in order to confirm a Chapter 13 plan, courts must find that debtors in general have the ability to make all the payments. 11 U.S.C. §1325(a)(6). Further, for plans that draw confirmation objections, courts must find that debtors have the financial ability to commit all disposable income to plan payments over three to five years. 11 U.S.C. §1325 (b)(1)(B). Dr. Utrata is 78 years old. Consequently, it is fair and reasonable to consider that Debtors current significant and steady stream of income will diminish over time. The pace of the decline will advance when Dr. Utrata retires.
Given this risk, Chapter 11 similarly fails because plan confirmation requires a finding that most likely there will be no liquidation or need for further reorganization down the road. 11 U.S.C. §1129(a)(11). Further, for individual Chapter 11 debtors where there are confirmation objections, courts may have to find they have the ability to commit all disposable income to plan payments for a five-year period. 11 U.S.C. §1129(a)(15)(B).
The Court, however, finds one viable path forward. First, Under the Social Security Act its benefits cannot be reached in bankruptcy cases. 42 U.S.C.A. §407; Carpenter v. Ries (In re Carpenter), 614 F.3d 930, 933-37 (8 Cir. 2010). Second, "current monthly income" a/k/a "disposable income" as defined in the Code, expressly excludes SSI benefits. 11 U.S.C. §§101(10A)(B), 1129(a)(15)(B) and 1325(b)(2). Third, the Sixth Circuit agrees with these analyses for Chapter 13 cases, and there is no reason to believe it would reach a different conclusion under Chapter 7. Baud v. Carroll (In re Baud), 634 F.3d 327, 345-47 (6 Cir. 2011). Indeed, the Court finds itself bound by this Sixth Circuit decision.
For these reasons, the Court finds and concludes that Debtors' SSI cannot be considered to determine whether Debtors have the ability to repay, and thus whether this case should be dismissed as an abusive filing. Of course, the UST has the duty to raise these questions in view of Debtors' relatively high income, and the substantial amount of debt. Further, the case trustee filed a no asset report, meaning that there will be no recovery for creditors in this Chapter 7 case. However, there is a statutory barrier against reaching SSI benefits. Finally, even if Debtors volunteered to pay those benefits to creditors, both Chapters 13 and 11 make it difficult to confirm three to five-year plans given their ages.
Within thirty days from entry of this Order the UST shall either withdraw or amend the Motion to Dismiss. In the absence of timely action, the Court will enter a separate order denying the Motion with prejudice.
IT IS SO ORDERED.
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Agueda Orozco, Courtroom Deputy