- 2012 WL 3890063 (9th Cir. BAP 2012).
- Affirming the bankruptcy court, the Ninth Circuit BAP held that when ruling on a motion to dismiss for abuse under § 707(b)(3)(B), the court did not abuse its discretion when it disallowed the debtor’s monthly retirement contributions, repayment of a pension loan, and payment of a pre-petition tax debt, as an adjustment to income when evaluating the totality of the circumstances criteria in Price v. U.S. Tr. (In re Price), 353 F.3d 1135 (9th Cir. 2004). The BAP held that debtors must establish a reasonable need for the pension plan contributions and loan repayments, or the bankruptcy court may consider them to be abusive under the totality of the circumstances. The BAP also found that the bankruptcy court may properly consider changes in the debtor’s circumstances, and events affecting their income and expenses, that occur between the time of the petition and the time of any decision on a § 707(b) motion. The BAP noted that the ability to repay creditors is based on the debtor’s circumstances at the time of discharge, based on the plain text of § 707(b)(1). The BAP rejected the debtor’s argument that Fed. R. Bankr. P. 1017(e)(1) limits a bankruptcy judge’s discretion to consider post-petition changes in a debtor’s circumstances in examining the totality of the circumstances in making its final determination on a request for dismissal under § 707(b)(3)(B).
- Procedural context:
- Debtors appealed a ruling by the bankruptcy court for the District of Hawaii dismissing the debtors’ chapter 7 case for abuse under § 707(b)(3)(B) on a motion filed by the U.S. Trustee.
- The debtors filed a voluntary chapter 7 petition on June 30, 2010. According to the debtors’ original Schedule I, the debtor received $7,439.47 as his monthly salary and was eligible for overtime compensation. In addition, the debtor received a military pension of $1,439.88 per month. The debtor made a voluntary contribution of $520.74 to an employer 401(k) plan, and a $343.42 payment on a pension loan. According to their original Schedule J, the debtors’ monthly expenses totaled $5,225.00, which included a $300.00 payment on a pre-petition income tax liability. The debtors’ subsequent amendment to Schedules I and J showed an increase in income to $10,295.85, and an increase in expenses that included a $400 payment for back taxes. The U.S.T Trustee filed a motion to dismiss the debtor’s bankruptcy case under § 707(b)(3)(B), because the debtors had the financial ability, without hardship, to repay their creditors, based on the totality of the circumstances. In its Motion, the U.S. Trustee highlighted three areas of concern in gauging their ability to pay their debts: Debtors’ voluntary retirement plan contributions, their pension loan repayments, and the existence of the tax debt that could be repaid through a chapter 13 plan. After several hearings and supplemental briefing, the bankruptcy court found that it would be improper to permit the debtors to contribute to a retirement account as not reasonably necessary for the debtor’s support where the debtor was only 43 years old and would not retire for more than twenty years. The bankruptcy court also found that it would be improper to allow the debtors to access pension loans and repay them monthly because it would be unfair to creditors to allow the debtor to pay himself in preference to creditors. Lastly, the bankruptcy court determined that paying a pre-petition tax debt through a chapter 13 plan, rather than the monthly payment that the debtor had been making, would lower the payment and provide the debtor with extra funds to pay unsecured creditors.
- Hon. Jim D. Pappas; Meredith A. Jury; and Eileen W. Hollowell (U.S. Bankruptcy Appellate Panel, Ninth Circuit). Appeal from a ruling by Hon. Robert J. Faris and Hon. Lloyd King (Bankruptcy Court Judges for the District of Hawaii)
3263 in the system
1 Being Processed