« Ind. Decisions - Transfer granted yesterday | Main | Ind. Decisions - Court of Appeals issues 0 today (and 3 NFP) »

Wednesday, December 17, 2008

Ind. Decisions - 7th Circuit issues bankruptcy decsion today re means test

In Ross-Tousey and Tousey, Debtors v. Neary, US Bankruptcy Trustee (UST), a 27-page opinion out of Wisconsin, Judge Flaum writes:

In performing their means test, the debtors here claimed the Internal Revenue Service (“IRS”) Local Standard vehicle operating/public transportation allowance of $358 as well as the IRS Local Standard vehicle owner- ship allowance of $803 (for two vehicles). With these expenses subtracted from their CMI, the debtors’ means test resulted in a finding that they had no disposable income. The debtors thus claimed that the presumption of abuse did not arise in their case and that they should be able to discharge their debts under Chapter 7.

On October 30, 2006, the United States Trustee (“UST”) filed a motion to dismiss the debtors’ case for abuse under section 707(b). Originally, the UST filed the motion under 11 U.S.C. § 707(b)(3)(B), asserting that the debtors’ chapter 7 petition was abusive based upon the totality of the circumstances of the debtors’ financial situation. A few days later—after the deadline set by § 704(b)(2) for UST motions to dismiss had passed—the UST supplemented its October 30 motion to dismiss, asserting that the case also merited a presumption of abuse under section 707(b)(2) because the debtors should not have taken the $803 Local Standard vehicle ownership deduction. On December 14, 2006, the bankruptcy court denied the UST’s motion to dismiss, concluding that the totality of the circumstances did not establish abuse and that no presumption of abuse arose under section 707(b)(2) due to the vehicle ownership deduction. The bankruptcy court interpreted section 707(b)(2)(A)(ii)(I) to allow the debtors to take the vehicle ownership deduction even though the debtors had no monthly loans or leases on their vehicles.

The UST appealed and the district court reversed with regard to the section 707(b)(2) presumption of abuse, holding that the debtors could not claim the vehicle ownership deduction under section 707(b)(2)(A)(ii)(I) for vehicles the debtors owned outright. See Neary v. Ross-Tousey (In re Ross-Tousey), 368 B.R. 762, 768 (E.D. Wis. 2007). (The district court did not address the UST’s alterna-tive argument, made under section 707(b)(3)(B), that the totality of the debtors’ circumstances demonstrated abuse.) The district court therefore concluded that the presumption of abuse arose in the debtors’ case and remanded to the bankruptcy court for further proceedings to determine whether the debtors could rebut the presumption of abuse. Id. at 768-69.

The debtors appealed to this court. The UST moved to dismiss the appeal for lack of finality because the bank- ruptcy court had not yet determined whether the debtors had special circumstances sufficient to rebut the presump- tion. However, the debtors responded by stating that they had no special circumstances to raise on remand. Due to that concession, the UST agreed that this Court had jurisdiction in its reply brief. This Court denied the UST’s motion to dismiss the appeal on February 15, 2008. * * *

Permitting a debtor to take the deduction—even where that deduc- tion puts the debtor’s current monthly income below the presumptive abuse threshold—does not insulate his case from dismissal. Instead, it simply means that the debtor’s petition is not presumed abusive. See Fowler, 329 B.R. at 421. The UST can still request dismissal, as he has done in this case, under section 707(b)(3), either for bad faith or based on the totality of circumstances (which can take into consideration a debtor’s actual income and expenses). See Zaporski, 366 B.R. at 768.

For the reasons explained above, we hold that a debtor who owns his car free and clear may take the Local Standard transportation ownership deduction under the section 707(b)(2)(A)(ii)(I) means test. Accordingly, we REVERSE the district court and REMAND for further proceedings. We instruct the district court to consider the alterna- tive argument briefed below by the UST, that the totality of the circumstances of the debtors’ financial situation demonstrate abuse under section 707(b)(3)(B).

Posted by Marcia Oddi on December 17, 2008 12:49 PM
Posted to Ind. (7th Cir.) Decisions