August 7, 2009
1st Circuit Rules that Debtor may Deduct Mortgage Payments on the Means Test, Even if He Intends to Return the Property
In re Rudler --- F.3d ---, 2009 WL 2385469 (1st Cir. Aug, 2009)
Issue: Is a debtor permitted to deduct on the means test, mortgage payments he does not intend to make?
The chapter 7 debtor’s mortgage payments were about $4,000 per month. Including them on the means test, his net disposable income was minus $2,376. His statement of intentions said that he was giving up the home. Without the secured payments, his means test net was plus $1,430. In a footnote, the 1st Cir said, the debtor “actually deducted both the housing allowance and his mortgage debt, which is clearly impermissible. Accordingly, his disposable income amount needs to be revised regardless of the treatment of his mortgage debt.” The UST filed a motion to dismiss. The bankruptcy court denied the motion and the 1st Cir. BAP affirmed. “The BAP held that the means test calculation is meant to be ‘a 'snapshot' of the debtor's situation as of the petition date,’ rather than a "'forward-looking'" consideration of "only those payments that will actually be made.’"
The 1st Cir affirmed also. “In arguing her view of section 707(b)(2)(A)(iii)(I), the Trustee relies heavily on Congress's purpose in enacting the BAPCPA, i.e., to ensure that individuals who are able to repay a portion of their debts do so. However, we must defer our consideration of Congressional intent because our examination of the statute must begin ‘where all such inquiries must begin: with the language of the statute itself.’" “We thus look first to the specific language at issue, which defines deductible secured debt as amounts that are ‘scheduled as contractually due to secured creditors in each of the 60 months following the date of the petition.’ Unless that language is ambiguous, we consider Congress's intent only to be certain that the statute's plain meaning does not lead to ‘absurd’ results.” The code says the debtor can deduct payments “scheduled as contractually due.” That is looked at as of the petition date. “The word ‘scheduled,’ *** implies *** that such payments, although ‘scheduled,’ may in fact not be made; otherwise, the request would more logically have been for information about all payments that will be made to creditors during the targeted sixty-month period, or all payments the debtor expects or intends to make during that time frame.” The trustee argued that under this interpretation the word “scheduled” is surplusage. It could have said simply “contractually due.” The trustee also argued that “scheduled” means listed on Schedule D rather than some sort of calendar schedule. “The Trustee [also] argues that Congress, in using the word "following," [the date of the petition] contemplated a projection of future expenses – i.e., expenses that will exist ‘following’ the bankruptcy proceedings – rather than a snapshot of current expenses. Again, however, that interpretation is not supported by the words themselves, which are forward-looking only in the sense that the required current calculation is for debts that are scheduled into the future.” “The Trustee also invokes a third phrase from section 707(b)(2)(A) in support of her position, arguing that the requirement that payments be made ‘on account of secured debts’ excludes debts that will remain after the property serving as collateral for them has been surrendered. She reasons that, after title has transferred following surrender, the debtor's obligation either will be eliminated entirely or changed into an unsecured debt – meaning that any future payments will not be ‘on account of secured debts.’"
“The Trustee argues that allowing debtors to deduct only payments they will actually make, rather than all payments scheduled at the time of the bankruptcy filing, better serves the purpose behind the means test because it more accurately reflects the debtor's resources following the bankruptcy proceedings. This argument has force – but it misses the point. There are a number of ways Congress could have effectuated its goal of increased debtor responsibility, and calculating projected income based on actual anticipated expenses is unquestionably one of them. However, based on the plain language of the statute, that is not the approach Congress enacted into law, and we cannot rewrite the statute simply because we think a different method of assessing abuse would be more effective.”
The concurring opinion said that “scheduled” is ambiguous but he is convinced that Congress intended a mechanical test. For one reason, because 707(b)(3) allows the “totality of the circumstances” to be used as a “backstop to catch those whose petitions are not presumptively abusive under the means test but for whom a closer look at their actual financial situation shows that they have the means to repay their creditors under chapter 13 and that they have tried to avoid that repayment.”
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