James Robert Lancaster and Nora B. Lancaster

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re:
JAMES ROBERT LANCASTER III and
NORA B. LANCASTER,
Debtors. 	No. 7-09-12269-SL
FINDINGS OF FACT AND CONCLUSIONS
OF LAW ON US TRUSTEE’S
MOTION TO DISMISS
This matter came before the Court for final hearing on the
United States Trustee’s (“UST”) Motion to Dismiss Debtors’
Chapter 7 case for 1) abuse and 2) under a totality of the
circumstances (doc 18). 	Debtors filed a Response (doc 28). 	The
UST appeared through its Trial Attorney Alice Nystel Page.
Debtors appeared through their attorney Kieran F. Ryan. 	This is
a core proceeding. 	28 U.S.C. § 157(b)(2)(A). 	For the reasons
set forth below, the Court finds that the Motion to Dismiss based
on abuse is well taken and should be granted. 	Consequently, the
Court will enter an order giving the Debtors 21 days to convert
the case to either Chapter 13 or 11. 	If Debtors fail to convert
by the deadline, the Court will enter an Order Dismissing Case.
The Court need not address the arguments regarding dismissal
under a totality of the circumstances.
THE STATUTE
This case is governed by the version of 11 U.S.C. §
707(b)(1) and (2) that was in effect on the date the Debtors
filed their Chapter 7 petition, May 27, 2009 (doc 1). 	On that
date, section 707(b)(1) and (2) provided, in relevant part:
Case 09-12269-s7 Doc 53 Filed 02/03/11 Entered 02/03/11 16:43:42 Page 1 of 15

-2-
§ 707. 	Dismissal of a case or conversion to a case under
chapter 11 or 13.
(b)(1) After notice and a hearing, the court, on its
own motion or on a motion by the United States trustee,
trustee (or bankruptcy administrator, if any), or any
party in interest, may dismiss a case filed by an
individual debtor under this chapter whose debts are
primarily consumer debts, or, with the debtor's
consent, convert such a case to a case under chapter 11
or 13 of this title, if it finds that the granting of
relief would be an abuse of the provisions of this
chapter. 	In making a determination whether to dismiss
a case under this section, the court may not take into
consideration whether a debtor has made, or continues
to make, charitable contributions (that meet the
definition of “charitable contribution” under section
548(d)(3)) to any qualified religious or charitable
entity or organization (as that term is defined in
section 548(d)(4)).
(2)(A)(I) In considering under paragraph (1) whether
the granting of relief would be an abuse of the
provisions of this chapter, the court shall presume
abuse exists if the debtor's current monthly income
reduced by the amounts determined under clauses (ii),
(iii), and (iv), and multiplied by 60 is not less than
the lesser of--
(I) 25 percent of the debtor's nonpriority
unsecured claims in the case, or $6,575,
whichever is greater; or
(II) $10,950.
(ii) (I) The debtor's monthly expenses shall be
the debtor's applicable monthly expense amounts
specified under the National Standards and Local
Standards, and the debtor's actual monthly expenses for
the categories specified as Other Necessary Expenses
issued by the Internal Revenue Service for the area in
which the debtor resides, as in effect on the date of
the order for relief, for the debtor, the dependents of
the debtor, and the spouse of the debtor in a joint
case, if the spouse is not otherwise a dependent 	Such
expenses shall include reasonably necessary health
insurance, disability insurance, and health savings
account expenses for the debtor, the spouse of the
debtor, or the dependents of the debtor.
Notwithstanding any other provision of this clause, the
monthly expenses of the debtor shall not include any
Case 09-12269-s7 Doc 53 Filed 02/03/11 Entered 02/03/11 16:43:42 Page 2 of 15

-3-
payments for debts. 	In addition, the debtor's monthly
expenses shall include the debtor's reasonably
necessary expenses incurred to maintain the safety of
the debtor and the family of the debtor from family
violence as identified under section 309 of the Family
Violence Prevention and Services Act, or other
applicable Federal law. 	The expenses included in the
debtor's monthly expenses described in the preceding
sentence shall be kept confidential by the court. 	In
addition, if it is demonstrated that it is reasonable
and necessary, the debtor's monthly expenses may also
include an additional allowance for food and clothing
of up to 5 percent of the food and clothing categories
as specified by the National Standards issued by the
Internal Revenue Service.
(II) In addition, the debtor's monthly expenses
may include, if applicable, the continuation of actual
expenses paid by the debtor that are reasonable and
necessary for care and support of an elderly,
chronically ill, or disabled household member or member
of the debtor's immediate family (including parents,
grandparents, siblings, children, and grandchildren of
the debtor, the dependents of the debtor, and the
spouse of the debtor in a joint case who is not a
dependent) and who is unable to pay for such reasonable
and necessary expenses.
(III) In addition, for a debtor eligible for
chapter 13, the debtor's monthly expenses may include
the actual administrative expenses of administering a
chapter 13 plan for the district in which the debtor
resides, up to an amount of 10 percent of the projected
plan payments, as determined under schedules issued by
the Executive Office for United States Trustees.
(IV) In addition, the debtor's monthly expenses
may include the actual expenses for each dependent
child less than 18 years of age, not to exceed $1,650
per year per child, to attend a private or public
elementary or secondary school if the debtor provides
documentation of such expenses and a detailed
explanation of why such expenses are reasonable and
necessary, and why such expenses are not already
accounted for in the National Standards, Local
Standards, or Other Necessary Expenses referred to in
subclause (I).
(V) In addition, the debtor's monthly expenses may
include an allowance for housing and utilities, in
excess of the allowance specified by the Local
Standards for housing and utilities issued by the
Case 09-12269-s7 Doc 53 Filed 02/03/11 Entered 02/03/11 16:43:42 Page 3 of 15

-4-
Internal Revenue Service, based on the actual expenses
for home energy costs if the debtor provides
documentation of such actual expenses and demonstrates
that such actual expenses are reasonable and necessary.
(iii) The debtor's average monthly payments on account
of secured debts shall be calculated as the sum of--
(I) the total of all amounts scheduled as
contractually due to secured creditors in each
month of the 60 months following the date of the
petition; and
(II) any additional payments to secured creditors
necessary for the debtor, in filing a plan under
chapter 13 of this title, to maintain possession
of the debtor's primary residence, motor vehicle,
or other property necessary for the support of the
debtor and the debtor's dependents, that serves as
collateral for secured debts;
divided by 60.
(iv) The debtor's expenses for payment of all priority
claims (including priority child support and alimony
claims) shall be calculated as the total amount of
debts entitled to priority, divided by 60.
(B)(I) 	In any proceeding brought under this subsection,
the presumption of abuse may only be rebutted by
demonstrating special circumstances, such as a serious
medical condition or a call or order to active duty in the
Armed Forces, to the extent such special circumstances that
justify additional expenses or adjustments of current
monthly income for which there is no reasonable alternative.
(ii) 	In order to establish special circumstances, the
debtor shall be required to itemize each additional
expense or adjustment of income and to provide--
(I) documentation for such expense or adjustment
to income; and
(II) a detailed explanation of the special
circumstances that make such expenses or
adjustment to income necessary and reasonable.
(iii) The debtor shall attest under oath to the accuracy of
any information provided to demonstrate that additional
expenses or adjustments to income are required.
(iv) The presumption of abuse may only be rebutted if the
additional expenses or adjustments to income referred to in
clause (I) cause the product of the debtor's current monthly
income reduced by the amounts determined under clauses (ii),
(iii), and (iv) of subparagraph (A) when multiplied by 60 to
be less than the lesser of--
(I) 25 percent of the debtor's nonpriority
unsecured claims, or $6,000, whichever is greater;
Case 09-12269-s7 Doc 53 Filed 02/03/11 Entered 02/03/11 16:43:42 Page 4 of 15

-5-
or
(II) $10,000.
(C) As part of the schedule of current income and
expenditures required under section 521, the debtor
shall include a statement of the debtor's current
monthly income, and the calculations that determine
whether a presumption arises under subparagraph (A)(I),
that show how each such amount is calculated.
(Footnotes omitted.)
FINDINGS OF FACT
The Court finds the following facts from admissions in the
pleadings, the testimony of the witnesses, the exhibits presented
at the final hearing, and judicial notice of the file to the
extent allowed by the Federal Rules of Evidence.
1. 	Debtors filed this Chapter 7 proceeding in the Bankruptcy
Court for the District of New Mexico on May 27, 2009. 	(Doc 1).
2. 	The petition indicated that the debts were primarily
consumer debts. 	(Doc 1, p. 1)
3. 	Debtors’ Schedules D, E, and F showed, respectively,
$445,813 in secured claims, $0 in priority claims, and $199,232
in non-priority unsecured claims. 	(Doc 1, Summary of Schedules,
p. 8).
4. 	Debtors’ Schedule I showed gross monthly income of $8,514
and net monthly income of $5,955. (Doc 1, p. 26).
5. 	Debtors’ Schedule J showed monthly expenditures of $7,248.
(Doc 1, p. 28).
6. 	Debtors’ Form 22A, Statement of Current Monthly Income and
Means Test Calculation, stated that the presumption of abuse did
Case 09-12269-s7 Doc 53 Filed 02/03/11 Entered 02/03/11 16:43:42 Page 5 of 15

-6-
not arise. 	(Doc 1, p. 36). 	This is based on Debtors’
calculation of Monthly disposable income under § 707(b)(2), Form
22A line 50, as $118.56. 	(Doc 1, p. 42). 	A sixty month plan
would have paid only $7,140. 	See 11 U.S.C. § 707(b)(2)(A)(I).
7. 	Debtors’ household size is three. 	(Doc 1, p. 38).
8. 	The New Mexico median income for a family of three was
$53,018 at the time of the petition. 	(Id.)
9. 	Debtors’ Form 22A showed current annual income of $125,984,
which is substantially above the applicable New Mexico median for
a family of three.
10. 	On July 6, 2009, the UST filed a statement on the docket
that the presumption of abuse arose under section 707(b)(2).
(Docket, 7/6/2009).
11. 	Debtors did not allege or testify to any special
circumstances. 	Debtors did not itemize additional expenses or
categories of expenses, document them, or provide a detailed
explanation of the special circumstances they claim make the
additional expenses or categories of expenses both necessary and
reasonable.
12. 	Michelle Lombard, a Bankruptcy Analyst employed by the UST
testified regarding the results of work she did to analyze and
corroborate items on the Form 22A. 	Ms. Lombard has been employed
by the UST for over 20 years, has testified many times in the
past, and is very knowledgeable about personal finances as they
Case 09-12269-s7 Doc 53 Filed 02/03/11 Entered 02/03/11 16:43:42 Page 6 of 15

1The Court will use the convention that a “difference” is
positive (“+”) if the UST has shown that either the income as
reported on Form 22A is increased or a deduction has decreased
(which would increase CMI.) 	A “difference” is negative (“-“) if
the UST calculated or conceded that the proper expense on Form
22A should be increased.
-7-
relate to bankruptcy issues (particularly the requirements and
exceptions for section 707 “abuse” cases). 	She is completely
credible and the Court has never observed her to be predisposed
to characterize the numbers other than as calculated, either in
favor of the UST or a debtor.
13. 	Ms. Lombard recalculated Debtors’ current monthly income
(“CMI”) from source documents as $11,817. 	(Lombard testimony.)
Debtors did not contradict this testimony so the Court finds that
CMI was $11,817. 	The Form 22A showed CMI of $10,499. 	(Doc 1, p.
38). 	The difference is + $1,318 1.
14. 	Ms. Lombard recalculated Debtors’ transportation ownership
expense from source documents. 	She increased the expense for
vehicle 2 from $161 (doc 1, p. 40) to $172. 	(Lombard testimony).
The difference is - $11.
15. 	Ms. Lombard recalculated Debtors’ tax deduction expense from
source documents. 	She increased the tax expense from $2,047 (doc
1., p. 40) to $2,176. 	(Lombard testimony). 	The difference is -
$129.
16. 	Debtors deducted $1,115 for mandatory payroll deductions on
Form 22A line 26. 	(Doc 1, p. 40). 	In fact, these deductions
Case 09-12269-s7 Doc 53 Filed 02/03/11 Entered 02/03/11 16:43:42 Page 7 of 15

-8-
were not mandatory; they were for voluntary 401k and IRA
contributions. 	(Lombard testimony.)
17. 	Debtors deducted $230 for life insurance premiums for term
life for themselves. 	(Doc 1, p. 40). 	The payroll stubs did not
show this expense, so the UST in exhibit 15 reduced deductions by
$230. 	Later, however, the UST received documentation and agreed
to the deduction. 	To track Exhibit 15, the Court will deduct
$230 here and include it back at the bottom. 	The difference is +
$230.
18. 	Debtors deducted $200 for telecommunications expense on Form
22A line 32. 	(Id.)
19. 	Debtors deducted $212 for disability insurance premiums.
(Doc 1, p. 41). 	The UST had not verified this expense when it
prepared Exhibit 15, so did not include this expense. 	Later,
however, the UST received documentation and agreed to the
deduction. 	To track Exhibit 15, the Court will deduct $212 here
and include it back at the bottom. 	The difference is + $212.
20. 	Debtors deducted $100 for dependent educational expense of
Form 22A line 38. 	(Doc 1, p. 41).
21. 	Debtors deducted $250 for monthly payment of priority claims
on Form 22A line 44. 	(Doc 1, p. 42).
22. 	Ms. Lombard recalculated Debtors’ future payment
requirements on secured debts from source documents. 	She
increased the expense for vehicle 1 from $238 to $317. 	(Lombard
Case 09-12269-s7 Doc 53 Filed 02/03/11 Entered 02/03/11 16:43:42 Page 8 of 15

-9-
testimony). 	The difference is - $79.
23. 	Debtors’ Form 22A did not take a possible deduction for
Chapter 13 administrative expenses, currently 9.1% for the
District of New Mexico. 	Ms. Lombard calculated this deduction to
be $294 monthly. 	The difference is - $294.
24. 	Debtors own a late model car, a late model truck, and a
motorcycle, all with a total value of about $58,000. 	(Doc 1, p.
12-13). 	The secured claims against the vehicles total about
$52,500. 	(Doc 1, pp. 15-16). 	The monthly payments on these
vehicles total about $1,250. 	(Doc 1, p. 28). 	Debtors stated an
intention to reaffirm the three vehicle loans. 	(Doc 5, pp. 1-2).
25. 	The Debtors had approximately $63,500 in exempt retirement
accounts on the petition date. 	(Doc 1, p. 12).
26. 	The UST has claimed that Mr. Lancaster is 43 years old. 	The
Court does not find this evidence in the record. 	However,
Debtors appeared to be in their 30s or 40s. 	Therefore, the Court
will make a finding that they are relatively young persons.
27. 	The $199,232 in non-priority unsecured claims includes
$45,300 owed on student loans. 	All of the others are described
as “revolving accounts.” 	In other words, the Debtors owe about
$153,900 in credit card debt.
28. 	Debtors’ Statement of Financial Affairs shows that Debtors’
wages in 2007 were $230,120. 	(Doc 1, p. 30). 	Wages in 2008 were
$176,347. 	(Id.)
Case 09-12269-s7 Doc 53 Filed 02/03/11 Entered 02/03/11 16:43:42 Page 9 of 15

-10-
29. 	Debtors deducted $200 for telecommunications expense on the
Form 22A line 32. 	They did not provide the UST with details for
this expense. 	(Lombard testimony).
30. 	After the filing of the petition, one Debtor changed jobs,
the other continues to be employed, and the family income has
increased substantially. 	(Lombard testimony.)
31. 	No finding herein is intended to preclude Debtors from
adjusting any expense (notably, income taxes) to reflect current
conditions if the Debtors choose to convert their case.
CONCLUSIONS OF LAW
1. 	The Court concludes that the Debtors’ CMI is $11,817.
2. 	Debtors are not allowed a deduction for what Debtors claimed
were mandatory payroll deductions of $1,115. 	Form 22A, line 26,
states:
Other Necessary Expenses: involuntary deductions for
employment. Enter the total average monthly payroll
deductions that are required for your employment, such
as retirement contributions, union dues, and uniform
costs. 	Do not include discretionary amounts, such as
voluntary 401(k) contributions.
Instead, the $1,115 represents discretionary contributions to
retirement plans. 	In Woody v. United States (In re Woody), the
Court of Appeals for the Tenth Circuit discussed the necessity of
voluntary retirement contributions in the context of student loan
discharge:
To be sure, we agree with the principle that saving for
one's retirement is a laudable goal that should
Case 09-12269-s7 Doc 53 Filed 02/03/11 Entered 02/03/11 16:43:42 Page 10 of 15

-11-
generally be encouraged. 	However, we also agree with
the many other courts that have held that, in the
context of bankruptcy proceedings, retirement
contributions should not take precedence over repayment
of preexisting debts. 	“Voluntary contributions to
retirement plans ... are not reasonably necessary for a
debtor's maintenance or support and must be made from
disposable income.... [A]lthough investments may be
financially prudent, they certainly are not necessary
expenses for the support of the debtors or their
dependents. Investments of this nature are therefore
made with disposable income; disposable income is not
what is left after they are made.” 	In re Anes, 195
F.3d 177, 180-81 (3d Cir. 1999); accord In re
Harshbarger, 66 F.3d 775, 778 (6th Cir. 1995) (“[I]t
would be unfair to the creditors to allow the Debtors
in the present case to commit part of their earnings to
the payment of their own retirement fund while at the
same time paying their creditors less than a 100%
dividend.” (quotation omitted)); In re Perkins, 318
B.R. 300, 306-07 (Bankr. M.D. N.C. 2004) (holding that
“401(k) contributions generally are not regarded as
reasonably necessary for the support or maintenance of
a debtor and thus may be considered as available income
from which a debtor seeking a § 523(a)(8) undue
hardship discharge could use to repay an educational
loan” and collecting supporting cases).
Woody, 494 F.3d 939, 952 (10 th Cir. 2007). 	Although Woody deals
with student loan hardship discharge, the same reasoning should
apply to section 707(b) analysis. 	Furthermore, Debtors are
young, have good jobs, and already have $63,500 in retirement
accounts. 	The Court does not find that continued funding at this
time is necessary and reasonable. 	The difference is + $1,115.
3. 	Debtors claimed a telecommunications expense of $200. 	The
Line 32 instructions state:
Enter the total average monthly amount that you
actually pay for telecommunication services other than
your basic home telephone and cell phone service ––
such as pagers, call waiting, caller id, special long
Case 09-12269-s7 Doc 53 Filed 02/03/11 Entered 02/03/11 16:43:42 Page 11 of 15

-12-
distance or internet service –– to the extent necessary
for your health and welfare or that of your dependents.
Home telephone and cell phone service are already included in the
IRS Local Standards. 	In re Cleaver, 426 B.R. 390, 396 n.1
(Bankr. D. N.M. 2010). 	Because the Debtors did not itemize the
expense, the UST suggested that $100 would be a reasonable
expense for internet. 	The Court agrees and will allow the
expense in the amount of $100. 	The difference is + $100.
4. 	Form 22A line 38 deals with educational expenses for
dependent children. 	The instructions for that line states:
You must provide your case trustee with documentation
of your actual expenses, and you must explain why the
amount claimed is reasonable and necessary and not
already accounted for in the IRS Standards.
Debtors deducted $100 for dance lessons for their child. 	Debtors
have not shown that this is a necessary expense not already
accounted for in the IRS standards. 	The difference is + $100.
5. 	Debtors’ Form 22A line 44 takes a $250 deduction for
payments on priority claims. 	Debtors’ Schedule E lists no
priority debts. 	(Fact 3, above). 	Debtors’ Schedule J lists $250
per month for student loans. 	Student loans are not priority
debts. 	11 U.S.C. § 507. 	See also, e.g., In re Williams, 253
B.R. 220, 232 (Bankr. W.D. Tenn. 2000)(“Unlike claims for child
and spousal support, student loan claims do not enjoy a statutory
priority for distribution.”) 	Student loans are generally
nondischargeable. 	But, dischargeability and priority are
Case 09-12269-s7 Doc 53 Filed 02/03/11 Entered 02/03/11 16:43:42 Page 12 of 15

-13-
independent, unrelated concepts. 	Bentley v. Boyajian (In re
Bentley), 266 B.R. 229, 236 (1st Cir. BAP 2001):
[N]ondischargeability is not the same as priority.
Priority gives a claim a better right to estate assets
or plan payments- i.e., to the funds distributed
through bankruptcy-than is enjoyed by other unsecured
claims. 	Nondischargeability, on the other hand,
confers no priority as to estate assets; it merely
causes a debt to survive the discharge, such that its
holder can continue to collect it despite the
discharge. 	Certain nondischargeable debts also happen
to be priority claims, but only because the same debts
appear on two lists: thus, in Chapter 13, spousal and
child support obligations appear both on the list of
priority claims, at 11 U.S.C. § 507(a)(7), and on the
list of debts excepted from discharge, at 11 U.S.C. §§
523(a)(5) and 1328(a)(2). 	But priority does not per se
confer or entail nondischargeability; and
nondischargeability does not per se confer or entail
priority.
Therefore, the Court disallows the $250 deduction. 	The
difference is + $250.
6. 	The Debtors are individual debtors and their debts are
primarily consumer debts. 	Section 707(b) applies.
SUMMARY AND CONCLUSION
1. 	Debtors computed their monthly disposable income as $119.
2. 	The Court makes the following adjustments:
OPINION
REFERENCE
ITEM 	Form 22A
LINE #
CHANGE
AMOUNT
DISPOSABLE
INCOME
Debtors’ unadjusted disposable income figure 	$119
Changes per Memorandum Opinion
Fact 13 	Monthly income 	18 	$1318
Fact 14 	Transportation 	24 	-11
Case 09-12269-s7 Doc 53 Filed 02/03/11 Entered 02/03/11 16:43:42 Page 13 of 15

OPINION
REFERENCE
ITEM 	Form 22A
LINE #
CHANGE
AMOUNT
DISPOSABLE
INCOME
-14-
Fact 15 	Tax withholding 	25 	-129
Fact 17 	Life insurance 	27 	230
Fact 19 	Disability 	34 	212
Fact 22 	Secured debts 	42B 	-79
Fact 23 	Ch 13 admin
expenses
45 	-294
Conclusion 2 	voluntary
retirement
26 	1115
Conclusion 3 	telecomm 	32 	100
Conclusion 4 	dance lessons 	38 	100
Conclusion 5 	priority
expenses
44 	250
Subtotal of adjustments 	$2812 	2812
Adjusted disposable income (before insurance) 	2931
Insurance expense conceded by UST 	-392
Final calculation of disposable income 	$2539
3. 	The final disposable income number times 60 is $152,340.
The $152,340 is 76% of Debtors’ total unsecured nonpriority debt.
The Court therefore must presume abuse under 11 U.S.C. §
707(b)(2)(A)(I).
4. 	The Debtors did not meet their burden under § 707(b)(2)(B)
to rebut the presumption of abuse.
5. 	The Court will enter an Order granting the UST’s Motion but
giving the Debtors 21 days from the date of the entry of the
Order to convert the case to either Chapter 13 or 11. 	If Debtors
fail to convert by the deadline, the Court will enter an Order
Case 09-12269-s7 Doc 53 Filed 02/03/11 Entered 02/03/11 16:43:42 Page 14 of 15

-15-
Dismissing Case.
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	February 3, 2011
Copies to:
Kieran F Ryan
Ryan Law Office
PO Box 26
Las Cruces, NM 88004-0026
Alice Nystel Page
Office of the United States Trustee
PO Box 608
Albuquerque, NM 87103-0608
Philip J. Montoya
Trustee
PO Box 159
Albuquerque, NM 87103
Case 09-12269-s7 Doc 53 Filed 02/03/11 Entered 02/03/11 16:43:42 Page 15 of 15