Shannon Q Sturm

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AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF OHIO

In Re: )
) JUDGE RICHARD L. SPEER
Shannon Q. Sturm )
) Case No. 10-34829
Debtor(s) )
)
DECISION AND ORDER

This cause comes before the Court on the Motion of the United States Trustee to Dismiss
this case pursuant to 11 U.S.C. § 707(b)(1), § 707(b)(2) and § 707(b)(3). (Doc. No. 12). The Debtor
filed a response to the Motion, objecting to the Dismissal of her case. (Doc. No. 17). A Hearing was
then held on the matter. (Doc. No. 18). At the conclusion of the Hearing, the Court deferred ruling
on the Motion to Dismiss so as to afford the opportunity to consider the matters raised by the Parties.
The Court has now had this opportunity, and finds, for the reasons now explained, that the Motion
of the United States Trustee to Dismiss has Merit.

BACKGROUND

On July 15, 2010, the Debtor, Shannon Q. Sturm, filed a petition in this Court for relief under
Chapter 7 of the United States Bankruptcy Code. (Doc. No. 1). At the time she filed her petition for
bankruptcy relief, the Debtor was married, and had no dependents. In the schedules she filed with
her petition, the Debtor disclosed that she had $51,226.70 in unsecured debt, consisting entirely of

credit-card obligations.

At the time she filed her petition, the Debtor also, as required by the Bankruptcy Rules,
submitted an Official Form B22A, entitled “Chapter 7 Statement of Current Monthly Income and
Means-Test Calculation.” This form implements the requirement of § 707(b)(2)(C), requiring a

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In re: Shannon Q. Sturm
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debtor to perform the ‘means test’ calculation of § 707(b)(2) so as to determine if granting relief in

the case should be presumed to be an abuse.

In completing Form B22A, the Debtor represented that she was an Ohio resident and had a
gross monthly income of $3,861.93; the Debtor also reported that her non-debtor husband had a
gross monthly income of $3,473.00. Based upon these figures, the Debtor reported a combined gross
annual income of $88,019.16, an amount which exceeded the state median income for a like size

household.

Only debtors with household income above the state median income are subject to having
their case dismissed based upon a presumption of abuse arising under § 707(b)(2). 11 U.S.C.
§ 707(b)(7). Moreover, a case will only be found to be presumptively abusive if the debtor’s
disposable income, as calculated over a five-year period, satisfies one of these two conditions: (1)

the debtor’s disposable income is greater than $11,725.00; or (2) although less than $11,725.00, the

debtor’s disposable income is greater than $7,025.00 and that amount will pay more than 25% of the
debtor’s unsecured debt.' On a per month basis, these presumptive abuse thresholds total respectively

$295.42 and $117.08.

In applying the ‘means test,’ a debtor’s disposable income is calculated by subtracting those
expenses allowed by clauses (ii), (iii), and (iv) of § 707(b)(2)(A) from the debtor’s current monthly
income. A debtor whose income falls above the state median income is required to itemize these
expenses by completing form B22A. Because the combined gross income of her and her husband

exceeded the state median income, the Debtor completed Form B22A.

1

Pursuant to 11 U.S.C. § 104, these amounts are adjusted every three years to reflect changes in
the Consumer Price Index.

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In re: Shannon Q. Sturm
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In completing Form B22A, the Debtor reported that she did not have any monthly disposable
income, with the ‘means test’ formula yielding a deficit of ($888.18) per month. Accordingly, as her
calculation on Form B22A did not yield any disposable income, the Debtor reported that no
presumption of abuse arose in her case for purposes of § 707(b)(2). The United States Trustee
disputes this conclusion, taking the position that the Debtor has a monthly disposable income of

$1,455.28, well above the abuse thresholds, supra, of § 707(b)(2). (Doc. No. 19, Ex. F-8).

DISCUSSION

This matter is before the Court on the Motion of the United States Trustee to Dismiss.
Matters concerning the dismissal of a case, which affects both the ability of a debtor to receive a
discharge and directly affects the creditor-debtor relationship, are core proceedings pursuant to 28
U.S.C. §§ 157(b)(2)(J)(O). As a core proceeding, this Court has been conferred with the
jurisdictional authority to enter a final order in this matter. 28 U.S.C. § 157(b)(1).

The Motion of the United States Trustee (“UST”) to Dismiss is brought pursuant to 11
U.S.C. § 707(b)(1), § 707(b)(2) and § 707(b)(3). These sections operate together, with § 707(b)(1)
first setting forth the foundational mandate, providing that, where the granting of relief under

Chapter 7 would be an abuse, the debtor’s case is to be dismissed. In the specific language of

§ 707(b)(1):

(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.

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In re: Shannon Q. Sturm
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This provision serves the purpose of preventing debtors from simply walking away from their legal
obligations by limiting Chapter 7 relief to only those debtors truly in “need” of such relief. Jn re Oot,
368 B.R. 662, 670 (Bankr.N.D.Ohio 2007).

Sections 707(b)(2) and 707(b)(3) set forth separate methodologies by which a determination
of abuse is to be assessed under § 707(b)(1). First, under an objective ‘means test’ formula
prescribed by § 707(b)(2), abuse will be presumed to exist when a ‘disposable income’ threshold is
exceeded. In the alternative, § 707(b)(3) requires a court to undertake a subjective assessment of a
debtor’s financial situation, providing that abuse should be found to be present if it is determined that
the debtor either filed their petition in bad faith or when the totality of the circumstances surrounding
the debtor’s financial situation demonstrate abuse. If either of the methods set forth in § 707(b)(2)
or § 707(b)(3) then result in a finding of abuse, the case becomes ripe for dismissal under

§ 707(b)(1). In re Longo, 364 B.R. 161, 164 (Bankr.D.Conn.2007).

For the two methodologies prescribed in § 707(b) for assessing abuse, the Court, having
reviewed the Debtor’s calculation under the means test, finds that the dismissal of this case is
warranted under § 707(b)(2). The reason for this conclusion rests upon a determination that, as put

forth by the UST, the Debtor made at least two errors when performing her ‘means test’ calculation.

First, on the ‘means test’ formulation contained in Form B22A, the Debtor made too large.
of a marital adjustment. Second, on the ‘means test,’ the Debtor improperly took a deduction for a

second vehicle. The basis for these conclusions is now explained in detail.

Marital Adjustment

In order to determine whether the granting of relief in a Chapter 7 case is presumptively

abusive as applied to § 707(b)(2), a debtor’s “current monthly income” must be first ascertained.

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In re: Shannon Q. Sturm
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Current monthly income is defined in § 101(10A), and is composed of two parts. The first part

provides generally that “current monthly income” means:

the average monthly income from all sources that the debtor receives (or in

a joint case the debtor and the debtor’s spouse receive) without regard to

whether such income is taxable income, derived during the 6-month period

ending on the last day of the calendar month immediately preceding the date

of the commencement of the case. . .”
11 U.S.C. § 101(10A)(A). Section 101(10A), thus, begins by defining a debtor’s “current monthly
income” without reference to the income of any nondebtor spouse, limiting its breadth to only that

of the debtor and a codebtor spouse, if any.

However, the second part of § 101(10A) operates as a modifier to this limitation by

providing:

The term “current monthly income”—

(B) includes any amount paid by any entity other than the debtor (or
in a joint case the debtor and the debtor’s spouse), on a regular basis
for the household expenses of the debtor or the debtor’s dependents
(and in a joint case the debtor’s spouse if not otherwise a dependent)

11 U.S.C. § 101(10A)(B). Accordingly, as is the situation before the Court, where a debtor is
married, but the debtor’s spouse does not file for bankruptcy relief, the current monthly income of
a debtor will include not only the debtor’s income but that of the non-filing spouse provided that the
income of the nondebtor spouse is paid toward the household expenses of the debtor or the debtor’s
dependents on a regular basis. This means that “[t]o the extent that a non-filing spouse’s income is
deemed to be a contribution to the debtor’s household expenses, it will raise the debtor’s current
monthly income and increase the likelihood that the presumption of abuse will arise.” In re Travis,

353 B.R. 520, 526 (Bankr. E.D.Mich. 2006)

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In re: Shannon Q. Sturm
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Line 17 of Form B22A implements the definition of ‘current monthly income’ as provided

in § 101(10A)(B). This line is entitled “Marital adjustment.” The instructions for this line provide:

enter on Line 17 the total of any income listed in Line 11, Column B that was

NOT paid on a regular basis for the household expenses of the debtor or the

debtor’s dependents. Specify in the lines below the basis for excluding the

Column B income (such as payment of the spouse’s tax liability or the

spouse’s support of persons other than the debtor or the debtor’s dependents)

and the amount of income devoted to each purpose.
Line 17, thus, allows a debtor to exclude from the ‘means test’ formulation any funds which he or
she contends their spouse does not contribute to the marital household on a regular basis. The effect
of any monetary figure entered on this line is to reduce, on a dollar-to-dollar basis, the amount of
‘disposable income’ the debtor has available when assessing whether the debtor’s ‘disposable

income’ exceeds the abuse thresholds of § 707(b)(2).

In this matter, the Debtor claimed a marital adjustment on line 17 in the amount $3,473.00.

Per the instructions for line 17, the Debtor specified the basis for this figure, providing the following

itemization:

Car -Gas $140.00
Car Insurance $135.00
Car Repair $150.00
Clothing $53.87
Credit Cards $1,300.00
Home equity loan = $1,250.00
Life Insurance $85.00
Prescription Co-Pay $70.00
Property Taxes $289.13

It is the position of the UST that the Debtor’s marital adjustment on line 17 should be revised
downward to $1,412.00, thereby resulting in an increase in the Debtor’s disposable income by

$2,061.00. For this position, the UST took issue with the Debtor’s marital adjustment of $1,250.00

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In re: Shannon Q. Sturm
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for a home equity loan, putting forth that this deduction should be reduced to $489.00. As well, the
UST put forth that the Debtor should not be allowed to take a marital adjustment of $1,300.00 for
her husband’s credit card payments.

For the most part, the Court agrees with UST’s assessment. As an initial matter, it is noted
that the Debtor’s overall marital adjustment of $3,473.00 has an obvious flaw: The amount of the
adjustment corresponds exactly to the gross income of the Debtor’s husband. As a result, the Debtor
is, in essence, asserting that her husband does not, on a regular basis, contribute at all to the Debtor’s

household expenses. This is a non sequitur.

First, for those situations where separate households are maintained, § 707(b)(2) allows for
the complete exclusion from the ‘means test’ of that income produced by the non-debtor spouse.
This, however, is not the situation here, with the Debtor and her husband living in the same
household. Second, under Ohio law, “[e]ach married person must support the person’s self and
spouse out of the person’s property or by the person’s labor.” O.R.C. § 3103.03(A). Thus, where,
as here, a nondebtor spouse enjoys an appreciable level of income, and lives with the debtor, some
financial support would, in the language of the Code, necessarily be paid by the nondebtor spouse

“on a regular basis for the household expenses of the debtor or the debtor’s dependents[.]”

In this circumstance, where a nondebtor spouse is regularly contributing to the household
expenses, courts have an obligation to scrutinize a debtor’s marital adjustment on line 17 very
carefully. In re Trimarchi, 421 B.R. 914, 923 (Bankr. N.D.IIL.2010) (holding that the non-filing
spouse’s expense for utility bills to heat the family’s swimming pool was unreasonable). The line
can be easily manipulated to produce a desired result. That is, the marital adjustment can be used by
a debtor to shift household income, with a debtor claiming to pay a greater share of the household

expenses than the nondebtor spouse.

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In re: Shannon Q. Sturm
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In this matter, the Debtor did not produce any evidence even tending to show that her
husband’s monthly $1,250.00 payment on an equity loan did not go largely toward the Debtor’s
household expenses. To the contrary, the evidence in this case shows that the Debtor’s spouse is the
sole owner of the marital residence. The costs associated with the residence are, thus, necessarily
paid by the Debtor’s spouse on a regular basis toward the Debtor’s household expenses, thereby
qualifying the costs as ‘current monthly income’ under § 101(10A)(B). Based on this, the Court can
discern no error in the UST’s assessment that the Debtor should only be allowed to take a marital
deduction of $489.00 for her husband’s equity loan, thereby resulting in a downward revision in the

Debtor’s marital adjustment by $761.00.

Similarly, the Debtor’s marital adjustment of $1,300.00 for her husband’s credit-card
payments is not completely warranted. Specifically, while it is true that some of her husband’s credit-
card debt was incurred for personal use — for example, medical bills and hobby pursuits — the Debtor
was unable to controvert the UST’s assertion that the majority of her husband’s credit card debt was
incurred for household expenses. As a result, the Court finds that the Debtor should only be allowed
a marital adjustment of $300.00 for her husband’s credit-card obligations.

Accordingly, based upon these revisions, the marital adjustment taken by the Debtor on line
17 of her ‘means test’ calculation should be revised downward by $1,761.00, thereby changing the
deduction from $3,473.00 to $1,712.00. This revision, in turn, changes the Debtor’s ‘disposable
income’ figure from a negative of ($888.18) to positive balance of $872.82. A further upward
adjustment of $706.00 is also needed in the Debtor’s disposable income.

Second Motor Vehicle Deduction

In her bankruptcy filing, the Debtor disclosed an interest in a single motor vehicle, a 2006
Jeep Liberty Sport. The ‘means test’ of § 707(b)(2) allows a debtor to claim both the operating and

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In re: Shannon Q. Sturm
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ownership costs of a vehicle. The authority for this deduction is found in § 707(b)(2)(A)(ii)(D), which
provides that the “debtor’s monthly expenses shall be the debtor’s applicable monthly expense
amounts specified under the National Standards and Local Standards . . . issued by the Internal

°

Revenue Service... .’

The Local Standards issued by the Internal Revenue Service specify ownership and operating
costs for a single vehicle as well as two vehicles.” For her ‘means test’ calculation on Form B22A,
the Debtor claimed ownership and operating expenses for two vehicles, notwithstanding only having
an ownership interest in one vehicle. The expenses for the two vehicles on the Debtor’s ‘means test’

totaled $1,331.77.

For the second vehicle, the cost was $706.00. This cost was comprised of two components:
(1) an operating expense of $210.00 for the second vehicle, set forth on line 22A; and (2) $496.00,
as the ownership cost of a second vehicle, set forth on line 24. It is the position of the UST that,
while she is entitled to take the ownership and operating expense for a single vehicle, the Debtor is

not entitled to a deduction for a second vehicle. The Court agrees with this position.

The Internal Revenue Standards, incorporated into the ‘means test’ by § 707(b)(2), do not
specify whether just one person is entitled to take a deduction for two vehicles. However, a few
considerations show that the better result is to limit that person’s deduction to just one vehicle. First,
the standards set by the Internal Revenue Service for vehicle deductions offer two alternatives: a
deduction for one vehicle and a deduction for two vehicles. To allow a solitary debtor to claim a

deduction for two automobiles, however, would effectively make the single vehicle deduction

2

http://www. irs.gov/businesses/small/article/0,,id=104623,00.html

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In re: Shannon Q. Sturm
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redundant as any debtor, seeking to avoid a finding of abuse under § 707(b), would be better served

by claiming a deduction for two vehicles.

Second, while not necessarily binding upon the Court, it is telling that the portion of the
Internal Revenue Manual addressing this issue provides that a “single taxpayer is normally allowed
ownership and operating costs for one vehicle.” Internal Revenue Manual 5.15.1.9 (10-02-2009).
Finally, the ‘means test’ of § 707(b)(2) was enacted to ensure that those who can afford to repay
some portion of their unsecured debt be required to do so. Coop v. Frederickson (In re
Frederickson), 545 F.3d 652 (8" Cir. 2008), quoting In re Hardacre, 338 B.R. 718, 725 (Bankr.
N.D.Tex. 2006). It is, thus, counterintuitive that § 707(b)(2) would allow just one debtor to claim
the ownership and operating costs for two vehicles. In this regard, it is a “well established principle
of statutory interpretation that the law favors rational and sensible construction.” U.S. v. Project on
Gov't Oversight, 484 F.Supp.2d 56, 65 (D.D.C. 2007), quoting 2A Norman J. Singer, Sutherland
Statutory Construction § 45:12 (6" ed. 2002).

Accordingly, the Court is unwilling to read § 707(b)(2) in the manner advocated by the
Debtor. In coming to this holding, it is recognized that some decisions have held that a debtor with
an ownership interest in two vehicles is entitled to take a deduction for the second vehicle.*

However, even if this Court were inclined to adopt such an approach, it would not apply here as the

3

In re Cole, 427 B.R. 467 (Bankr. C.D.IIl. 2010) (a single Chapter 7 debtor with no dependents
was entitled to take an ownership and operation expense deductions for each of the two motor
vehicles she owned); In re Comstock, 389 B.R. 888 (Bankr.N.D.Cal.2008) (a single Chapter 7
debtor with no dependents could take a deduction for both vehicles she owned where it was
shown that it was a reasonable necessity); In re Zaporski, 366 B.R. 758 (Bankr.E.D.Mich. 2007)
(a debtor could take an operation expense deduction for each of the two motor vehicles that he
owned, despite debtor being divorced and having no dependents); Jn re Barrett, 371 B.R. 860
(Bankr. S.D.IIl. 2007) (a debtor with two vehicles in a single-person household is not limited
to claiming an ownership expense deduction for one vehicle, but may claim a deduction for two

vehicles).

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In re: Shannon Q. Sturm
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Debtor only has an ownership in a single vehicle. Accordingly, for these reasons, the Debtor is not

entitled to deduct on her ‘means test’ the costs associated with a second vehicle.

Based, therefore, on the changes discussed herein, the Debtor’s ‘disposable income’ for
" purposes of the ‘means test’ must be revised upward by $2,467.00 — with this figure being the sum
of $1,712.00, the amount of the improper marriage adjustment made by the Debtor, and $706.00, the
improper deduction taken by the Debtor for a second vehicle. When this revision is made, the
Debtor’s ‘disposable income’ goes from a negative of ($888.18) to a positive balance of $1,578.82,
an amount well above the abuse thresholds set by § 707(b)(2).

To be fair, the UST did point out that the Debtor did not take some deductions that were
available to her for purposes of the ‘means test.’ These deductions, involving insurance and
administrative expenses, total just under $400.00. However, even accepting as true that the Debtor
is entitled to utilize these deductions, making such an adjustment does not even come close to
lowering the Debtor’s disposable income below the abuse thresholds of § 707(b)(2). Accordingly,

whether the Debtor is entitled to such deductions is not being passed upon in this Decision.

For all these reasons, the ‘means test’ calculation of § 707(b)(2) gives rise to a presumption
of abuse. As such, with the presumption not having been rebutted, the Court is required to find that
the Debtor is not entitled to relief under Chapter 7 of the United States Bankruptcy Code. In reaching
these conclusions, the Court has considered all of the evidence, exhibits and arguments of counsel,

regardless of whether or not they are specifically referred to in this Decision.

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In re: Shannon Q. Sturm
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Accordingly, it is

ORDERED that, subject to the Debtor’s election to convert this case, the Motion of the
United States Trustee to Dismiss under 11 U.S.C. § 707(b)(1) and § 707(b)(2), be, and is hereby,
GRANTED.

IT IS FURTHER ORDERED that the Clerk, United States Bankruptcy Court, is directed
to prepare for presentation to the Court an order of dismissal under 11 U.S.C. § 707(b)(1) if, at the
opening of business on Monday, January 24, 2011, this case is still proceeding under Chapter 7 of
the United States Bankruptcy Code.

Dated: January 7, 2011

Go
Y Rictf&d L. Speer

United States
Bankruptcy Judge

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CERTIFICATE OF SERVICE

Copies were mailed this 7" day of January, 2011 to:

Shannon Q Sturm
4405 283rd St.
Toledo, OH 43611

Gary E Horn
4325 Willys Pkwy
Toledo, OH 43612

Douglas A Dymarkowski
5431 Main Street
Sylvania, OH 43560

Derrick Rippy ust11
201 Superior Ave, #441
Cleveland, OH 44114

/s/Diana Hernandez =
Deputy Clerk, U.S. Bankruptcy Court

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