The Central District Insider thanks Christina Wilton for this tentative ruling and hopes she lets us know what happened. (I think Judge Albert got it right by the way. There has to be something more than the UST thinks the house payment is too high).
Tentative Ruling
This is the motion of creditor for dismissal under 11 U.S.C. §707(b)(3)(A) or (B). This requires the court to evaluate alternatively whether the filing of this bankruptcy was in good faith, or if in the totality of the circumstances abuse is demonstrated. The standard is not as the debtor has argued. Just because under the “means test” a presumption of abuse does not arise, the converse is not necessarily true, i.e. a case where the presumption is not triggered may still be determined under all of the circumstances to have been in bad faith or an abuse. Otherwise subsection (b)(3) would be superfluous. See e.g. In re Reed, 422 B.R. 214, 215, 230 (Dist. C.D. Cal. 2009). The real question is whether under these circumstances the various expenses claimed by the debtor make this case abusive. There are several expenses which have provoked comment. For example, the debtor pays for both his home mortgage and for an RV for another $2,745 per month. The RV appears to be purely a luxury although debtor claims he will need to live in it if he loses his home. But at present he pays on both and so presumably either the RV or the mortgage payment could be freed up if debtor had the will to so do. Debtor makes a voluntary contribution to his 401k and health account of $1,955 per month. There are several smaller items. In sum, the argument is that debtor could, if he chose, make a significant contribution to his creditors. This is a borderline case. The “luxuries” or “extravagant lifestyle” alleged here are not the sort of extreme abuse that has been seen in some other §707(b)(3) cases. The car debtor drives is not a Porsche, Lexus or Mercedes, but a 4 year-old Chrysler. His home does not seem to be “over the top” but is perhaps only somewhat upscale by O.C. standards. However, his choice to maintain an RV and to pay into a voluntary 401k/health account, rather than use these resources to pay debt in Chapter 13, deserves some explanation. But after BAPCPA the standard does not appear to be that abuse is shown ipso facto if the debtor could make some payment to his unsecured creditors by shedding all his encumbered possessions and defaulting on secured debt. Rather, it appears to be a discretionary standard tied to situations where debtor is keeping items characterized as pure luxuries. See e.g. In re Falch, 450 B.R. 88 (Bankr. E.D. Pa. 2011)[debtor kept a recreational boat]; In re Meuer, 2009 WL 4263368(Bankr. W.D. Tex.2009)[expensive cars]; In re Boyle, 412 B.R. 108, 112-(Bankr. W.D.N.Y 2009)[expensive boat]; In re Caratiquit, 2009 WL 3234221 (Bankr. N.D. Cal. 2009)[expensive cars and a Winnebago]. As at least one court has noted that existence of secured loans on sundry items cannot alone be the standard as this would undercut the express allowance of such secured claims in determining whether a presumption of abuse arises under the means test. In re Jensen, 407 B.R. 378, 386 (Bankr. C.D.Cal. 2009). Rather, additional issues such as relative timing of the more expensive purchases are probative in determining the overall conclusion of abuse or bad faith. Id. Here, debtor claims that the “luxuries” were purchased well before his financial difficulties arose. Other factors beyond ability to repay are identified such as excessive consumer debts incurred in contemplation of filing, debtor’s truthfulness and whether the filing was due to unforeseen calamities such as illness, disability or unemployment. Meurer, 2009 WL 4263368 at *3 citing In re Daugherty, 2009 Bankr. Lexis 2691(Bankr. N.D.Tex. 2009). The court will hear argument as to whether these circumstances in aggregate justify dismissal.