FLINT BANKRUPTCY LAWYER TERRY BANKERT (810) 235-1970
III. COURTS OPINION
[HERE WE FIND] The facts of this case indicate that (1) Debtor enjoys a stable source of future income, (2) HE is eligible for Chapter 13 relief, and (3) he is capable of significantly reducing his expenses withhout depriving himself and his dependents of food, clothing, shelter, or other necessities.
While[ BANKRUPTCY] Debtor’s apparent desire to continue to support current or prior family members beyond his legal obligation to do so is commendable, it should not be at his creditors’ expense. For the foregoing reasons, the UST’s Motion to Dismiss is granted unless, within 20 days from the entry of the order effectuating this Opinion, the Debtor converts to a Chapter 13 proceeding.
The UST shall present an appropriate order.
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COURTS OPINION GRANTING UNITED STATES TRUSTEE’S MOTION
TO DISMISS CASE PURSUANT TO 11 U.S.C. § 707(b)(3)
The matter before the Court is the United States Trustee’s Motion to Dismiss Chapter 7
Case Under 11 U.S.C. § 707(b)(3) (Docket No. 13). The Court held a hearing on the matter and
requested post-hearing briefs. The Court also requested additional information from the Debtor
regarding the end date of certain liabilities. Those materials have been submitted and reviewed
by the Court, and this is the Court’s opinion.
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I. BACKGROUND
David Difazio (“Debtor”) filed his Chapter 7 bankruptcy petition on November 12, 2010.
He is 50 years old and works as a pharmacist at Walgreens. He has held that position for
approximately eleven years and earns approximately $128,205 annually. He is divorced and has
three sons, ages 21, 23, and 24. Debtor’s ex-wife and two of his sons live with him in a home
owned by his former mother-in-law. His 23 year old son lives in Chicago and is recently
employed. His 24 year old son, who lives with him, recently returned to work in June, after
being laid off at the end of last year. His 21 year old son, who lives with him, is a student and is
unemployed. Debtor and his ex-wife divorced in February 2009. Pursuant to the Judgment of
Divorce, Debtor is required to pay alimony in the amount of $1,200 per month for 48 months.
That 48-month obligation began in September 2009 (the selling of their marital home was a
condition precedent to the start of the alimony obligation), and that obligation has approximately
28 months remaining. Debtor testified that, in lieu of paying his ex-wife $1,200 per month, he
and his ex-wife came to an agreement whereby they would live in the same residence and he
would pay certain monthly household expenses on her behalf, as well as payments for certain
expenses for their sons. At this time, Debtor pays the following expenses for the benefit of
himself, his ex-wife, and his children, to wit: mortgage ($1,149); utilities ($313); water and
sewer ($55); telephone ($275); cable/internet ($230); a car payments for two vehicles, both of
which are owned by Debtor’s mother and which Debtor and his son are given permission to drive
($250 and $320); a payment for a Harley Davidson motorcycle ($326); insurance for the
vehicles owned by Debtor’s mother, Debtor’s ex-wife’s vehicle, and the motorcycle ($181, $213,
and $56.16); student loan payment for his son ($150); and a “payment for dependent,” which is
money given to his son currently living in Chicago ($110).1 Debtor’s ongoing debts include:
(1) tax debt owed to the Internal Revenue Service in the amount of approximately
$160,000; Debtor currently pays $1,424 per month (that payment increased from
$856 in September 2011) and he will likely be required to pay that obligation for
the remainder of his working career; Debtor’s ex-wife does not contribute to the
repayment of this debt;
(2) income tax debt owed to the State of Michigan in the amount of $3,042, with
estimated interest and penalties of 31-35%; Debtor currently pays $190 per month
and that obligation is estimated to be paid off between 1.9 – 2.4 years; Debtor’s
ex-wife does not contribute to the repayment of this debt; and
(3) stock loan plan debt in the amount of $3,381.51; Debtor currently pays
$247.78 per month and that obligation is estimated to be paid off in October 2012.
In addition to those continuing debt payments, Debtor contributes $213.67 per month to his
401K, which has a balance of approximately $29,000.
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II. [THE COURTS] DISCUSSION
Section 707(b)(1) provides, in part,
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.
1 These enumerated payments consist of all of the regular household expenses for himself and his ex-wife and his two adult children who are living with him. It is clear, however, that Debtor would be required to pay most of those expenses, such as mortgage/rent, utilities, and food if he were living on his own. Accordingly, the Court will only attribute a portion of those total expenses as being payments made for his wife’s benefit in exchange for the alimony payments.
In determining whether this case constitutes an “abuse” under § 707(b)(3), the Court must
examine the totality of the circumstances and determine whether the Debtor is “honest” and
“needy”. In re Krohn, 886 F.2d 123, 126 (6th Cir. 1989); In re Behlke, 358 F.3d 429, 434 (6th
Cir. 2004). “’[H]onest,’ in the sense that [Debtor’s] relationship with his [or her] creditors has
been marked by essentially honorable and undeceptive dealings, and […] ‘needy’ in the sense
that his [or her] financial predicament warrants the discharge of his [or her] debts in exchange for
liquidation of his [or her] assets.” Krohn, 886 F.2d at 126.
There is no allegation or indication that the Debtor has been anything other than honest in
his relationship with his creditors, and therefore the inquiry is limited solely to whether the
Debtor is “needy” of a chapter 7 discharge. In making determinations as to neediness, courts
have looked to the following non-exclusive factors:
(a) whether the Debtor has the ability to repay his debts out of future earnings;
(b)whether the Debtor enjoys a stable source of future income;
(c) whether the Debtor is eligible for chapter 13 relief;
(d) whether there are state remedies with the potential to ease the Debtor’s financial predicament;
(e) whether relief may be obtained through private negotiations with creditors; and
(f) whether expenses can be reduced significantly without depriving the Debtor of adequate food, clothing, shelter and other necessities.
In re Beckerman, 381 B.R. at 845 (citing In re Krohn, 886 F. 2d at 126-27).
In this case, Debtor enjoys a stable source of future income and is eligible for Chapter 13
relief. The factor most applicable to the Court’s analysis in this particular case is (f), i.e.:
whether the Debtor’s expenses can be significantly reduced without depriving him or his
dependents with adequate food, clothing, shelter, and other necessities.
The UST argues that Debtor can easily reduce his monthly expenses without depriving
himself or his dependents of adequate shelter, food, or clothing and that he has the ability to pay
his debts out of future earnings in a Chapter 13 case. Specifically, the UST argues that Debtor
could immediately trim his budget by $1,467.34 by: discontinuing his 401K contribution for the
period of a Chapter 13 plan ($213.67), eliminating the payments for his sons’ cell phones and
eliminating premium television channels ($150), eliminating the payments for his son’s vehicle
and insurance ($411.50), eliminating the motorcycle payment and insurance ($382.16), and
eliminating the payments for his son’s student loan and the “payment to dependent” ($260). The
UST further argues that when some of the above listed ongoing debts are paid off, Debtor will
have additional income he can contribute to a Chapter 13 plan to pay unsecured creditors.
Debtor argues that, given his ongoing support obligations for his ex-wife and his significant tax
debt, even if he could reduce his monthly expenses, he would not have sufficient income to
contribute toward a Chapter 13 plan.
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B. Payments in Lieu of Alimony Obligation
As noted, Debtor has a monthly alimony obligation to his ex-wife. As noted, he and his
ex-wife came to an agreement whereby Debtor would pay the ex-wife’s portion of the mortgage
payment, her car insurance, household utilities, and certain expenses for their sons instead of
paying the monthly alimony obligation to her. Debtor argues that he is currently paying the
following expenses in lieu of that alimony obligation: (1) his ex-wife’s share of the mortgage
payment ($575), automobile insurance for his wife’s vehicle ($106), a car payment for his son’s
vehicle ($306), student loan payment for the eldest son ($150), and a “payment for dependent”
($110). Those expenses add up to $1,247. However, Debtor is clearly paying expenses above
and beyond those amounts on his ex-wife’s behalf. Specifically, he is also paying $313 for
utilities; $55 for water and sewer; $230 for cable/internet; and $298.76 for his ex-wife’s
insurance expenses. Taking into consideration the portion of those expenses attributable to
Debtor’s ex-wife, it appears that he is paying at least an additional $598 per month for his exwife’s expenses. It is also unclear whether the $1,100 monthly food expense listed on Debtor’s
Schedule J includes food expenses for his ex-wife. It is clear in this case that Debtor is paying
much more than $1,200 on his ex-wife’s behalf on a monthly basis. For that reason, the Court
will consider the car payment for his son’s vehicle, student loan payment for his other son, and
the “payment for dependent” as being separate from the alimony obligation.
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C. Reduction of Expenses
A review of Debtor’s schedules show that his expenses are somewhat excessive and
additional belt tightening is not out of question. To be sure, some expenses are what they are in
no small part because he is financially supporting his ex-wife and three adult children. Two of
his adult children are working and are able to either support themselves or to contribute to the
household expenses or to their own expenses. See In re Beckerman, 381 B.R. at 852 (citing In re Siemen, 294 B.R. 276, 279 (Bankr. E.D. Mich. 2003). Further, Debtor’s payment of expenses for his ex-wife is clearly in significant excess of his $1,200 monthly alimony obligation and that
excess is not likely legally required. Debtor’s expenses can clearly be reduced by a minimum of:
$150 for cable/internet/phones, $411.50 for the payments for his son’s vehicle and insurance,
$382.16 for the motorcycle payment and insurance, and $260 for the payments for his son’s
student loan and the “payment to dependent.” Eliminating or reducing those expenses alone
adds up to $1,203.66. Adding in Debtor’s monthly net income of $159.80, Debtor could pay a
total of $1,363.46 per month to his unsecured creditors in a Chapter 13 plan. Even taking into
consideration the recent increase in Debtor’s tax obligation, from $856 to $1,424, Debtor could
make a significant monthly payment toward a Chapter 13 plan. Further, the amount Debtor can
contribute to a Chapter 13 plan would at some point increase as the Michigan tax debt, alimony
obligation (which will end in September 2013), and stock loan plan debt are paid off during the
period of a five year plan.
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UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION – DETROIT
In re:
Case No. 10-74441
David M. Difazio, Chapter 7
Hon. Walter Shapero
Debtor.
___________________________________/
OPINION GRANTING UNITED STATES TRUSTEE’S MOTION
TO DISMISS CASE PURSUANT TO 11 U.S.C. § 707(b)(3)
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