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In re Randle

July 20, 2007


The opinion of the court was delivered by: James F. Holderman, Chief Judge


Debtor Ernestine Randle ("Randle") filed a voluntary Chapter 7 petition in the United States Bankruptcy Court for the Northern District of Illinois on May 23, 2006. In response, United States Trustee, William T. Neary, ("the Trustee") filed a motion to dismiss Randle's petition under 11 U.S.C. § 707(b)(2), arguing that granting Randle a discharge of her debts would be an abuse of Chapter 7 of the Bankruptcy Code. Bankruptcy Judge Carol A. Doyle denied the Trustee's motion to dismiss, and the Trustee now appeals that decision (Dkt. No. 1). Because this appeal presents an issue of first impression for the district courts, the court held oral argument on the appeal on June 19, 2007. For the reasons stated below, the court affirms the judgment of the Bankruptcy Court.


This court reviews the Bankruptcy Court's findings of fact for clear error. In re Heartland Steel, Inc., 389 F.3d 741, 743-44 (7th Cir. 2004); Matter of Greenig, 152 F.3d 631, 633 (7th Cir. 1998). Legal conclusions are reviewed de novo. In re Heartland Steel, Inc., 389 F.3d at 743-44; Matter of Greenig, 152 F.3d at 633.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), effective October 17, 2005, amended provisions of the Bankruptcy Code, including 11 U.S.C. § 707(b)(2), which is the statute at issue in this appeal. Section 707(b)(2) applies a "Means Test," which measures a debtor's presumed ability to repay her debts in the 60 months following the filing of her bankruptcy petition. 11 U.S.C. § 707(b)(2). Under the means test, a debtor's filing of a bankruptcy petition is considered an "abuse" if her ability to repay her debts exceeds a certain threshold amount calculated by a mathematical equation set out in the statute. Id. The means test labels as an abuse any case where the debtor's "current monthly income" less statutorily specified allowable expenses would enable the debtor to pay over the course of 60 months either (1) $10,000, which is $167 a month for 60 months or (2) the greater of 25% of her non-priority unsecured debt or $6000, which is $100 a month for 60 months. Id. "Current monthly income" ("CMI") is defined as "the average monthly income from all sources that the debtor receives . . . without regard to whether such income is taxable income, derived during the 6-month period"preceding the month of the bankruptcy filing. 11 U.S.C. § 101(10A).

The categories of allowable expenses which may reduce a debtor's CMI are contained in 11 U.S.C. § 707(b)(2)(A)(ii), (iii), and (iv). Relevant to this case is the category of allowable expenses for payments on secured debt set out in 11 U.S.C. § 707(b)(2)(A)(iii), which provides that:

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.

The means test also allows the deduction of amounts specified in national and local standards for certain categories of monthly expenses. 11 U.S.C. § 707(b)(2)(A)(ii).


The issue in this case is whether Randle may deduct the amount owed on a secured debt under § 707(b)(2)(A)(iii) if she intends to surrender the collateral after filing her bankruptcy petition. Because the underlying facts in this case are not disputed, the court relies on the facts as stated in the Bankruptcy Court's December 19, 2006 opinion and the parties' briefs. See In re Randle, 358 B.R. 360 (Bankr. N.D. Ill. 2006). Randle filed her voluntary Chapter 7 bankruptcy petition on May 23, 2006. Along with her petition, Randle filed all the required schedules and documents under the Bankruptcy Code and Federal Rules of Bankruptcy, including her Statement of Current Monthly Income, the form for calculating the means test, Form B22A, and her Statement of Intention regarding secured debt. Id. at 362. Randle disclosed in Schedule A-Real Property-that she owned her residence in South Holland, Illinois, and in Schedule D-Creditors Holding Secured Claims-that her residence was secured by a first mortgage in the amount of $124,000, and that she had a first mortgage arrearage of $22,000.*fn1 In line 42 of her Form B22A, which tracks the language of § 707(b)(2)(A)(iii) for payments to secured creditors, Randle subtracted from her CMI her monthly mortgage payment of $1,614.98 and in line 43, her monthly mortgage arrearage of $366.67, which appears to include both her first mortgage payments and payments for her second mortgage. Randle declared in a Statement of Intention that she intended to surrender her home rather than reaffirm or redeem that debt. Id. After deducting the allowed expenses, Randle's Form B22A showed a negative monthly disposable income for purposes of the means test. Id.

As of the May 23, 2006 petition date, Randle was 16 months in default on her first mortgage, having failed to make a payment since April 2005, and 30 months in default on her second mortgage, having failed to make a payment since February 2004. (Appellant's Br. at 4). On July 12, 2006, Mortgage Clearing Corporation ("MCC"), the mortgage holder on Randle's residence, filed a motion for relief from the automatic stay with regard to Randle's residence based on Randle's failure to make her mortgage payments. (Id. at 5). Randle did not oppose the motion, and the Bankruptcy Court granted MCC relief from the stay on August 15, 2006. (Id.). Based on the relief granted, MCC was authorized to complete foreclosure and related remedies under state law. (Id.).

In response to Randle's petition, the Trustee filed a Statement of Presumed Abuse, alleging that the means test yielded an amount greater than the $10,000 minimum in ยง 707(b)(2)(A)(i). In re Randle, 358 B.R. at 362. To arrive at that conclusion, the Trustee, rather than using Randle's contracted-for mortgage payment as her housing expense for the means test, the Trustee substituted the standard housing deduction of $980 per month (the housing deduction in the IRS Local Standards for a debtor in Randle's position), and arrived at a calculation of $786 in monthly disposable income. That amount multiplied by 60 comes to $46,138.20, which far exceeds the $10,000 threshold for a presumption of abuse under the means test. Id. According to the Trustee, Randle should be assigned the standard housing deduction instead of using her contracted-for ...

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