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BAP WY-14-002 In Re Miller, Oct. 8, 2014
U.S. Bankruptcy Appellate Panel of the Tenth Circuit
October 8, 2014 Blaine F. Bates
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE TENTH CIRCUIT
IN RE VEDE JACOB MILLER, alsoknown as Jake Miller,
VEDE JACOB MILLER, Appellant,
UNITED STATES TRUSTEE, Appellee.
BAP No. WY-14-002
Bankr. No. 13-20384 Chapter 7
Appeal from the United States Bankruptcy Courtfor the District of Wyoming
Submitted on the briefs:*
Brad T. Hunsicker of Winship & Winship, P.C., Casper, Wyoming, for Appellant.
Ramona D. Elliott, Deputy Director/General Counsel (P. Matthew Sutko,Associate General Counsel, and Robert J. Schneider, Jr., Trial Attorney, with heron the brief) Washington, D.C., and Patrick S. Layng, United States Trustee forRegion 19 (Daniel J. Morse, Assistant United States Trustee, with him on thebrief), Cheyenne, Wyoming, for Appellee.
Before NUGENT, KARLIN, and SOMERS, Bankruptcy Judges.
KARLIN, Bankruptcy Judge.
The issue we face is whether a debtor’s wages need to be both earned and
* The parties did not request oral argument, and after examining the briefsand appellate record, the Court has determined unanimously that oral argumentwould not materially assist in the determination of this appeal. See Fed. R. Bankr. P. 8012. The case is therefore ordered submitted without oral argument.
received during the applicable six-month “look-back” period in order to be included as part of his “current monthly income” under 11 U.S.C. § 101(10A). Debtor Vede Jacob Miller (“Miller”) timely appealed the bankruptcy court’s order dismissing his Chapter 7 petition after the court determined that, when properly calculated, Miller’s current monthly income (“CMI”) disqualified him from proceeding under Chapter 7 of the Bankruptcy Code.1 When Miller declined to convert his bankruptcy case from Chapter 7 to Chapter 13, the bankruptcy court dismissed his petition. We affirm the dismissal.
The relevant facts are undisputed. Miller filed his Chapter 7 bankruptcy petition in April 2013. He claimed the § 707(b) presumption of abuse did not apply to his bankruptcy filing, under § 707(b)(7)(A), which effectively exempts a filer from the presumption of abuse if his income is less that the median income for his state and family size. When Miller filed his bankruptcy, he was paid biweekly (26 times annually) and reported gross annual income of $77,705 and $81,066 in 2011 and 2012, respectively. When he filed, the median income for a family of three in Wyoming was $73,688; it was $78,733 for a family of four.
Miller’s first Form B22A (the Chapter 7 means test) listed a family size of 3 and a CMI of $4,977, resulting in a calculated annual income of $59,721. Three months later, Miller filed an amended B22A form, this time claiming a family size of 4 and a CMI of $6,112—$73,338 annually, still $300 below Wyoming’s median income for a family of three. The figure was also $5,395 less than the $78,733 median income for a family of four, the family size Miller claimed on the amended form.2
1 Unless otherwise indicated, all statutory references in this decision will beto the Bankruptcy Code, Title 11 of the United States Code.
2 The UST suggests that Miller changed his family number from 3 to 4 (continued...)
The United States Trustee (UST) contested Miller’s CMI calculations,
which Miller based on his understanding of the term “current monthly income,” as
defined in § 101(10A). That definition includes, “income from all sources that
the debtor receives . . . without regard to whether such income is taxable income,
derived during the 6-month period.” Miller argued that the “derived during”
language means “earned during,” such that his CMI only need include income he
both received and earned during the look-back period.3 The UST read the
definition to include all money received during the look-back period, regardless
when it was earned.
These differing definitions led the UST and Miller to dispute the inclusion
of one payment, which Miller received on October 10 in the amount of $2,942.
Those wages were in compensation for work he completed in the two weeks
before commencement of the look-back period—the “10/10 payment.”4
Eliminating this payment from Miller’s CMI calculation reduced his annualized
2 (...continued)because his income otherwise would have exceeded the Wyoming median annualincome, even using his calculation. Brief of Appellee Patrick S. Layng, UnitedStates Trustee, at 8. The UST argument is inaccurate. Miller’s amended calculation reflecting annual income of $73,338 was still below the $73,688median income for a family of 3 in Wyoming at the time his petition was filed.
m. Printed copies of this, and all other webpages cited herein, are provided as anattachment located at the end of this decision. The Court accepts noresponsibility for, and does not endorse, any product, organization, or content atany hyperlinked site, or at any site to which that site might be linked. The Courtaccepts no responsibility for the availability or functionality of any hyperlink.Thus, the fact that a hyperlink ceases to work or directs the user to some othersite does not affect the Opinion of the Court.
3 The defined look-back period was October 1, 2012, through March 31,2013.
4 The UST’s analysis of Miller’s pay advices indicates that the pay periodcovered by the 10/10 Payment was September 14-30, a period of 17 days. See Appellant’s Appendix (“Appx”) at 67. Each of Miller’s other checks covered a 14-day period that ended 10 days prior to the payment date. As the 10/10 payadvice is not contained in the appellate record, the Court assumes the UST’sstated pay period is simply a transcription error.
income to nearly $6,000 below the Wyoming annual median for a family of four. But when the UST included that payment, Miller’s income placed him at above-median income status. As a result, Miller’s CMI would have resulted in Miller having to repay (under a 60-month repayment plan required of above median income debtors) approximately $42,000 to his unsecured creditors. Since he listed total non-priority unsecured debt of $58,062, creditors would have potentially received payment of more than 70% of their claims.
Based on this calculation, the UST filed a Statement of Presumed Abuse pursuant to §§ 707(b) and 704(b)(2),5 and a motion to dismiss Miller’s case pursuant to § 707(b)(2) and (3).6 Miller then filed his own motion for partial summary judgment, claiming that because the 10/10 payment should be excluded, he should be allowed to proceed in Chapter 7.
The bankruptcy court agreed with the UST interpretation, holding that all income received by a debtor in the look-back period must be included in the calculation of CMI “without relation to when that income was earned.”7 As a result, the bankruptcy court dismissed Miller’s case pursuant to § 707(b)(2)8 when he declined to convert to a Chapter 13 proceeding.
II. APPELLATE JURISDICTION
This Court has jurisdiction to hear timely filed appeals from “final judgments, orders, and decrees” of bankruptcy courts within the Tenth Circuit,
5 See Appx at 59.
6 Id. at 60. Section 707(b)(2) is based on a presumption of abuse that arisesfrom a mathematical calculation of income and expenses, whereas § 707(b)(3)requires a showing of bad faith but does not require the trustee (or other party ininterest) prove that the debtor exceeded the abuse threshold.
7 Opinion on Motion for Partial Summary Judgment at 7, in Appx at 131.
8 As a result, the bankruptcy court did not reach the UST’s § 707(b)(3) badfaith claim against Miller.
unless one of the parties elects to have the district court hear the appeal.9 A decision dismissing a bankruptcy case is a final order for purposes of appeal.10
Miller timely appealed the bankruptcy court’s dismissal of his case as well as the order denying him summary judgment.11 Neither party elected to have the appeal heard by the district court, and the parties have therefore consented to appellate review by this Court.
III. ISSUE AND STANDARD OF REVIEW
In calculating CMI pursuant to § 101(10A), is income that was
earned before the start of the six-month look-back period
included if it is received during that period?
The sole issue on appeal requires us to interpret a statute, a question of law
that we review de novo.12
Under § 707(b)(1), “the court . . . may dismiss a case . . . 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.” Section 707(b)(2) sets out a means test that creates a presumption of abuse in many cases, but § 707(b)(7)(A) effectively exempts a debtor from the
9 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8002; 10th Cir.BAP L.R. 8001-3.
10 In re Miller, 383 B.R. 767, 770 (10th Cir. BAP 2008) (order of dismissal isgenerally final and appealable under 28 U.S.C. § 158(a)).
11 The UST suggests that 10th Cir. BAP L.R. 8001-1 required Miller to paytwo filing fees in order to appeal both the order denying his motion for partialsummary judgment and the order dismissing his case. This local rule is interpreted to require separate notices of appeal from separate final orders, whichthe December 5 order was not. Moreover, an appellant may seek review of allinterim, non-final orders in conjunction with an appeal of the final order resolvingthe case. See Koch v. City of Del City, 660 F.3d 1228, 1237 (10th Cir. 2011),cert. den., 133 S.Ct. 211 (2012) (interlocutory orders merge into a final judgmentand are reviewable on appeal).
12 In re Woods, 743 F.3d 689, 693 (10th Cir. 2014); In re Ford, 574 F.3d1279, 1282 (10th Cir. 2009).
means test presumption of abuse “if the current monthly income of the debtor . . . and the debtor’s spouse combined . . . when multiplied by 12, is equal to or less than” the median income for the debtor’s family size in the applicable state. The term “current monthly income” is defined in § 101(10A) as follows:
(10A) The term “current monthly income”–
(A) means the average monthly income from all sourcesthat the debtor receives (or in a joint case the debtor andthe debtor’s spouse receive) without regard to whethersuch income is taxable income, derived during the6-month period ending on–
(i) the last day of the calendar monthimmediately preceding the date of thecommencement of the case if the debtor files the schedule of current income required by section 521(a)(1)(B)(ii)(emphasis added).
The parties offer differing interpretations of the term “current monthly income.” Miller reads “derived during” to mean “earned during.” As a result, he reads § 101(10A) to include only income that he both received and earned during the 6-month look-back period. In other words, he contends the statute excludes both income received in the look-back period that he earned outside of that period and income he earned during the look-back period for which he received payment outside of it. The UST contends that all income received during the look-back period must be included in the calculation of CMI, regardless when it was earned.13
The Tenth Circuit Court of Appeals has not considered this issue, and our independent research has produced no other appellate decisions addressing the meaning of this language. We are thus left to interpret the Code in the first instance. “[I]nterpretation of the Bankruptcy Code starts ‘where all such inquiries
The UST agrees with Miller that income earned in the look-back period—but received outside of that period—is not included in CMI (such as Miller’sApril 10, 2013 pay).
must begin: with the language of the statute itself.’”14 “It is well established that ‘when the statute’s language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms.’”15 Further, “[i]t is a fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.”16 “If the statute’s plain language is ambiguous as to Congressional intent, we look to the legislative history and the underlying public policy of the statute.”17
The most common definition of “derive” is “to take, receive, or obtain especially from a specified source,”18 and both parties rely on this definition.19 But this definition is actually defining the phrase “derive from.” Using the term “derive,” as outlined in these definitions, requires the preposition “from.” But Congress did not choose the phrase “derived from;” instead, it used the term “derived” in a temporal setting, that is, “derived during.” And a dictionary definition analogous to the one for “derived from” for the phrase “derived during” would read as follows: “to take, receive, or obtain, especially during a specified period.” Using this definition in the statute, then, the primary dictionary meaning leads us to read “income derived during the look-back period” as “income taken, received, or obtained during the look-back period.” The meaning of the terms
14 Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 131 S.Ct. 716, 723 (2011)(quoting United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989)).
15 Lamie v. U.S. Trustee, 540 U.S. 526, 534 (2004) (quoting Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6 (2000)).
16 Davis v. Mich. Dep’t of Treasury, 489 U.S. 803, 809 (1989).
17 United States v. Manning, 526 F.3d 611, 614 (10th Cir. 2008) (citation andinternal quotation marks omitted).
18 See, e.g., Merriam-Webster Online Dictionary,http://www.merriamwebster.com/dictionary/derive.
19 See Appellant’s Brief at 11-12.
“taken” and “obtained” are subsumed in the broader term “received,”20 so we read the definition of “income derived during the look-back period” as “income received during the look-back period.” This appears to be the plain meaning of the statute.
Admittedly, construing the words “derived during” to be essentially synonymous with the word “received” presents a statutory interpretation challenge, given that Congress used the word “receives” earlier in the same sentence. If the legislature intended the words to have the same meaning, why would it use different words?
Miller makes just this argument, asserting that “if different language is used in different parts of a statute, then a court should presume the legislature intended a different meaning and effect with respect to each term.”21 This argument appears to rely on the idea that courts should not read a statute to render any portion of the statute redundant, and reading dissimilar terms to mean the same thing risks creating redundancy. But there is little precedential support for the alleged rule that different words must have different meanings.
The United States Supreme Court has specifically recognized that Congress’s use of two different terms in a statute does not preclude the courts assigning the terms the same meaning, noting that Congress may have used the terms, “not as contrasting, but as synonymous or alternative terms.”22 And even if
20 If one takes or obtains money, one still receives that money; the termssimply provide additional information about how that money is received.
21 Appellant’s Brief at 12.
22 Wachovia Bank v. Schmidt, 546 U.S. 303, 314 (2006) (in reference to thewords “located” and “established” in a statute). Congress certainly does usesynonyms in its drafting, and courts should not strain to interpret wordsdifferently when their ordinary meaning is synonymous. Thus, the rule againstsuperfluities cannot be used to override the “fundamental canon of statutoryconstruction . . . that, unless otherwise defined, words will be interpreted astaking their ordinary, contemporary, common meaning.” Perrin v. United States,
this purported rule were a canon, “canons are not mandatory rules” but, rather, are “guides  designed to help judges determine the Legislature’s intent as embodied in particular statutory language. And other circumstances evidencing congressional intent can overcome their force.”23
Nevertheless, Miller argues “derive” must have a different definition from “receive”, and so ultimately interprets “derived during” to require that “the income at issue must originate from, or be earned during, the applicable six-month “look-back” period (i.e., the “specified source” or “origin” of the income)” (emphasis added). But there is simply no basis in the statute or the dictionary definitions for interpreting “derived” as “earned,” the latter being a word Miller adds to the definition without explanation. This unjustified addition twists the meaning of the term “derived” and would fundamentally alter the CMI definition. None of the dictionary definitions of “derive” uses the term “earn.” Even if Miller is correct that Congress generally does not use two words to mean the same thing, there is simply no basis to substitute “earned” for “derived,” as Miller advocates.
Moreover, Miller’s general argument, that reading two different words to mean the same thing renders portions of the statute redundant, fails in this case. Careful consideration of this statute indicates that, even when “received” and “derived” are given the same meaning, every portion of the statute remains essential. We note that the first portion of the statute, containing the term “receives,” is in the present tense and explains what kind of income is included in a CMI calculation, without respect to its receipt. Thus, “income from all sources that the debtor receives . . . without regard to whether such income is taxable” is
22 (...continued)444 U.S. 37, 42 (1979).
23 Chickasaw Nation v. United States, 534 U.S. 84, 94 (2001) (citation andinternal quotation marks omitted).
included in CMI. The second part of the CMI definition sets the time period
applicable to that income; the income must have been “derived during” the look-
back period. When the statute is read as a whole, then, it contains no
surplusage—both portions of the definition of CMI are necessary to the
After reviewing the accepted definitions for the term “derived,” in the
context of the phrase “derived during,” the Court concludes that the phrase
“income derived during the look-back period” has the plain meaning “income
received during the look-back period.” This reading does not raise the concerns
about redundancy or surplusage sometimes associated with reading dissimilar
terms to mean the same thing, and this reading directly applies the commonly
accepted dictionary definition of the term “derived” to the question at hand.
Because this is the only reasonable interpretation of the statutory language, the
language is not ambiguous.24
The Court is aware of the divided case law on this question,25 and Miller
24 Nat’l Credit Union Admin. Bd. v. Nomura Home Equity Loan, Inc., No. 123295, 2014 WL 4069137, at *31 (10th Cir. Aug. 19, 2014).
25 See, e.g., In re Strickland, 504 B.R. 542, 545-46 (Bankr. D. Minn. 2014)(holding that “current monthly income” under § 101(10A) means the amount ofincome earned during the six months, regardless of the date of receipt); In re Robrock, 430 B.R. 197, 204 (Bankr. D. Minn. 2010) (same); In re Cruz, No. 0823419, 2008 WL 3346583, at *2 (Bankr. E.D. Wis. Aug. 11, 2008) (holding that“[w]hether income is included in CMI is determined by when the debtor receives funds, not when they are earned.”), relying on In re DeThample, 390 B.R. 716(Bankr. D. Kan. 2008); In re Burrell, 399 B.R. 620, 627 (Bankr. C.D. Ill. 2008)(holding that “derived during” was mere “surplusage adding nothing substantiveto the definition” of CMI); In re DeThample, 390 B.R. at 721 (holding that§ 101(10A) “include[s] every dime a debtor gets during the relevant period exceptfor those amounts specifically excluded”); In re Sanchez, No. 06-40886, 2006 WL2038616, at *2 (Bankr. W.D. Mo. July 13, 2006) (holding that “derived” islargely redundant of “received,” meaning “to take, receive, or obtain especiallyfrom a specified source,” and thus that CMI included all money received duringthe look-back period).
relies extensively on two prior Chapter 7 cases, Arnoux and Meade, 26 which merit additional discussion. First, Miller relies on Arnoux, but the definition of “derived” was not at issue in Arnoux, as both the Chapter 7 debtor and the UST apparently agreed that the term meant “earned.” The only dispute was whether income the debtor received after the look-back period, for work performed during that period, must be included in CMI. Debtor Arnoux argued (as does Miller) that income must be both received and earned in the look-back period, whereas the trustee argued (as does the UST here) that only the term “derived” is actually limited to the look-back period. The debtor had included all income she received during the look-back period, but had excluded a two-week payment for work performed during that period, but received outside of it.
The Arnoux trustee argued that the “natural reading” of § 101(10A) imposed two conditions on income inclusion (only one of which was subject to a time parameter): 1) it was received by the debtor, and 2) it was “derived” (i.e., earned) during the look-back period. Contrary to that trustee’s plain language assertion, the Arnoux court determined § 101(10A) to be ambiguous.27 It then considered the statute’s legislative history, concluding that the drafters intended the look-back period to apply to both “receives” and “derived.”28 Thus, the court held that income must be both received and earned during the look-back period, so income the debtor received outside of the look-back period but earned during it was excluded from the debtor’s CMI.
26 In re Arnoux, 442 B.R. 769 (Bankr. E.D. Wash. 2010); In re Meade, 420
B.R. 291 (Bankr. W.D. Va. 2009).
27 In re Arnoux, 442 B.R. at 776 (but disagreeing with the Burrell court’s assessment that the phrase “derived during” was in the statute as the “result ofpoor sentence construction and inartful drafting”).
Miller also relies on In re Meade29 to support his position. In Meade, the
principal dispute centered around whether the entire $9,000 annual bonus
received by one of the debtors during the November 1, 2008 through April 30,
2009 look-back period—theoretically for work done throughout 2008—should be
included.30 As the entirety of the bonus was received during the look-back
period, the trustee argued that it should all be included in calculating the debtors’
CMI. The Meades countered that “a common sense approach” would be to divide
the bonus into twelve months, rather than six, since it was an annual bonus.31
Significantly, the Meades had stipulated to their above-median status, and that the
statutory presumption of ability to pay their creditors arose under § 727(b)(2). As
such, the specific issue in Meade was whether debtors’ “disposable income”
(CMI, less allowed expenses, times sixty) exceeded the threshold for presumption
The Meade court elected to include only half of the annual bonus in the
debtors’ CMI. It did so based in large part on the parties’ agreement that the term
29 In re Meade, 420 B.R. at 291.
30 The debtor had also received a similar bonus of $9,000 in February 2008,and $8,500 in February of 2007, corroborating that the debtor’s receipt of annualbonuses, in this range, was the norm.
31 In re Meade, 420 B.R. at 301. The Meades did not argue, as they mighthave, that the entirety of the annual bonus was “earned” in calendar year 2008, inwhich case, only two months of the bonus (November and December) were both“earned” (or “derived”) and received during the look-back period. At most, thebonus likely was earned in only three months of the look-back period (Novemberthrough January), as bonuses are not typically paid in advance. Although thisargument was not made, the fact that it could have been under Miller’s reading of§ 101(10A) helps illustrate the UST’s argument that requiring income to be bothearned and received in the look-back period would, in many instances, increasethe complexity of determining the amount of income to include in CMI. Thus,although it is ordinarily simple enough to determine when regular pay (“earnedincome”) was “earned” as in the present case, other income, including bonuses,401(k) distributions, and other “passive income,” might be quite difficult to tie toa particular date other than when it was received.
32 See § 707(b)(2)(A)(i).
“derived,” as used in § 101(10A), meant “earned.” This is apparent from the
court’s discussion regarding the difficulty of prorating a bonus that was paid prior
to the look-back period under the parties’ statutory reading.33 The court then
“acknowledge[d] the conceptual difficulties” of its holding, but found them to be
no greater than the problem of using past income to determine what a debtor will
pay in a future repayment plan.34 Ultimately, however, the court granted the
trustee’s motion to dismiss the Meades’ case, finding that they had failed to rebut
the statutory presumption.35 Thus, Meade neither supports Miller’s assertion that
income must be both received and earned in the look-back period, nor does it hold
that the term “derived” means “earned.”
Although the statute is unambiguous, its legislative history and underlying
public policy also support our interpretation of the statute. As several courts have
already noted, the word “derived” was never used in the legislative history of
33 The court noted that there was authority in a Chapter 13 context to includesuch a non-look-back period payment in CMI, citing In re Foster, No. 05-50448,2006 WL 2621080 (Bankr. N.D. Ind. Sept. 11, 2006). Meade, 420 B.R. at 306.Because Foster involved facts well beyond the ones presented by the present case,we do not discuss it here.
34 In re Meade, 420 B.R. at 306-07. It is significant to note that the Meade court did not have the benefit of the Supreme Court’s 2010 decision in Hamilton
v. Lanning, 560 U.S. 505, 517 (2010), which held that determinations of projecteddisposable income should involve a “forward looking approach” that takes intoconsideration “known or virtually certain changes to debtors’ income orexpenses.” Although the Lanning decision did not discuss the issue of “receives” and “derived” with respect to inclusion of income in CMI, its holding is at leastarguably supportive of the UST’s position that while all income received shouldbe included in CMI, the continued accuracy of that income going forward may beraised by a debtor (at least in Chapter 13 cases) in connection with thedetermination of projected income. Thus, although the debtor in Lanning was treated as an above-median debtor based on her CMI, which included twosignificant, non-recurring buy-out payments from her former employer, theamount of her actual plan payment was based on her true income at the time ofplan confirmation.
35 One factor that led to dismissal of the Meades’ case was the court’s conclusion that debtor wife’s school teacher salary should not be prorated over 12months, but should instead be included in CMI as it had been actually received.
§ 101(10A), and very little was said about the statute at all.36 One of only two nearly identical legislative statements regarding CMI is found in a section-bysection discussion of BAPCPA’s 2005 overhaul of the Bankruptcy Code:
Section 102(b) of the Act amends section 101 of the Bankruptcy
Code to define “current monthly income” as the average monthly
income that the debtor receives (or in a joint case, the debtor and
debtor’s spouse receive) from all sources, without regard to whether
it is taxable income, in a specified six-month period preceding the
filing of the bankruptcy case.37 And as the Burrell court noted, “[t]he legislative history only makes reference to when income is received; nowhere is reference made to when the income is earned. The phrase ‘derived during’ is completely absent.”38 The legislative history thus supports a reading of the terms at issue here as merely synonymous.
Finally, the doctrine that we should be guided by the underlying public policy of the statute reinforces our interpretation of CMI as requiring inclusion of all income received by a debtor during the look-back period. As a general matter, remedial legislation should be construed in a way that effectuates its remedial purpose:
[R]emedial legislation, like BAPCPA, should be construed broadly to
effectuate its purpose. The means test was intended to screen
Chapter 7 individual debtor filings to determine who could pay a
significant portion of their debts over time. . . . BAPCPA intended to
force these debtors into Chapter 13 filings if they wanted bankruptcy
relief. The impetus behind this law was to ‘combat perceived fraud
and abusive [Chapter 7] filings.’ Thus BAPCPA is remedial in
nature.39 This Court is well aware of the remedial concerns BAPCPA was intended to address, and Miller is precisely the type of debtor who the drafters sought to
Kucharz, 418 B.R.635, 642 (Bankr. C.D. Ill. 2009) and Tcherepnin v. Knight, 389
36 See, e.g., In re Burrell, 399 B.R. 620, at 627 (Bankr. C.D. Ill. 2008).
37 H.R. Rep. No. 109-31, at 122, reprinted in 2005 U.S.C.C.A.N. 88.
38 In re Burrell, 399 B.R. at 626.
39 In re Gentry, 463 B.R. 526, 530 (Bankr. D. Colo. 2011), citing In re
U.S. 332, 336 (1967).
screen from use of Chapter 7—higher income debtors who have the ability to repay a portion of their unsecured debt, yet seek to instead have that debt
Miller receives bi-weekly salary payments, a very common employer payment method. Employees who are paid bi-weekly receive 13 paychecks in any six-month period. However, Miller’s interpretation of CMI would reduce that number to 12, thereby reducing the look-back period income of all bi-weekly paid debtors by nearly 8%, since one of those payments will have been earned before the period and paid during it, while another will be earned during the period and paid after it. Reading the statute to only include 12 bi-weekly payments would be inconsistent with its purpose, as it would not fairly capture an entire six-month’s worth of income. It was not Congress’s intent in enacting the BAPCPA “means test” to allow debtors to distort their actual income to avoid paying a fair share of their future income to their creditors.
Thus, even if we were to hold this statute ambiguous, an analysis of the legislative history, coupled with an appreciation of the statute’s remedial purpose, would dictate the same conclusion.
Although both parties present persuasive arguments on this difficult issue of statutory interpretation, we conclude that the plain meaning of § 101(10A) is that the term “current monthly income” includes all income a debtor receives in the look-back period, regardless when it was earned. Even were we to conclude that the statute was ambiguous, imposition of an additional requirement—that the
Although the math suggests Miller might have been able to pay as much as 72% of his unsecured debt ($42,000/$58,062), the UST contends, using data fromMiller’s own schedules I and J, that Miller could have paid his unsecuredcreditors as much as 50% of their claims over a 60-month repayment plan. See
U.S. Trustee’s Analysis of the Debtor(s) Schedules I & J, in Appx at 73-75.Regardless whether it is 50% or 72%, it is a significant recovery for creditors.
income also be earned during the look-back period—is supported neither by the statute’s language nor by legislative history, and we would ultimately define the term in the same way. Therefore, we affirm the bankruptcy court’s dismissal of Miller’s Chapter 7 case, pursuant to § 707(b)(2).
IOWA KANSAS KENTUCKY LOUISIANA MAINE MARYLAND MASSACHUSETTS MICHIGAN MINNESOTA MISSISSIPPI MISSOURI MONTANA NEBRASKA NEVADA NEW HAMPSHIRE NEW JERSEY NEW MEXICO NEW YORK NORTH CAROLINA NORTH DAKOTA OHIO OKLAHOMA OREGON PENNSYLVANIA RHODE ISLAND SOUTH CAROLINA $42,207 $42,577 $40,020 $37,967 $41,488 $58,269 $55,602 $45,029 $48,097 $36,240 $41,092 $42,301 $41,861 $44,924 $52,588 $61,146 $38,349 $47,790 $40,710 $41,557 $42,814 $40,665 $43,160 $47,439 $46,896 $39,238 $58,852 $56,851 $46,815 $47,731 $53,227 $73,685 $67,443 $52,621 $63,654 $43,095 $51,784 $54,362 $59,543 $55,674 $65,830 $69,697 $51,965 $59,308 $51,812 $61,492 $53,218 $51,575 $55,057 $55,210 $61,607 $50,548
$64,552 $78,366 $65,907 $76,402 $55,613 $67,783 $55,863 $70,347 $60,425 $79,931 $87,206 $108,915 $82,495 $103,624 $61,715 $73,864 $76,909 $89,126 $46,062 $59,248 $59,549 $72,150 $56,977 $67,055 $67,235 $77,057 $55,674 $66,562 $82,924 $99,457 $85,016 $103,786 $51,965 $61,617 $69,052 $83,209 $56,339 $64,983 $68,688 $86,653 $60,960 $74,270 $53,500 $64,374 $62,202 $67,315 $68,848 $82,078 $76,864 $83,785 $53,532 $61,388
SOUTH DAKOTA $38,071 $57,188 $65,829 $73,960
TENNESSEE $39,891 $48,617 $55,080 $65,038
TEXAS $41,225 $55,895 $60,503 $67,296
UTAH $50,976 $56,089 $63,430 $66,590
VERMONT $46,019 $61,702 $67,774 $85,750
VIRGINIA $53,328 $65,930 $77,585 $91,661
WASHINGTON $52,724 $65,123 $71,289 $83,270
WEST VIRGINIA $41,499 $44,536 $54,790 $66,756
WISCONSIN $43,661 $58,668 $65,775 $81,296
WYOMING $45,336 $63,193 $73,688 $78,733
* For cases filed on or before March 31, 2013, add $7,500 for each individual in excess of 4.
For cases filed on or after April 1, 2013, add $8,100 for each individual in excess of 4.
FAMILY SIZE COMMONWEALTH OR
U.S. TERRITORY 1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *
GUAM $38,410 $45,925 $52,334 $63,331 NORTHERN MARIANA ISLANDS $25,793 $25,793 $30,008 $44,137 PUERTO RICO $22,392 $22,392 $23,537 $28,180 VIRGIN ISLANDS $30,475 $36,627 $39,052 $42,785
* For cases filed on or before March 31, 2013, add $7,500 for each individual in excess of 4. For cases filed on or after April 1, 2013, add $8,100 for each individual in excess of 4.
FRIDAY, SEPTEMBER 27, 2013 10:49 AM
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In Re Officer, 11-41306 (Bankr. D. Kan. Oct. 1, 2014) Doc. # 161
SIGNED this 1st day of October, 2014.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
In re: Case No. 11-41306
Thomas Andrew Officer, III Chapter 7
Tiffani Danielle Officer,
Order Granting Debtors’ Motion to Convert Case to Chapter 13 and
Denying the United States Trustee’s Motion to Dismiss
Debtors filed a chapter 13 bankruptcy petition and two years later converted
their case to one under chapter 7 of the Bankruptcy Code. Having subsequently
realized they are not eligible for a chapter 7 discharge, Debtors now seek to convert
their case again, this time back to chapter 13. The bankruptcy courts that have
analyzed whether a debtor can, under 11 U.S.C. § 706, reconvert a chapter 7 case to
a reorganization chapter are split, and that is true even in this District. I conclude that
§ 706 gives me the discretion to reconvert this chapter 7 case to chapter 13, and
because Debtors have shown that such reconversion is appropriate here, Debtors’
Case 11-41306 Doc# 161 Filed 10/01/14 Page 1 of 10
motion to convert to chapter 131 is granted, and the United States Trustee’s motion to
dismiss2 is denied.
I. Procedural and Factual Background
The following facts have been stipulated by the parties or are part of the record
in this case. Debtors Thomas and Tiffani Officer have had two bankruptcy cases prior
to the filing of their current case. Debtors filed a chapter 13 case (Case No. 01-40913)
on April 10, 2001, and it was dismissed on January 14, 2002. Debtors then filed a
chapter 7 case (Case No. 05-40033) on January 8, 2005, from which they received a
discharge on May 2, 2005.
Debtors filed their current chapter 13 petition and plan on August 12, 2011.
After resolution of objections to confirmation by the Trustee and one creditor, Debtors’
plan was amended on September 25, 2011 and November 27, 2011, and ultimately
confirmed on January 25, 2012. Debtors’ monthly plan payment was $1575. Due to a
misunderstanding about when the plan payment was due, Debtors were late on their
initial payment, and filed a motion to abate that payment.
During the course of the bankruptcy, one of the Debtors became unemployed at
least twice. During the first period of unemployment, Debtors moved to amend their
plan to surrender their home, and on October 11, 2012, an order was entered
permitting surrender and lowering Debtors’ monthly payment to $430.
1 Doc. 153.
2 Doc. 148.
Case 11-41306 Doc# 161 Filed 10/01/14 Page 2 of 10
Almost two years later, during the second period of unemployment, Debtors
requested that their counsel convert their case to chapter 7. Debtors’ counsel reviewed
Debtors’ case for eligibility for discharge under chapter 7 and misread the filing date
of Debtors’ previous chapter 7 case. On August 11, 2014, Debtors filed a notice of
voluntary conversion of their case under chapter 13 to a case under chapter 7. Quickly
thereafter, the United States Trustee filed a motion to dismiss under 11 U.S.C. §
727(a)(8), arguing that Debtors were not eligible for another Chapter 7 discharge
because they received a discharge in a case commenced within eight years of the
Prior to the filing of the notice of conversion, the unemployed Debtor regained
employment, although Debtors did not immediately report the re-employment to their
attorney. Upon receipt of the United States Trustee’s motion to dismiss, Debtors’
counsel realized he had misread the filing date of the prior bankruptcy. Debtors’
counsel then also learned that the unemployed Debtor was re-employed, resulting in
Debtors’ household income being in excess of the median income for a family of their
size. Debtors ultimately responded to the motion to dismiss by stating they would
convert their case again, this time back to a case under chapter 13. They then filed the
motion to convert that is the subject of this order.
This matter constitutes a core proceeding over which the Court has the
jurisdiction and authority to enter a final order.3
3 See 28 U.S.C. § 157(b)(2)(A) (stating that “matters concerning theadministration of the estate” are core proceedings); § 157(b)(1) (granting authority
Case 11-41306 Doc# 161 Filed 10/01/14 Page 3 of 10
Debtors’ motion to convert is filed pursuant to 11 U.S.C. § 706, which governs
conversion of a chapter 7 case to a case under another chapter. Section 706 states in
(a) The debtor may convert a case under this chapter to a case underchapter 11, 12, or 13 of this title at any time, if the case has not beenconverted under section 1112, 1208, or 1307 of this title. Any waiver ofthe right to convert a case under this subsection is unenforceable.
(b) On request of a party in interest and after notice and a hearing, thecourt may convert a case under this chapter to a case under chapter 11of this title at any time.
(c) The court may not convert a case under this chapter to a case underchapter 12 or 13 of this title unless the debtor requests or consents tosuch conversion.
(d) Notwithstanding any other provision of this section, a case may not beconverted to a case under another chapter of this title unless the debtormay be a debtor under such chapter.
Generally stated, § 706(a) gives a debtor the right to convert a chapter 7 case to a case
under chapter 11, 12, or 13 at any time, as long as the case commenced as one under
chapter 7 and was not previously converted from another chapter. Section 706(b) then
governs all other conversions from chapter 7, and permits a court, upon request from
a party in interest, to convert a chapter 7 case to another chapter. Section 706(c)
requires either a debtor’s request, or the debtor’s consent, before the debtor’s chapter
7 case can be converted to either chapter 12 or 13. And finally, § 706(d) reiterates that
a case cannot be converted to another chapter unless the debtor can be a debtor under
to bankruptcy judges to hear core proceedings).
Case 11-41306 Doc# 161 Filed 10/01/14 Page 4 of 10
There have been two lines of cases interpreting § 706 and the ability of a debtor
to convert a previously converted case.4 Judge Nugent in In re Fry5 represents the first
line of cases in this District. The procedural set up in Fry is similar to that at hand: in
Fry, the debtor initially filed a chapter 13 petition but had difficulty making her
chapter 13 plan payments, and converted her case to one under chapter 7.6 After
converting, the United States Trustee filed a motion to dismiss because the debtor had
received a discharge in a prior chapter 7 case within the allowed time.7 The debtor then
moved to reconvert her case to chapter 13, which the chapter 13 trustee opposed,
arguing that § 706(a) barred the debtor from reconverting to chapter 13.8 Judge Nugent
noted the split in the bankruptcy court authority on this topic, stating:
Some courts hold that the debtor may only convert from chapter 7 tochapter 13 if the case has not been previously converted from chapter 13,
and bar the debtor from seeking any further reconversion. Others haveheld that while § 706(a) allows a debtor a one time ‘absolute’ right toconvert from chapter 7 to chapter 13, it does not bar a subsequent
4 A sample of cases outside this District permitting reconversion in theappropriate circumstances are: Povah v. Hansbury & Finn, Inc. (In re Povah), 455
B.R. 328 (Bankr. D. Mass. 2011); In re Johnson, 376 B.R. 763 (Bankr. D.N.M. 2007);
In re Anderson, 354 B.R. 766 (Bankr. D.S.C. 2006). Cases outside this Districtdenying reconversion are: In re Muth, 378 B.R. 302 (Bankr. D. Colo. 2007); In re
Hardin, 301 B.R. 298 (Bankr. C.D. Ill. 2003); In re Banks, 252 B.R. 399 (Bankr. E.D.
5 Case No. 04-16887, 2008 WL 4682266 (Bankr. D. Kan. Oct. 14, 2008).
6 Id. at *1.
8 Id. at *1–2.
Case 11-41306 Doc# 161 Filed 10/01/14 Page 5 of 10
discretionary conversion after notice and a hearing.”9
Judge Nugent sided with the line of cases holding that § 706(b) and (c) do not provide
the court a discretionary basis for the reconversion of a debtor’s chapter 7 case to
chapter 13, but only make clear that involuntary chapter 12 and 13 cases are
prohibited.10 Judge Nugent concluded that “[t]he language of § 706(a) clearly and
unambiguously states that a debtor may convert out of chapter 7 only if the case has
not been previously converted.”11
A more recent opinion, In re Bange,12 decided by Judge Somers, represents the
other line of thinking in this District. In Bange, the debtor originally filed a chapter 12
petition, and his case was converted to chapter 7.13 The court then assessed whether
it could convert the chapter 7 case back to a reorganization chapter case.14 Again, like
Judge Nugent had in Fry, Judge Somers recognized the two paths taken by bankruptcy
courts on this subsection under § 706. Judge Somers then reasoned:
[Section] 706(a) is phrased as a restriction on the debtor’s ability to
9 Id. at *2 (citing example cases).
11 Id. at *3. Although never discussed in the opinion, the facts of Frymaydemonstrate why Judge Nugent ruled the way he did. Judge Nugent referred to “aseries of motions to dismiss for delinquent plan payments” prior to the case’sconversion from chapter 13 to chapter 7, id.at *1, and there was no indication the
debtor in Frywould be successful if permitted to reconvert back to chapter 13.
12 Case No. 08-40156-7C, 2010 WL 3829632 (Bankr. D. Kan. Sept. 23, 2010).
13 Id. at *1.
14 Id. at *1–2.
Case 11-41306 Doc# 161 Filed 10/01/14 Page 6 of 10
convert a case; it says nothing explicit about the court’s authority to doso. . . . Unlike subsection (a), [subsection (c)] is phrased as a limitation onthe bankruptcy court’s authority to convert a case. A leading bankruptcytreatise relies on this distinction to support the conclusion a court mayreconvert a case to a reorganization chapter. The wording of anothersubsection of § 706 supports the conclusion the identification of therelevant actor in subsections (a) and (c) was no accident. Section 706(d)
provides: “Notwithstanding any other provision of this section, a case maynot be converted to a case under another chapter of this title unless thedebtor may be a debtor under such chapter.” Unlike subsections (a) and(c), this provision is phrased as a limitation on any conversion, no matterwho is doing it. The Court concludes subsections (c) and (d) imposelimitations on its authority to convert a case, but subsection (a) does not.
Therefore, the Court joins those courts that have held a case previouslyconverted to Chapter 7 may nevertheless be reconverted to areorganization chapter. This result helps further the general bankruptcypolicy of encouraging debtors to choose to pay their debts to the extentthey can.15
Judge Somers ultimately concluded that reconversion to chapter 12 was appropriate
in that case.
Unfortunately, there are no Tenth Circuit or Tenth Circuit BAP cases discussing
this issue. In fact, there do not appear to be any appellate court decisions on this
matter. The parties are split, each urging opposite positions. The United States
Trustee relies on Fry to argue this case cannot be reconverted to chapter 13.16 Debtors
rely on Bange to argue that I have the discretion to allow reconversion, and that when
the reconversion would further the bankruptcy policy of allowing Debtors to pay their
creditors, the reconversion is justified.
15 Id. at *1 (internal footnotes omitted).
16 In response to Debtors’ motion to convert to chapter 13, the United States
Trustee merely argues that Debtors’ motion is moot, given the United States
Trustee’s motion to dismiss relying on Fry. Doc. 159.
Case 11-41306 Doc# 161 Filed 10/01/14 Page 7 of 10
Because I find Judge Somers’ reasoning in Bange (and the line of cases in
agreement with Bange) more persuasive, I conclude that § 706 does not prohibit a
debtor from reconverting a chapter 7 case back to a reorganization chapter. Rather, I
find that the wording of § 706 gives me the discretion to determine whether
reconversion is appropriate upon a proper motion requesting same. I find persuasive
that § 706(a) refers to a debtor’s ability to convert his case, thereby placing limits on
a debtor’s ability to convert, while § 706(c)’s reference to the court’s conversion of a case
implies that judicial discretion and decision-making is allowed. Again, § 706(d)’s
restrictions on cases being converted reinforces my thinking that different types of
actors are at play in the different subsections of § 706. A leading bankruptcy treatise
underscores this conclusion. As stated in Collier on Bankruptcy:
A few courts have read [§ 706], and the absence of a specificauthorization for a motion to convert to . . . chapter 13 when there is noabsolute right to convert, to preclude reconversion to . . . chapter 13 aftera case has been converted from one of those chapters to chapter 7.
However, had Congress meant to bar such reconversions completely, itwould not have used the language it used. Unlike section 706(a), whichspeaks of the debtor converting a case when the debtor has a right toconvert, subsection 706(c), like subsection 706(b), speaks of the courtconverting the case. Both sections 706(b) and 706(c) refer to a decision ofthe court in its discretion, to permit conversion at the request of a party.
Section 706(c) serves simply to limit who may request conversion to . . .
chapter 13, permitting only the debtor to make such a request. If thecourt were not authorized to convert a case to chapter 13 in the firstplace, there would be no need for section 706(c). Therefore, the power ofthe court to convert a case to chapter 13 is implicit in section 706(c),
which limits that power.
Most courts have recognized that it would make little sense to denythe debtor any opportunity to convert back to . . . chapter 13 if the debtordecides an earlier conversion to chapter 7 was a mistake. While Congressdid not give debtors an absolute right to reconvert, so that debtors cannotfrustrate creditors by continually converting and reconverting, it did
Case 11-41306 Doc# 161 Filed 10/01/14 Page 8 of 10
generally want to give debtors every opportunity to repay if they chose.
Moreover, a debtor who is denied the right to convert may still file achapter 13 case after the chapter 7 case is concluded, a fact recognized byeven those courts denying reconversion. . . . The courts permittingreconversion have properly recognized that the decision whether topermit reconversion should rest in the sound discretion of the court basedon what most inures to the benefit of the parties in interest. When noparty objects to the reconversion it should normally be granted.17
I agree with this assessment; I do not read § 706 as prohibiting me from exercising my
discretion to allow reconversion of a previously converted case back to chapter 13.
Rather, in the appropriate circumstances, and upon motion with an opportunity for
objection and hearing, such reconversion could be appropriate.
For courts following the Bange line of cases, the courts reiterate, however, that
discretion to permit reconversion should only be exercised in appropriate cases—the
debtor’s circumstances “must be closely scrutinized, and the debtor must also establish
both good faith and the feasibility of any plan of reorganization.”18 Here, the parties
have stipulated that the factors causing the first conversion—from chapter 13 to
chapter 7—were based on one Debtor’s loss of employment. That Debtor is now reemployed,
and is earning more that he was in his prior employment. The only missed
payment in this case resulted from a misunderstanding about the due date, and was
resolved with an abatement. In addition, during a prior period of unemployment,
17 6 Collier on Bankruptcy ¶ 706.04, at 706-10 to 706-11 (Alan N. Resnick &
Harry J. Sommer eds., 16th ed.) (internal footnotes omitted).
18 Povah v. Hansbury & Finn, Inc. (In re Povah), 455 B.R. 328, 341 (Bankr.
D. Mass. 2011). In Povah, the court held that the debtor had not carried her burden
to show that reconversion was appropriate, because she did not show that herchapter 13 case would be feasible. Id. at 342.
Case 11-41306 Doc# 161 Filed 10/01/14 Page 9 of 10
Debtors surrendered their home and did what they needed to do in order to make their
chapter 13 plan work, showing their commitment to the chapter 13 repayment process.
Neither the United States Trustee, nor any other party, has argued that this
conversion would be in bad faith. I conclude, therefore, that Debtors have carried their
burden of proof to show that reconversion of their case to chapter 13 is appropriate.
Because I conclude that § 706 gives me the discretion to reconvert this chapter
7 case to chapter 13, and conclude that Debtors have met their burden to show that
such reconversion is appropriate under the facts of this case, Debtors’ motion to convert
to chapter 1319 is granted, and the United States Trustee’s motion to dismiss20 is
IT IS SO ORDERED.
# # #
19 Doc. 153.
20 Doc. 148.
Case 11-41306 Doc# 161 Filed 10/01/14 Page 10 of 10
- Category: Judge Karlin
- Published on 09 September 2014
- Written by Judge Karlin
- Hits: 155
In Re Butler,11-40483 (Bankr. D. Kan. Sep 5, 2014) Doc. # 63
SIGNED this 5th day of September, 2014.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
In re: Case No. 11-40483
Edward George Butler, Chapter 13
Order Denying Debtor’s Motion to Limit Notice of
Motion for Entry of Discharge
Debtor Edward George Butler (“Debtor”) filed a Motion to Limit Notice
of his Motion for Entry of Discharge,1 apparently to save mailing costs, and
accompanied it with a one sentence declaration stating he did not seek to
exempt any of the property listed in 11 U.S.C. § 522(p)(1). In following this
procedure, Debtor appears to be relying on dicta contained in footnote 17 of a
recent decision in In re Church, Case No. 12-40210,2 a case where the same
1 Doc. 54.
2 That decision is Doc. 114 of the Church docket sheet, dated June 11, 2014.
Case 11-40483 Doc# 63 Filed 09/05/14 Page 1 of 4
counsel represented debtor Church in a similar quest. That footnote
suggested there might exist some fact pattern under which notice to all
creditors would not be required.
In this case, after hearing argument of counsel on this motion on July
24, 2014, I denied the motion. First, I held that the notice procedure used by
this Debtor was deficient because the one sentence declaration too generically
stated that Debtor did not seek to exempt any of the property listed in §
522(p)(1). I have my doubts that many debtors would actually know what §
522(p)(1) provides, making the declaration superficial. At a minimum, a
debtor would need to indicate in the substance of the declaration that he/she
is not exempting the specific items in question: a homestead, a burial plot, a
co-op that owns property used as a residence, or any real or personal property
used as a residence. In addition, a debtor would need to attach his last filed
schedule of exemptions to his declaration or affidavit—confirming it is his/her
last one—to make the declaration more meaningful for the debtor to sign and
easier for interested parties to review.
I also agreed with the Trustee's argument that even if this Debtor had
filed a meaningful affidavit regarding § 522(p)(1), Debtor’s proposed
procedure would not satisfy me concerning the statutory requirements
contained in § 1328(a) that a debtor also confirm at least that 1) he is current
Case 11-40483 Doc# 63 Filed 09/05/14 Page 2 of 4
on domestic support obligations, 2) that he has paid any direct payment his
plan required, and 3) that there is no reasonable cause to believe that §
522(q)(1), dealing with certain felony convictions or securities or other listed
violations, may be applicable to the debtor, pursuant to § 1328(h). Without
such certifications, and perhaps others, a debtor may not be entitled to a
discharge. As a result, merely addressing § 522(p)(1) satisfies only part of the
obligations a debtor must complete— and certify he has completed— before
he can receive a discharge.3 In sum, I am now much less convinced than I was
when I wrote footnote 17 in In re Church that any circumstance might exist
where notice to all creditors should be limited. Creditors should be entitled to
challenge whether a debtor has or has not complied with the obligations
required to obtain a discharge, and without notice to all creditors, they would
be unable to evaluate the accuracy of a debtor’s claim to be entitled to a
Further, and as a practical matter, it seems unlikely it is less expensive
to simply mail a copy of the Motion for Entry of Discharge to the matrix than
it is to draft and have a debtor complete a properly detailed affidavit, draft
and file a proper motion to limit notice, and draft the appropriate order,
3 To see the various certifications a debtor is required to make, see Form 283that Debtor has now filed in this case at Doc. 58.
Case 11-40483 Doc# 63 Filed 09/05/14 Page 3 of 4
assuming facts existed to grant it.
The decision on the motion to limit notice was issued orally, and when
no order was received as a result of those findings, the Clerk published a
Notice of Order Due to both counsel. Instead of providing the required order,
Debtor’s Attorney attempted to simply withdraw the motion on which I had
already ruled.4 One cannot withdraw a motion after one has already lost on
the merits of that motion.
Accordingly, I strike the notice of withdrawal, and enter this order
denying Debtor’s Motion to Limit Notice of the Motion for Entry of Discharge,
for the reasons set forth in In re Church, Case 12-40210, and because the
obligations required of a debtor seeking entry of discharge go beyond merely
addressing § 522(p)(1). The procedure Debtor wishes to use also places undue
burden on the Clerk, the Judge, and the Trustee, and I decline to sanction
IT IS THEREFORE ORDERED THAT Debtor’s Motion to Limit
Notice of the Motion for Entry of Discharge is denied.
IT IS SO ORDERED.
# # #
4 Doc. 61.
Case 11-40483 Doc# 63 Filed 09/05/14 Page 4 of 4
- Category: Judge Karlin
- Published on 10 September 2014
- Written by Judge Karlin
- Hits: 276
The Barstow School, A Corporation v. Shojayi, 14-06014 (Bankr. D. Kan. Sep. 9, 2014) Doc. # 36
SIGNED this 9th day of September, 2014.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
Stephanie Marie Shojayi Case No. 13-23176
The Barstow School,
vs. Adversary No. 14-6014
Stephanie Marie Shojayi,
Memorandum Opinion and Order Denying
Plaintiff’s Motion for Summary Judgment and Granting Summary
Judgment for Defendant
The issue I must decide is whether Congress intended to except from
Case 14-06014 Doc# 36 Filed 09/09/14 Page 1 of 15
discharge a debt in excess of $30,000 arising from a parent’s promise to pay
private school tuition for her young children who never then attended the
school. Because the debt does not constitute a loan under 11 U.S.C. §
523(a)(8)(A), the Court denies the creditor’s motion for summary judgment
and instead grants summary judgment to the debtor.1
Neither party disputes this Court’s jurisdiction, and the Court has
jurisdiction over this core proceeding under 28 U.S.C. § 157(b)(2)(I).2
II. Legal Standard
A court should grant summary judgment if there is no genuine issue of
material fact and the uncontroverted facts entitle the moving party to
judgment as a matter of law.3 An issue of fact is “genuine” if “‘the evidence is
such that a reasonable jury could return a verdict for the non-moving party.’”4
When the nonmoving party has failed to present sufficient evidence to allow a
1 Docs. 24 and 31. Although Defendant’s summary judgment motion wasrecently filed, counsel for both parties have waived the requisite response and replydeadlines allowed by D. Kan. LBR 7056.1(f) related to Defendant’s motion sincethey have fully briefed the issues.
2 28 U.S.C. § 157(b)(1) and § 1334(b).
Doe v. City of Albuquerque, 667 F.3d 1111, 1122 (10th Cir. 2012).
Thomas v. Metro. Life Ins. Co., 631 F.3d 1153, 1160 (10th Cir. 2011)
(quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).
Case 14-06014 Doc# 36 Filed 09/09/14 Page 2 of 15
reasonable jury to return a verdict in their favor on an essential element of
his or her case with respect to which he or she has the burden of proof,
judgment as a matter of law is appropriate. On a motion for summaryjudgment, a court reviews the evidence and draws reasonable inferences
therefrom in the light most favorable to the nonmoving party. “Where, ashere, the parties file cross-motions for summary judgment, [the Court is]
entitled to assume that no evidence needs to be considered other than that
filed by the parties, but summary judgment is nevertheless inappropriate if
disputes remain as to material facts.”7
III. Uncontroverted Facts
Creditor, The Barstow School, operates a private school providing
primary education from preschool through grade twelve. The school is funded,
in large part, by the payment of tuition for attending students.
In January 2012, Defendant Stephanie Shojayi, the Debtor in the
underlying bankruptcy, signed enrollment contracts for the academic year
2012-2013 promising to pay Creditor the sum of $27,610 in tuition and fees
for her two children, who were going into kindergarten and second grade.
City of Albuquerque, 667 F.3d at 1122.
James Barlow Family Ltd. P'ship v. David M. Munson, Inc., 132 F.3d 1316,
1319 (10th Cir. 1997) (citation omitted).
Case 14-06014 Doc# 36 Filed 09/09/14 Page 3 of 15
Debtor acknowledges reading, understanding, and accepting the terms of the
contracts including her election of one of several payment plans available to
pay the tuition and fees. The contracts stated, “I agree to pay The Barstow
School the tuition amount for the entire school year and other charges when
due and payable for the named student.”
Debtor chose a monthly payment plan, which was to be “administered
by” Smart Tuition. The first clause of the contracts states, “[t]uition is due in
accordance with the payment plan as identified in the earlier section.” The
monthly payment plan—the one Debtor chose, requires the first payment be
made on June 1 of the upcoming academic year. As a result, if a parent
complies with the contract, she will have made the first payment well over
two months before her child begins school, and will theoretically thereafter
make each payment in advance of the month in which her child attends any
classes. The contracts do not describe this transaction as a loan or an
extension of credit, do not contain an acceleration clause, and Debtor did not
sign any promissory notes.8
On July 1, 2012, Creditor placed tuition and fees for the entire 2012-13
8 The enrollment contract states, “The Barstow Schoo1 reserves the right tocancel this Enrolment Contract if the student or family has any unpaid accountwith the Barstow School, including, but not limited to any loan/note under whichyou are bound as borrower/debtor.” This language is not describing the agreementcreated by the contract, which is addressed earlier in the same paragraph.
Case 14-06014 Doc# 36 Filed 09/09/14 Page 4 of 15
school year on bills for Debtor’s children. The same day, entries termed
“SMART Tuition Contract Credit” were credited to the same bills for the
entire amount of the year’s tuition, less any fees already paid. On August 23,
2012, entries termed “SMART Contract Change Terminate SMART Contract
due to not attending school; trf back to student account” were charged to the
same bills in the same amount as the credit from July 1, 2012. These
transactions appear to be part of the Creditor’s process for administering the
monthly payment plan.
The contracts also provided that failure to cancel enrollment, in
writing, by April 1, 2012, would subject the signer to liability for the full
amount of tuition owed. The parties disagree on which date anyone informed
the school that the children would not be attending. Debtor attached an
affidavit to her motion from the children’s father, and he swears to have
orally contacted Creditor in March 2012 to advise of his change in financial
condition necessitating him sending his children, instead, to public schools for
the upcoming 2012-2013 school year. Creditor claims that it received written
notice for the first time in July 2012. There is no dispute that neither of
Debtor’s children attended even a day at Barstow School for the 2012-2013
Both contracts provided, in the event of default, that Creditor was
Case 14-06014 Doc# 36 Filed 09/09/14 Page 5 of 15
entitled to a recover all interest, charges and fees, including attorneys’ fees,
incurred in the collection of past due amounts. When Debtor failed to make
the payments required, Creditor filed a state court action in January 2013
that it entitled a “breach of contract” action. It sought damages for
nonpayment of the tuition. Creditor did not assert it was a student loan. The
state court entered a default judgment against Debtor for $30,345, plus post-
judgment interest at 10% per annum.
In defense of this action, Debtor asserts several arguments thatCreditor insists are waived under the Rooker Feldman doctrine10 because
Debtor did not raise them in the state court proceeding. But the issue I must
decide is whether the arrangement was an education loan, as in §
523(a)(8)(A). The parties agree that question was not addressed in the state
court proceeding and is thus not barred by the doctrine.11 Because the Court
9 Those defenses include the contention that Debtor notified Barstow well in
advance that her children would not attend, that the children received no benefit
due to the fact they never attended class or used Barstow’s resources, and thatBarstow knew of Debtor’s financial condition.
Rooker v. Fidelity Trust Company, 263 U.S. 413 (1923); District of Columbia
Court of Appeals v. Feldman, 460 U.S. 462 (1983) (barring a party losing in statecourt from seeking what in substance would be appellate review of the statejudgment by a United States district court).
11 Doc. 33, at 2 (“Barstow concedes that the issues before the State Court didnot address whether such debts were nondischargeable student loans. Such issuewas raised for the first time after Debtor filed for bankruptcy relief.”).
Case 14-06014 Doc# 36 Filed 09/09/14 Page 6 of 15
resolves the case on the basis of this question, the Court need not address
whether the Rooker Feldman doctrine would bar Debtor’s other defenses.
IV. Analysis and Conclusions.
Creditor argues that Debtor’s debt is nondischargeable under 11 U.S.C.
§ 523(a)(8)(A);12 Creditor does not specify which portion of that section forms
the basis of its argument. With some limitations, § 523(a)(8)(A) bars
“(i) an educational benefit overpayment or loan made, insured, orguaranteed by a governmental unit, or made under any programfunded in whole or in part by a governmental unit or nonprofitinstitution; or
(ii) an obligation to repay funds received as an educationalbenefit, scholarship, or stipend.”13
Subsection 523(a)(8)(A)(ii) applies only to funds received by a debtor. As no
funds were received by Debtor in this case, that subsection does not apply,
and indeed Creditor does not appear to base its argument on that subsection.
Subsection 523(a)(8)(A)(i) applies to both educational benefit overpayments
and loans, but Creditor alleges no overpayments here. The Court concludes
that Creditor is thus arguing Debtor’s debt is nondischargeable as an
12 Doc. 1, at 3 (“All such charges and fees, plus interest thereon and attorney'sfees, as reflected by the Judgment, are nondischargeable pursuant to Section523(a)(8)(A) of the Bankruptcy Code.”).
11 U.S.C. § 523(a)(8)(A).
Case 14-06014 Doc# 36 Filed 09/09/14 Page 7 of 15
educational loan made under a program funded in whole or in part by a
nonprofit institution, pursuant to § 523(a)(8)(A)(i).
The parties agree that Creditor is a nonprofit institution and that the
purpose of the underlying contract was for Debtor to pay school tuition for her
childrens’ education. This leaves only the issue whether the arrangement
between Creditor and Debtor is an educational loan within the contemplation
of § 523(a)(8)(A)(i).
In furtherance of the fresh start purpose of bankruptcy, exceptions to
discharge are to be narrowly construed in favor of the debtor,14 and a creditor
seeking to except its claim from discharge must prove the claim is
nondischargeable by a preponderance of the evidence.15
The word “loan” is neither defined in § 523(a)(8)(A) nor anywhere else
in the Bankruptcy Code.16 Words in a statute should be construed in an
ordinary, everyday sense.17 The definition of “loan” is a question of first
impression in this Court, but a U.S. District Court for the District of Kansas
Bellco First Federal Credit Union v. Kaspar (In re Kaspar), 125 F.3d 1358,
1361 (10th Cir. 1997).
Grogan v. Garner, 498 U.S. 279, 287 (1991).
New Mexico Instit. of Mining and Tech. v. Coole (In re Coole), 202 B.R. 518,
519 (Bankr. D.N.M. 1996) (“The Bankruptcy Code contains no definition of the word‘loan.’”).
Chickasaw Nation v. United States, 208 F.3d 871, 876 (10th Cir. 2000).
Case 14-06014 Doc# 36 Filed 09/09/14 Page 8 of 15
has adopted a definition that appears to express the ordinary, everyday sense
of the term:
A loan of money is a contract by which one delivers asum of money to another and the latter agrees to returnat a future time a sum equivalent to that which heborrows. . . . In order to constitute a loan there must be
a contract whereby, in substance one party transfers tothe other a sum of money which that other agrees torepay absolutely, together with such additional sums asmay be agreed upon for its use. If such be the intent ofthe parties, the transaction will be considered a loanwithout regard to its form.18
This definition would permit a court to find the existence of a loan when the
party making the loan delivers a sum of money to the other party, which the
recipient of the funds would have to repay. Even if the money were to go
directly to pay the debts of the receiving party, without passing through the
receiving party’s hands, this definition would permit a court to find that the
transaction qualified as a loan if the agreement between the parties reflects
the existence of an extension of credit that the recipient was obligated to
repay. Absent some intent by both parties to create a loan, however, the
Sec. Nat. Bank of Kansas City, Kan. v. Continental Ins. Co., 586 F. Supp.
139, 151 (D. Kan. 1982) (citing In re Grand Union Co., 219 F. 353, 356 (2d Cir.
1915)). In re Coole would adopt an even more stringent reading, requiring thatmoney change hands between the a plaintiff and a defendant, 202 B.R. at 519. But
that definition appears to be too restrictive, because it would eliminate those loanswhere the loan maker pays a debt directly on the recipient’s behalf.
Case 14-06014 Doc# 36 Filed 09/09/14 Page 9 of 15
transaction cannot be considered a loan.19
The Court notes that this definition mirrors the definition used by the
Second, Third and Seventh Circuit Courts of Appeal. The Seventh Circuit
explains the concept most concisely: “nonpayment of tuition qualifies as a
loan in two classes of cases: where funds have changed hands, or where there
is an agreement whereby the college extends credit.”20 The Eighth Circuit
appears to endorse a similar definition, and these circuits appear to be the
only circuits to address this particular question in any detail.21
Under this definition, even viewing the evidence and all reasonable
inferences therefrom in the light most favorable to Creditor, the contracts in
this case did not create loans for two reasons. First, the transactions were not
structured as loans, because there is no suggestion that Creditor is advancing
Debtor money to make the tuition payments. Second, the contracts and
associated documents provide no evidence that the parties had the intent to
create a loan.
The agreement between Creditor and Debtor does not create a loan or a
In re Chambers, 348 F.3d 650, 657 (7th Cir. 2003) (citations, alterations,
and quotation marks omitted). See also Cazenovia College v. Renshaw (In re
Renshaw), 222 F.3d 82, 89–90 (2d Cir. 2000) and Boston Univ. v. Mehta (In re
Mehta), 310 F.3d 308 (3d Cir. 2002).
HHS v. Smith, 807 F.2d 122, 124 (8th Cir. 1986).
Case 14-06014 Doc# 36 Filed 09/09/14 Page 10 of 15
transaction that has the form of a loan. There is no reference to a deferral of
due payments or paying payments due at the time of the contract at a later
date. Instead, the contractual language allowed Debtor to select a payment
plan. The contract further states that tuition payments were due according to
the payment plan.
Debtor selected a monthly payment plan, and so according to the
contract’s internal logic, tuition payments became due only on a monthly
basis. Nothing in the contract indicates a deferral of payment or any kind of
credit arrangement between Debtor and Creditor. Further, monthly plan
payments were to begin June 1, while the school year was to begin August 15.
So, contrary to a deferral of payment, the contract contemplated that Debtor’s
payments would actually precede the receipt of educational services.
Under these undisputed facts, Creditor was not paying tuition for
Debtor and then allowing Debtor to repay Creditor over time; rather, Creditor
and Debtor agreed tuition payments would be paid in advance, on a monthly
schedule. There was no credit given by Creditor. The undisputed facts show
the agreement between the parties had neither the form nor the substance of
Further, there is no evidence that the parties sought to create a loan
with the contracts in question. The agreements do not describe the
Case 14-06014 Doc# 36 Filed 09/09/14 Page 11 of 15
arraignment as a “loan” or “extension of credit,” and there is no suggestion in
the agreements that Creditor was advancing Debtor any funds or other
benefits. And Debtor signed no promissory note. The only use of the terms
“loan” or “note” in the enrollment contract comes in a sentence immediately
after the contract describes what would happen if the Debtor failed to make
the payments described in the contract. Thus, the contract provides a remedy
for a breach of the contract due to Debtor’s failure to make payments which is
separate from the remedy “if the student or family has any unpaid account
with the Barstow School, including, but not limited to any loan/note under
which you are bound as borrower/debtor.”22 Juxtaposing these remedies
further demonstrates that the contract itself did not create a loan agreement.
Again, on their face, the agreements and the associated documents do not
suggest that the parties intended to create a loan agreement.23
The Court notes that Creditor’s internal accounting entries on the bills
for Debtor’s children appear to run contrary to the agreed contractual
22 Doc. 24, at 23.
Ray v. Univ. of Tulsa, Works & Lentz, Inc (In re Ray), 262 B.R. 544, 550
(Bankr. N.D. Okla. 2001) (refusing to find a loan absent a promissory note or otherevidence that the parties intended to create a loan agreement). This is not to saythat an arrangement like the one here could never constitute a loan. If the contractcalled for prepayment of the entire year’s tuition, for example, and then clearlystated that Creditor or a third party was making a loan to Debtor for the cost oftuition, and that the monthly payments were to repay that loan—not to pay tuitionwhen it came due, then such an arrangement might qualify as a loan.
Case 14-06014 Doc# 36 Filed 09/09/14 Page 12 of 15
language. There, Creditor charges the full year’s tuition on July 1, with the
label “Smart Tuition pay plan.” Smart Tuition then immediately credits a
year of tuition to the accounts. While this entry might suggest an extension of
credit, it is not an agreement between Debtor and Creditor, it is contrary to
the terms of the contract since it actually required Debtor to pay for the
educational benefit in advance, and there is no evidence in the record that
Debtor agreed to an extension of credit. In contrast, the contract between
Debtor and Creditor merely states that monthly payments are to be
administered by Smart Tuition, not that Debtor agrees to an extension of
credit from Smart Tuition. The Creditor’s conflicting internal accounting
practices cannot transform a contractual debt into a student loan.
Creditor argues for a more expansive definition of the term “loan,” but
Creditor fails to cite any case where a court has found the existence of a loan
absent a signed promissory note or other evidence of the parties’ mutual
intent to create a loan agreement. Creditor relies on Gakinya v. Columbia
College (In re Gakinya), Roosevelt University v. Oldham (In re Oldham),
and McKay v. Vanderbilt University (In re McKay),26 but the facts in those
24 364 B.R. 366, 373 (Bankr. W.D. Mo. 2007).
25 220 B.R. 607, 612 (Bankr. N.D. Ill. 1998).
26 66 B.R. 144, 148 (D. Or. 2007).
Case 14-06014 Doc# 36 Filed 09/09/14 Page 13 of 15
cases are all materially distinguishable from the facts here. For example, the
students in In re Gakinya and In re Oldham both signed promissory notes,
and the contract in In re McKay expressly discussed the school’s “extension of
credit.” Creditor provides no statutory or case law support for its argument
that a failure to pay tuition when due, absent any additional factors
suggesting the parties contemplated a loan agreement, creates a student loan
Debtor has requested an award of attorney’s fees in her summary
judgment motion, but she does not indicate the statutory or other basis for
that relief. When she filed her answer to Barstow’s complaint, she asked for
those fees pursuant to Federal Rule of Bankruptcy Procedure 90ll(b). But she
has not followed the prerequisites for obtaining a fee award required by Rule
9011(c) In addition, no binding precedent existed in this Circuit defining an
educational loan, and Creditor’s argument for a broad definition was not
entirely unfounded. As a result, the Court denies Debtor’s request for fees
both procedurally and because Creditor’s arguments were at least based on a
nonfrivolous extension of current law, which also precludes an award of
Case 14-06014 Doc# 36 Filed 09/09/14 Page 14 of 15
attorney’s fees under Rule 11.27
Because the debt in question is not a student loan within the meaning
of 11 U.S.C. § 523(a)(8), that statute does not prevent the discharge of this
debt, and it will be discharged. Debtor’s Motion for Summary Judgment is
thus granted but without an award of attorneys’ fees, and Creditor’s motion is
# # #
27 To the extent that Debtor seeks fees under 11 U.S.C. § 523(d), the Courtnotes that such an award is permitted only “[i]f a creditor requests a determinationof dischargeability of a consumer debt under subsection (a)(2) of this section, andsuch debt is discharged.” 11 U.S.C. § 523(d). Congress’s decision to explicitly allowfee awards when debtors prevail against a § 523(a)(2) action suggests that feeawards are not contemplated when a creditor loses dischargeability complaintsbased on other subsections of § 523.
Case 14-06014 Doc# 36 Filed 09/09/14 Page 15 of 15
- Category: Judge Karlin
- Published on 25 August 2014
- Written by Judge Karlin
- Hits: 214
In Re O'Dell, 14-20526 (Bankr. D. Kan. Aug. 22, 2014) Doc. # 23
SIGNED this 22nd day of August, 2014.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
In re: Case No. 14-20526
Teresa L. O’Dell, Chapter 7
Order Denying Motion to Reopen
Debtor filed a chapter 7 bankruptcy petition on March 14, 2014,1 and the
Chapter 7 Trustee assigned to her case entered a no-asset notice shortly thereafter, on
April 17, 2014.2 Debtor received a discharge on June 25, 2014,3 and her bankruptcy
case was closed. About a month after her discharge was entered, on July 31, 2014,
Debtor filed a motion to reopen her case, explaining that she had inadvertently omitted
certain medical and utility debts totaling $9400.79 from her original petition.4
1 Doc. 1.
2 Seedocket entry dated April 17, 2014 (Chapter 7 Trustee’s Report of No
3 Doc. 11.
4 Doc. 14.
Case 14-20526 Doc# 23 Filed 08/22/14 Page 1 of 3
Under 11 U.S.C. § 350(b), a court should only reopen a case “to administer
assets, to accord relief to the debtor, or for other cause.” In a no-asset chapter 7 case,
however, no relief can be given to a debtor by reopening case to add prepetition debt
“because reopening affords no more relief to the debtor than the debtor already has
obtained by virtue of the discharge under Section 727.”5 As described by the Tenth
Circuit Court of Appeals in Watson v. Parker (In re Parker):6
Pursuant to § 727(b), the Debtor receives a discharge from all debts thatarose before the date of the order for relief under Chapter 7, regardlessof whether a proof of claim based on any such debt or liability is filed,
unless an exception in 523(a) applies. Under § 523(a)(3)(A), a claim willnot be discharged if it was neither listed nor scheduled and the creditordid not have notice or actual knowledge of the case so that the creditorcould timely file a claim. Here the bankruptcy court correctly found that
§ 523(a)(3)(A) does not apply because the Debtor's Chapter 7 case was ano asset case with no claims bar date set; . . . Because § 523(a)(3)(A) does
not apply, unless [the creditor] can establish that the claim wasnondischargeable under one of the exceptions referenced in § 523(a)(3)(B)
[the creditor’s] Claim was discharged by operation of law under § 727(b).
5 In re Cerrudo, 214 B.R. 500, 502 (Bankr. N.D. Okla. 1997) (“[I]n a no-assetchapter 7 case, unscheduled debts are not excepted from discharge by virtue ofSection 523(a)(3) unless the debt would be non-dischargeable under one of theintentional tort exceptions contained in Section 523(a)(2), (4), or (6). Pursuant toSection 727(b), an unscheduled debt in a no-asset chapter 7 case is dischargedunless the debt could have been found to be non-dischargeable under theintentional tort exceptions if the creditor had been given an opportunity to timelyseek such relief. For these reasons, it is generally a useless exercise to reopen a caseto schedule an unscheduled debt, because reopening affords no more relief to thedebtor than the debtor already has obtained by virtue of the discharge underSection 727.”).
6 313 F.3d 1267, 1268–69 (10th Cir. 2003) (quoting Watson v. Parker (In re
Parker), 264 B.R. 685, 694 (10th Cir. BAP 2001)); see also Judd v. Wolfe, 78 F.3d
110 (3d Cir.1996) (and cases collected therein); Stone v. Caplan, 10 F.3d 285, 289
(5th Cir.1994); Beezley v. California Land Title Co., 994 F.2d 1433 (9th Cir.1993).
Case 14-20526 Doc# 23 Filed 08/22/14 Page 2 of 3
As such, there is no cause to reopen Debtor’s case. No relief can be given here because
this is a no-asset case and reopening would afford debtor no more relief than she has
Debtor’s motion to reopen is denied. The prepetition debts Debtor seeks to add
to her case, to the extent dischargeable if they had been listed on her chapter 7 petition
when filed, are discharged anyway.
IT IS SO ORDERED.
# # #
Case 14-20526 Doc# 23 Filed 08/22/14 Page 3 of 3