Monday, August 12, 2013

Bankruptcy Case Law Updates from the National Consumer Bankruptcy Rights Center

  • Eleventh Circuit Gearing Up to Revisit Chapter 7 Lien Strip

    Posted by NCBRC - August 5th, 2013
    Will the Eleventh Circuit continue to buck the trend by allowing lien strips in chapter 7? That is the question that will likely be answered in the case of In re Sinkfield, No. 13-12141. On July 30, the circuit court summarily affirmed the lower courts’ finding that, pursuant to In re McNeal, No. 11-11352 (11th Cir. May 11, 2013), chapter 7 debtors may strip wholly unsecured liens under section 506(d). You will recall that the Court in Dewsnup v. Timm, 502 U.S. 410 (1992), found that under the historical principle that a lien survives bankruptcy unaffected, and a reading of sections 506(a) and (d) under which “allowed secured claim” is given different meanings, debtors may not strip-down a partially secured lien in chapter 7. In addressing a case in which the debtor sought to strip a wholly unsecured lien, however, the court in McNeal found that Dewsnup was inapplicable and that its earlier precedent, Folendore v. United States Small Bus. Admin., 862 F.2d 1537 (11th Cir. 1989), permitting such strip-offs under section 506(d), was still good law. On August 2, the McNeal court agreed to publish its previously unpublished opinion to that effect. In granting summary affirmance of the lower court in Sinkfield, the circuit court specifically stated that its purpose was to allow the parties to seek en banc review.
    On the same topic, the Seventh Circuit recently found that, under Dewsnup, neither section 506(a) standing alone, nor in conjunction with section 506(d), permits lien stripping of a wholly unsecured lien in chapter 7. Palomar v. First American Bank (In re Palomar), No. 12-3492 (7th Cir. July 11, 2013). See also Ryan v. Homecomings Fin. Network , 253 F.3d 778 (4th Cir. 2001); Talbert v. City Mortg. Serv., 344 F.3d 555 (6th Cir. 2003); Wachovia Mortg. v. Smoot, 478 B.R. 555 (E.D.N.Y. 2012) (section 506 may not be used to strip off wholly unsecured lien in chapter 7).
  • Dismissal under Section 109(g)(2)

    Posted by NCBRC - July 31, 2013
    Rivera v. Matos (In re Rivera), No. 12-87 (B.A.P. 1st Cir. June 26, 2013), involved application of section 109(g)(2) which provides that no individual may be a debtor under this title “who has been a debtor in a case pending under this title at any time in the preceding 180 days if—(2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay provided by section 362 of this title.” The facts were not good for the debtor. He filed his first chapter 13 bankruptcy on the eve of foreclosure but when he failed to respond to the mortgagee’s motion for relief from stay, the court lifted the stay thereby permitting the creditor to pursue his state foreclosure rights. One week before the scheduled foreclosure, Debtor moved to dismiss his bankruptcy for the express purpose of re-filing in order to prevent the foreclosure. The day before the scheduled foreclosure, the court granted the motion to dismiss. The debtor filed a new chapter 13 bankruptcy petition hours later. The creditor moved to dismiss the petition on the basis of section 109(g)(2)’s proscription against serial filings and on the basis of alleged bad faith. The court granted the motion solely pursuant to section 109(g)(2).
    The BAP agreed that the case was properly dismissed under section 109(g)(2) and that it was unnecessary to make a determination as to bad faith. In so holding, the court discussed the subtleties of section 109(g)(2) noting that courts are divided on its application. In In re Durham, 461 B.R. 139, 142 (Bankr. D. Mass. 2011), the court delineated three approaches to section 109: the mandatory approach, under which the court must dismiss a case that meets the criteria set forth in section 109(g)(2),see, e.g., In re Andersson, 209 B.R. 76, 78 (6th Cir. BAP 1997); the discretionary approach, under which the court may take into consideration the debtor’s motives and whether the creditor has demonstrated bad behavior, see, e.g., Leafty v. Aussie Sonoran Capital, 479 B.R. 545 (B.A.P. 9th Cir. 2012) (section 109(g)(2) dismissal discretionary);
    In re Richter, 2010 WL 4272915, at *3 (Bankr. N.D. Iowa 2010); and the causal approach, under which the case will be dismissed only where there is a connection between the filing of the motion for relief from stay and the debtor’s voluntary dismissal. See In re Payton, 481 B.R. 460 (Bankr. N.D. Ill. 2012) (finding that the most reasonable interpretation of “following” in section 109(g)(2) is “as a result of”). InPayton, the court reasoned that the causal approach harmonizes with congressional intent to prevent debtors from filing serial bankruptcies and dismissing in order to avoid the consequences of court-ordered relief from stay. See In re Riekena, 456 B.R. 365, 368 (Bankr.C.D.Ill.2011) (“It is widely acknowledged that Congress enacted section 109(g)(2) for the purpose of curbing abusive repetitive filings by debtors attempting to nullify a stay relief order entered in a prior case by obtaining a new automatic stay upon refiling.”); In re Beal, 347 B.R. 87 (E.D. Wisc. 2006) (finding that dismissal pursuant to section 109(g)(2) is inappropriate where the motion for relief from stay was denied).
    While some courts in the First Circuit have adopted the causal approach, see, e.g. Durham, 461 B.R. 139; In re Lopez Ramos, 212 B.R. 29, 30 (Bankr. D.P.R. 1997), theRivera court found that it did not have to make a choice as the case would be subject to dismissal based on any of the three approaches. Because the debtor explicitly informed the court that he sought dismissal of the earlier case as a result of the court’s granting of the motion for relief from stay and the pending foreclosure he admitted the causal connection. Moreover, there was no suggestion of bad faith on the part of the creditor and further delay of the foreclosure resulting from the second bankruptcy petition would prejudice the creditor.
    The court was also not faced with the question of whether the automatic stay is in effect until such time as it is determined whether the debtor is ineligible, or whether section 362(b)(21)(A), which provides that the automatic stay does not come into play when the debtor is ineligible under section 109(g), is self-executing. See Anjos v. Bank of America, No. 12-11553 (Bankr. D. Mass. Nov. 5, 2012) (interpreting section 109(g)(1) and finding that the automatic stay is in effect until such time as debtor’s ineligibility is determined). See also Durham, 461 B.R. at 141 (“Thus until the court rules on eligibility, the filing of a petition by an individual possibly ineligible under § 109(g) effectively commences a bankruptcy case.”).
  • No Lien Strip Permitted in Chapter 7 under Section 506

    Posted by NCBRC - July 29, 2013
    In In re Palomar the chapter 7 debtors filed an adversary proceeding seeking to strip off a wholly unsecured junior lien on their residence. The bank had not filed a claim in the bankruptcy. The court found that the debtors could not strip the lien and the district court affirmed. The Seventh Circuit found that neither section 506(a) standing alone, nor in conjunction with section 506(d), permits such lien stripping. Palomar v. First American Bank (In re Palomar), No. 12-3492 (7th Cir. July 11, 2013).
    The Seventh Circuit began with the finding that, under the reasoning set forth inDewsnup v. Timm, 502 U.S. 410 (1992), 506(d) does not permit strip-off of a lien that is allowed even though that lien may be valueless under section 506(a). Because, inPalomar, the bank had not filed a claim, there was no issue as to whether the claim was “allowed” for purposes of application of section 506(d), therefore, the lien could not be stripped pursuant to that section. See also Ryan v. Homecomings Financial Network, 253 F.3d 778, 781-82 (4th Cir. 2001) (chapter 7 debtor may not strip-off wholly unsecured lien pursuant to section 506(d)); Talbert v. City Mortg. Serv., 344 F.3d 555 (6th Cir. 2003) (same); Laskin v. First Nat’l Bank of Keystone, 222 B.R. 872 (B.A.P. 9th Cir. 1998) (same). But see In re McNeal, 477 Fed. Appx. 562 (11th Cir. 2012) (under Eleventh Circuit precedent chapter 7 debtor may strip wholly unsecured lien pursuant to section 506(d)).
    The court turned to whether section 506(a) would serve the purpose sought by the debtors and  found that it would did not. “The point of section 506(a) is not to wipe out liens but to recognize that if a creditor is owed more than the current value of his lien, he can by filing a claim in bankruptcy (rather than bypassing bankruptcy and foreclosing his lien) obtain, if he’s lucky, some of the debt owed him that he could not obtain by foreclosure because his lien is worth less than the debt.” Citing In re Tarnow, 749 F.3d 464, 465-66 (7th Cir. 1984).
    Though, as was found by the Palomar court, the trend is toward interpreting Dewsnupas prohibiting strip-offs of wholly unsecured liens in chapter 7, the Eleventh Circuit rejected that finding in its unpublished opinion in In re McNeal, 477 Fed. Appx. 562 (11th Cir. 2012). There, the court found that Dewsnup should be confined to its factual borders which dealt only with a partially secured lien. When the issue involves a wholly unsecured lien, albeit one that is allowed under section 502, Dewsnup does not control. Rather, the court in McNeal relied on Folendore v. United States Small Bus. Admin., 862 F.2d 1537 (11th Cir. 1989), which held that the plain meaning of sections 506(a) and (d) rendered a wholly unsecured lien in chapter 7 void.

  • Trustee Steps into Shoes of Lienholder upon Avoidance of Lien

    Posted by NCBRC - July 26th, 2013
    NCBRC filed an amicus brief on behalf of the NACBA membership in the case of In re Traverse, 13-9002 (1st Cir. July 10, 2013). In that case, when the chapter 7 debtor entered into bankruptcy, she sought to exempt her home from the estate and continue making her mortgage payments. It was undisputed that the debtor was not in default on her mortgages. The trustee, however, successfully avoided one of the liens as unperfected and sought to sell the debtor’s residence for the benefit of creditors. The lower courts found that, having avoided the lien, the trustee stood in the shoes of the debtor and had the power to sell the property.
    In its amicus brief before the First Circuit, NACBA argues that application of Bankruptcy Code sections 704, 541(a), 551, and 544, demonstrates that upon avoidance and preservation of a lien the trustee stands in the shoes of the former lienholder, not the debtor. Therefore, the trustee did not gain the power to sell the property except to the extent that the lienholder would have had that power. See In re Trout, 609 F.3d 1106, 1110 (10th Cir. 2010) (“under § 551 the trustee steps into the shoes of the former lienholder, with the same rights in the collateralized property that the original lienholder enjoyed.”).  Because the debtor was current on her payments, under state law, there was no default to trigger the right to foreclose.
    Thanks to Ray DiGuiseppe for authoring NACBA’s brief.

    NACBA Files Amicus on Applicable Commitment Period

    Posted by NCBRC - July 24, 2013
    NCBRC filed an amicus brief on behalf of the NACBA membership in the case of In re Pliler, No. 13-1445 (4th Cir. June 20, 2013). NACBA’s brief argues that the Bankruptcy Court erred when it held that section 1325(b)(4)(B) created a minimum plan length of sixty months for above-median debtors, and that the disposable income formula set forth by Congress and reflected on Form 22C could be abandoned if it was inconsistent with income and expenses as reflected on Schedules I and J.
    With respect to the applicable commitment period, the lower court in Pliler erroneously adopted the “temporal approach” which treats that period as a mandatory temporal obligation that the debtor must serve in the plan. In its brief NACBA argues that the correct interpretation of the applicable commitment period supports a “monetary approach,” under which “projected disposable income” is calculated by multiplying the number of months in the debtor’s “applicable commitment period” by the debtor’s “disposable income” to produce the minimum dollar amount that must be paid to unsecured creditors. Once that amount is paid, the debtor has fulfilled his or her obligations and may be discharged without regard to whether the debtor completed the plan prior to the 5 year period. This approach has advantages for all concerned. Creditors get their money sooner, thereby lessening the risk of the debtor’s failure to complete the plan, the bankruptcy moves more quickly through the system thereby relieving judicial costs, and the debtor can benefit sooner from the fresh start he or she has earned.
    Furthermore, from a statutory construction standpoint, if section 1325(b)(4) establishes a freestanding plan length even in the absence of objection from the trustee or unsecured creditor, section 1325(b)(1) would be rendered superfluous, as that section only refers to the applicable commitment period upon such objection. This is an untenable result of the “temporal approach” applied by the lower court.
    NACBA’s position is supported by Hamilton v. Lanning,506 U.S. __, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010), in which the Court found that once income and expenses are adjusted by “known or virtually certain changes,” the resulting amount should be multiplied by 36 or 60 months to arrive at the “projected disposable income.” This is in harmony with pre-BAPCPA treatment of the issue which Lanning endorsed.
    The brief argues that the contrary decisions out of the Sixth and Eleventh Circuits, Baud v. Carroll, 634 F.3d 327 (6th Cir. 2011); Whaley v. Tennyson, 611 F.3d 873 (11th Cir. 2010), were wrongly decided.
    Finally, the brief argues that the bankruptcy court erred in finding that it could jettison the results of the means test in favor of calculating an amount the debtor is able to pay based on schedules I and J, thereby rendering the means test—one of the most significant BAPCPA amendments—superfluous.
    Thanks to Norma Hammes for authoring NACBA’s brief.
  • Two New Cases Support Majority in Ch.20 Lien Stripping

    Posted by NCBRC - July 17th, 2013
    While the issue of lien stripping in no discharge chapter 13′s continues to work its way through the appellate courts, two bankruptcy courts have recently weighed in and sided with the majority, which permits lien stripping even when a discharge is unavailable.  The courts in In re Wapshare, 492 B.R. 211 (S.D. N.Y. 2013) and In re Dolinak, 2013 WL 3294277 (Bankr. D.N.H. June 28, 2013), both concluded that the lack of a discharge did no preclude lien avoidance of undersecured junior mortgages, but rather that permanent lien avoidance is conditioned upon completion of payments under the debtor’s confirmed plan.  Finding that the junior mortgagees did not have “allowed secured claims” both courts also rejected the argument that 1325(a)(5)(B) required debtors to pay in full the debt on the junior mortgage or obtain a discharge.
  • Court Finds Ride-Through Not Available with respect to Real Property

    Posted by NCBRC - July 12, 2013
    In In re Jeanfreau, No. 13-50015 (Bankr. S.D. Miss. June 12, 2013), the mortgagee moved to compel compliance with section 521(a)(2), and to delay discharge of the debtor’s chapter 7 bankruptcy due to the debtor’s failure to reaffirm the mortgage on her home. Ms. Jeanfreau was current on her payments under the mortgage and had equity in the home. On her section 521(a)(2) “statement of intention,” she indicated that she intended to retain the property but did not elect to either “redeem” or “reaffirm” the debt. Instead she checked “other” and noted that she intended to maintain regular payments on the mortgage outside of bankruptcy without reaffirming.
    In finding that ride-through was not available to the debtor, the court relied on precedent set by the 1996 decision in Johnson v. Sun Finance Co. (In re Johnson),89 F.3d 249 (5th Cir.), which, in turn, agreed with Taylor v. AGE Federal Credit Union (In re Taylor), 3 F.3d 1512 (11th Cir. 1993). Both Johnson and Taylor involved debts secured by personal property. The Johnson court recognized that circuits were split on the issue of the availability of ride-through as a fourth option outside of those provided by section 521 (surrender, redeem or reaffirm). Accord In re Covel, 474 B.R. 702 (Bankr. W.D. Ark. 2012) (listing pre-BAPCPA circuit cases representing both sides of the issue). Many of those pre-BAPCPA decisions rested on interpretation of the phrase “if applicable” in section 521. See, e.g., McClellan Fed. Credit Union v. Parker (In re Parker), 139 F.3d 668 (9th Cir. 1998); Home Owners Funding Corp. of Am. v. Belanger (In Re Belanger), 962 F.2d 345, 347-49 (4th Cir.1992).  TheJohnson court, however, concluded that the mandatory language, “the debtor shall file with the clerk a statement of his intention,” in the pre-BAPCPA section 521 precluded the fourth, unwritten, option.
    The Jeanfreau court then turned to the impact of the BAPCPA amendments on theJohnson decision. Walking through some of the relevant new provisions, the court noted that section 521(a)(6) specifically provides that a debtor may not retain possession of personal property unless the debtor has selected one of the three options in section 521(a)(2)(A), and the hanging paragraph to section 521(a)(2)(B) provides that nothing in (A) or (B) alters the debtor’s rights except as provided for in section 362(h) which, in turn, provides that the automatic stay is terminated with respect to personal property in the event that the debtor fails to file a timely statement of intention as required by section 521. Based on these changes to the Code, courts have generally found that ride through is no longer available where a debt is secured by personal property. See, e.g., DaimlerChrysler Fin. Serv. Amer. v. Jones (In re Jones), 591 F.3d 308 (4th Cir. 2010); Dumont v. Ford Motor Credit Co. (In re Dumont), 581 F.3d 1107 (9th Cir. 2009); In re Harris, 421 B.R. 597 (Bankr. S.D. Ga. 2010) (BAPCPA clearly eliminated ride through for personal property); In re Linderman, 435 B.R. 715, 716-17 (Bankr. M.D. Fla. 2009).
    Despite the fact that the property at issue in Jeanfreau was real property rather than personal property, the court found that because the BAPCPA amendments did not change the mandatory language relied on in Johnson, they did not abrogate that court’s holding and did not eliminate the precedential mandate established by that case. See also In re Harris, 421 B.R. 597 (Bankr. S.D. Ga. 2010) (finding that BAPCPA clearly eliminated ride through for personal property and did not change the reasoning in Taylor which demands that ride through is also unavailable where real property is involved).
    Though, as found by the Jeanfreau court, the language of Johnson and Taylor may be broad enough to encompass real property, the fact that Congress specifically circumscribed only personal property, arguably supports a finding that ride-through is available where real property is concerned. In re Covel, 474 B.R. 702, 708 (Bankr. W.D. Ark. 2012) (“By not making corresponding changes concerning real property, Congress appears to tacitly recognize a ride through option for real property.”). See also In re Lopez, 440 B.R. 447, 448 (Bankr. E.D. Va. 2010) (denying debtor’s motion to approve reaffirmation agreement because it was not in debtor’s best interest and “Congress changed, but did not entirely eliminate, the ride-through provisions that existed before the 2005 amendments in the Bankruptcy Abuse Prevention and Consumer Protection Act. In re Donald, 343 B.R. 524 (Bankr.E.D.N.C.2006). It did not eliminate the ride-through for debts secured by real property. In re Waller, 394 B.R. 111 (Bankr.D.S.C.2008); In re Wilson, 372 B.R. 816 (Bankr.D.S.C.2007); In re Bennet, 2006 WL 1540842 (Bankr.M.D.N.C.2006).”); In re Caraballo, 386 B.R. 398, 402 (Bankr. D. Conn.2008).
    Ms. Jeanfreau filed a notice of appeal in this case on June 20. Where the bankruptcy court felt bound by precedent, it will be interesting to follow this case on appeal.
  • Dewsnup Rears its Ugly Head in Seventh Circuit Chapter 13 Case

    Posted by NCBRC - July 9, 2013
    In Ryan v. U.S.A., No. 12-3398 (7th Cir. July 8, 2013), the IRS had a tax lien on debtor’s property as security for delinquent taxes of more than $136,000.00. At the time debtor filed his chapter 13 petition the value of his estate property totaled approximately $1,600.00. He moved the court to value the IRS’s lien under section 506(a), to treat the secured portion of the lien in the bankruptcy, and to strip the unsecured portion under section 506(d). The bankruptcy court agreed with the IRS that section 506(d) does not authorize a court to strip a wholly unsecured lien.
    The Seventh Circuit granted the debtor’s petition for direct appeal and affirmed.
    Section 506(a) provides that “’[a]n allowed claim . . is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property.” Section 506(d) provides that “[t]o the extent that lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.” Like many debtors, Ryan interpreted these provisions as creating a two-step process under which a lien is valued under section 506(a) and the unsecured portion stripped under section 506(d). Also, like many debtors, Ryan found himself pressed up against the brick wall put up by the Supreme Court in the case of Dewsnup v. Timms, 502 U.S. 410 (1992), where, in a cringe-worthy opinion, the Court found “that §§ 506(a) and 506(d) did not have to be read together, and that the term ‘allowed secured claim’ in § 506(d) was not defined by reference to § 506(a).” Ryan, at * 3.
    In Dewsnup the Court interpreted section 506(d)’s “allowed secured claim” as a claim which is first allowed, and second, secured within the meaning of state law rather than by the valuation performed under section 506(a). Dewsnup went on to find that section 506(d) does not permit a lien to be stripped down to its secured value in chapter 7. Courts have extended this finding to preclude strip-offs of wholly unsecured liens in chapter 7.  See Wachovia Mortgage v. Smoot, 478 B.R. 555 (E.D. N.Y. 2012) (joining majority of courts in finding that Dewsnup precludes strip off of wholly unsecured lien).
    Ryan attempted to distinguish Dewsnup as involving a chapter 7 bankruptcy while his case is in chapter 13. The court found, however, that section 103(a), which provides that chapter 5 applies equally to chapters 7 and 13 precluded that distinction and that section 506(d) cannot be interpreted differently in chapter 13 than it is in chapter 7 merely in an effort to maximize the underlying benefits of chapter 13 bankruptcy where there is no statutory language to support such an interpretation.
    This decision mirrors the recent conclusion by the Tenth Circuit in In re Woolsey, 696 F.3d 1266, 1273 (2012), in which that court rejected the debtor’s attempt to strip a lien under the authority of section 506(d) finding that the mechanism for stripping must be found elsewhere in the Code, such as in section 1322(b). See also Brinson v. U.S.A., 485 B.R. 890 (Bankr. N.D. Ill. 2013) (chapter 13 debtor cannot strip unsecured lien based solely upon section 506(d)); Cusato v. Springleaf Financial, 485 B.R. 824 (Bankr. E.D. Pa. 2013) (506(d) does not provide necessary mechanism for strip-off of wholly unsecured lien in chapter 13). But see National Capital Management v. Gammage-Lewis, No. 12-2286 (4th Cir. June 6, 2013) (finding that Rule 7001(2) provides the mechanism for stripping off a disallowed claim under section 506(d)).
    The Ryan court concluded that “We agree with Woolsey, and join it in holding that the Court’s interpretation of § 506(d) in Dewsnup applies in Chapter 13 cases as well.”

    Court Erroneously Applies Lanning to Find Presumption of Abuse in Chapter 7

    Posted by NCBRC - July 4, 2013
    The district court for the Eastern District of North Carolina was asked to revisit its previous decision that a chapter 7 debtor may take secured payment deductions on property he intends to surrender. Krawczyk v. Lynch (In re Krawczyk), No. 12-643 (E.D. N.C. June 17, 2013). The bankruptcy court had concluded that intervening Supreme Court and Fourth Circuit decisions rendered that finding incorrect. In re Krawczyk, No. 11-0956-8-JRL, 2012 WL 3069437 * 5 (Bankr. E.D. N.C. July 27, 2012) (relying on Hamilton v. Lanning, 130 S. Ct. 2464 (2010); Ransom v. FIA Card Services, 131 S.Ct. 716, 178 L.Ed.2d 603 (2011); In re Quigley, 673 F.3d 269 (4th Cir. 2012)). The district court agreed that the debtor could not take the deductions and that, therefore, the petition was presumptively abusive under section 707(b)(2)(A).
    The court began with a look at section 707(b)(2)(A) which provides that a chapter 7 petition is presumptively abusive when calculation of the means test reveals current monthly income in excess of a statutory minimum. Under the means test, calculation of current monthly income permits a deduction for ‘[t]he debtor’s average monthly payments on account of secured debts,’ which ‘shall be calculated as . . . the total of all amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the filing of the petition. . . . divided by 60.’ 11 U.S.C. § 707(b)(2)(A)(iii).” In this case, when the debtor calculated his income with the deduction for his secured debts his petition did not trigger the presumptive abuse provision.
    Nonetheless, the court agreed with the trustee’s position, finding that under Lanning,Ransom and Quigley, the debtor’s intent to surrender collateral altered the means test calculation of current monthly income. It rejected the debtor’s argument distinguishing those cases on the basis that they concern chapter 13, finding that, because the means test is the basis for the calculation whether the bankruptcy is chapter 7 or chapter 13, the reasoning is identical in either situation.
    In so holding,the court performed various contortions beginning with a strained reading of the section quoted above that allows certain deductions in the monthly income calculation. The court first examined the word “scheduled” finding that it is amenable to two plausible interpretations: 1) specified to be paid under the terms of the security agreement, or 2) scheduled as expenses in the debtor’s bankruptcy schedules. If the proper meaning is the latter, the court reasoned, a debtor who has not made payments on the loan and does not intend to in the future, will not schedule the expense on the bankruptcy Schedule J and may not take the deduction. The court next found ambiguity in the phrase “on account of secured debts.” The court found this phrase susceptible to meaning: 1) on account of debts created with a security interest but subject to change – the “snapshot” view, or 2) on account of debts which will continue to be secured during the bankruptcy – the “forward-looking” view.
    Having found ambiguity, the court went on to resolve the issue by reference to In re Quigley, 673 F.3d 269 (4th Cir. 2012), where the circuit court applied a forward-looking approach to decide that a chapter 13 debtor could not calculate projected disposable income with a deduction for secured payments on property he intended to surrender. The Quigley opinion was supported by Hamilton v. Lanning, 130 S. Ct. 2464 (2010) (projected disposable income calculation may take into account changes that are virtually certain to occur), and Ransom v. FIA Card Services, N.A., 131 S.Ct. 716 (2011) (debtor may not take expense deduction for payments on surrendered vehicle).
    It was in the interpretation of the lessons of LanningRansom and Quigley, all three of which dealt with chapter 13 plans, that the district court went off course. The means test is an objective first step in the bankruptcy process based on the state of debtor’s financial affairs as of the petition date. See In re Rivers, 466 B.R. 558 (Bankr. M.D. Fla. 2012) (citing Ransom). “[A] plain, ordinary reading of the subsection supports the bankruptcy court’s finding that it applies to payments that the debtor is under contract to make.” Lynch v. Haenke (In re Lynch), 395 B.R. 346, 349 (E.D. N.C. 2008). A finding based on the means test that the petition is not presumptively abusive under section 707(b)(2) does not preclude a finding of bad faith, however. Section 707(b)(3) permits a court to inquire into the good faith of the petitioner based on the totality of the circumstances, “including debtor’s income and expenses after the filing of the petition.” Id. at 560. Therefore, it is neither necessary nor appropriate to manipulate the outcome of the means test to account for the intended surrender of collateral.
    This reasoning finds support in the very cases the court in Krawczyk relied on for the opposite proposition. Unlike the court here, the Lanning Court did not recalculate “current monthly income” as determined by the means test. Rather, the Lanning Court decided that “projected disposable income” would not be based on that calculation alone when changes to current monthly income were known or virtually certain to occur. The Lanning Court did not have to perform the same sleight of hand with respect to the language of section 707(b)(2)(A)(iii) because that Court did not require recalculation of current monthly income for its ultimate decision. Specifically, Lanninganswered the question of whether the “projected disposable income” calculation—a calculation that does not come into play in chapter 7—always had to be based on the current monthly income in the means test, or whether it could take into account changes to the means test calculation that were “virtually certain” to occur. Notably, the Lanning Court did not find that anticipated changes to income altered the means test calculation of current monthly income.
    The issue is also not answered by Ransom where the Court examined a different provision of the means test relating to deduction of vehicle ownership costs for a car that was fully paid off. Calculation of that deduction is explicitly dependent upon IRS Standards which define the deduction in such a way that it covers only expenses related to a car loan or lease. Since the debtor had neither, the ownership deduction was deemed inapplicable within the meaning of the means test. The Court noted that the means test provided for a separate deduction based on operating expenses which was not dependent on the existence of debt.
    The means test is a “snapshot” of the debtor’s financial situation at the time of filing. Therefore, a debtor’s intent to surrender does not come into play at that juncture. This finding is harmonious with the recent Supreme Court decisions in Lanning andRansom, and obviates the need for strained reading of section 707, without precluding a later finding of abuse if the totality of circumstances warrants such a finding.

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