In the Chapter 7 bankruptcy case of Thomas Sonntag and Heather Sonntag the Debtors filed their bankruptcy Chapter 7 on August 13, 2010. At the time of the filing Debtors had moved out of their home and had entered into a lease arrangement for a different residence in a city nearby.
Upon the filing of their petition, Debtors took a mortgage deduction because it was contractually due at the time the time of filing. The United States Trustee, hereinafter “UST,” filed a motion to dismiss Debtors’ Chapter 7 as an abuse of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The UST filed a motion to dismiss based upon 11 U.S.C. 707(b)(2) and (b)(3).
More specifically, the UST maintained that Debtors could not properly claim the secured debt payment deduction for their residence because they no longer incurred those expenses. However, Debtors argued that 11 U.S.C. 707(b)(2) required them to claim the mortgage deduction because it was an obligation which was contractually due when they filed their case.
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The court pointed out that 11 U.S.C. (707)(b)(2)(A)(iii)(I) does not make a distinction between property which the debtor intends to surrender and debts secured by property which the debtor intends to keep. The UST relied on decisions by the United States Supreme Court in Hamilton v. Lanning, 130 S.Ct. 2464, 2475 (2010) which said that at least in determining how much income a debtor has to pay creditors in a Chapter 13 case a person making a projection uses past occurrences as a starting point.
The Supreme Court subsequently issued another decision in Ransom v. FIA Card Servs, 131 S.Ct. 716, 725 (2011) and stated that Congress intended to required “a debtor … qualify for a [means test] deduction by actually incurring an expense in the relevant category.” However, as the West Virginia Bankruptcy Court pointed out, the Ransom decision involved a Chapter 13 debtor who elected the IRS vehicle ownership deduction for a 2004 Toyota Camry that he owned but did not incur an ownership expense. In interpreting the word “applicable” as used in 11 U.S.C. 707(b)(2)(A)(ii)(I) the Supreme Court held that the statute required a debtor to actually incur that kind of expense during the life of the plan and because the debtor did not incur the expense he could not deduct ownership costs from his calculation of disposable income.
However, in this case the Court stated that this case dealt with 11 U.S.C. 707(b)(2)(A)(iii) which does not contain the word “applicable.” The Court also stated that unlike Ransom the Debtors’ secured payments on secured debt continued to accrue at the time they for Chapter 7 relief. Elaborating further the Court asserted, “[t]his court is not persuaded that the holding in Ransom has any effect on a debtor’s ability to claim a means test deduction for contractually due secured debt payments, regardless of whether they are paying those debts.”
The Court concluded by saying: [t]herefore, this court finds that the secured debt payment deductions taken by the Debtors for their Charles Town property are proper, if not required, under Section 707(b)(2)(A)(iii).”