2000 #19 Huskey 5-30-2000
IN RE DAVID K. AND COLLEEN L. HUSKEY, Bankr. No. 00-10009, Chapter 7
The matter before the Court is the United States Trustee's May 17, 2000 Motion for Judgment on the
Pleadings. No response was received from Debtors. This is a core proceeding under 28 U.S.C. § 157(b)(2).
This letter decision and order shall constitute the Court's findings and conclusions under F.R.Bankr.P. 7052.
As set forth below, the Court concludes that the United States Trustee's Motion must be granted.
Summary. David K. and Colleen L. Huskey ("Debtors") filed a Chapter 7 petition on January 24, 2000. On
April 20, 2000, the United States Trustee moved to dismiss the case under 11 U.S.C. § 707(b) for substantial
abuse. In her motion, the United States Trustee alleged that Debtor have disposable income of $981.70 per
month, which will allow them to repay 41% of their unsecured debt in three years or 69% of their unsecured
debt in five years. The United States Trustee's calculations included an increase in Debtors' monthly income
by disallowing retirement contributions. The calculations also included a deduction in a clothing expense
from $500 to $200 and another deduction of $290 per month for college expenses for an adult daughter.
Debtors filed an objection to the United States Trustee's Motion on May 15, 2000. They responded that: $61
of the monthly retirement contribution was mandatory; the $498 paid monthly to a credit union includes $332
in car payments and only $104 for retirement savings; 5% of their earnings may be devoted to retirement
savings under a previous ruling of this Court (no citation); they failed to include real estate taxes and home
owners insurance on their schedules of expenses; and their clothing expense is not unreasonable. After these
adjustments, Debtors stated they would have only $651 in disposable income per month and that a failure to
apply this amount to Chapter 13 plan payments was not evidence of bad faith because they would pay only
27% of unsecured debt over three years or 46% over five years.
The United States Trustee filed a Motion for Judgment on the Pleadings on May 17, 2000. Therein, the
United States Trustee argued that $651 per month in disposable income, the amount conceded by Debtors,
does permit them to make meaningful payments under a Chapter 13 plan and that the Chapter 7 case should
be dismissed.
Discussion. The governing case law in this Circuit is clear. A motion to dismiss under § 707(b) should be
granted if the debtor has a substantial ability to pay creditors. Stuart v. Koch (In re Koch), 109 F.3d,
1285,1288 (8th Cir. 1997)(citing In re Walton, 866 F.2d 981, 983 (8th Cir. 1989)). Based on the current
record, (1) Debtors have available income (after payment of necessary living expenses) of at least $651 per
month to pay unsecured claims holders. To allow Debtors to remain in a Chapter 7 when these significant
funds are available to pay claims through a Chapter 13 plan would be a substantial abuse of the bankruptcy process.
This Court has previously concluded in a substantial abuse analysis under § 707(b) that voluntary
contributions to an employer-sponsored savings plan cannot divert funds otherwise available to pay creditors.
In re Mendelsohn, Bankr. No. 98-40099, slip op. at 10 (Bankr. D.S.D. Nov. 10, 1998). Debtors have not cited
any controlling authority that would alter that conclusion in this case. Further, assisting adult children with
college expenses cannot take precedence over paying creditors. Id. at 8-10.
The United States Trustee's May 17, 2000 Motion for Judgment on the Pleadings will be granted. Debtors
will be given ten days from the entry of this letter decision to voluntarily convert their case to Chapter 13. If
they chose not to do so, this Chapter 7 case will be dismissed upon the United States Trustee's April 20, 2000
Motion to Dismiss for Substantial Abuse
1. Debtors have not amended their Schedule I to correct any alleged error.