IN RE HEFNER (Bankr.D.S.D. 2001)

Bankr. No. 00-40944, Chapter 7United States Bankruptcy Court, D. South Dakota
May 8, 2001

HOYT IRVIN, JUDGE

The matter before the Court is the United States Trustee’s Motion for Judgment on the Pleadings with respect to her Motion to Dismiss for Substantial Abuse. This is a core proceeding under 28 U.S.C. § 157(b)(2). This letter decision and subsequent 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 denied.

Summary.
On November 6, 2000, Pamyla Hefner (“Debtor”) filed for relief under chapter 7 of the bankruptcy code. Debtor’s schedules, which she filed with her petition, revealed that she had unsecured debt totaling $53,711.69, monthly income of $1,617.20, and monthly expenses totaling $1,613.00.

On January 22, 2001, the United States Trustee filed a Motion to Dismiss for Substantial Abuse. In her motion, the United States Trustee alleged that were the Court to disallow Debtor’s contribution to her 401K plan and her repayment of a loan against her 401K plan, Debtor would then have $604.20 available each month with which to repay her unsecured creditors. This would enable Debtor to repay $21,751.12 of her unsecured debt over a period of three years or $36,252.00 of her unsecured debt over a period of five years.

On February 14, 2001, Debtor filed a Resistance to Motion to Dismiss. In her resistance, Debtor alleged that she was required by the terms of her loan agreement to repay her 401K loan through payroll deduction. Debtor indicated that this indebtedness was secured by a security interest in her future wages and needed to be listed on her Schedule D. [1]
Debtor further alleged that she had incurred an additional debt post-petition in connection with her 30-day stay at Keystone Treatment Center in Canton, South Dakota. Finally, Debtor noted that the United States Trustee had not cited any authority in support of her claim that Debtor’s voluntary contribution to her 401K plan was inappropriate.

On March 19, 2001, the United States Trustee filed a Motion for Judgment on the Pleadings. In her motion, the United States Trustee pointed out that in her response, Debtor did not deny that Debtor’s Schedules I and J showed “disposable” income of $4.20 or that Debtor was making voluntary payments of $291.00 per month to her 401K retirement account and that Debtor must therefore be deemed to have admitted these allegations.[2] Thus, according to the United States Trustee, Debtor has at least $295.20 available each month with which to repay her unsecured creditors.

On April 20, 2001, Debtor filed a Response to the U.S. Trustee’s Motion for Judgment on the Pleadings. In her response, Debtor disclosed that on March 30, 2001 her employer eliminated her supervisor position. Debtor refused a lesser-paying position and is currently unemployed.[3]
However, she has apparently reconsidered the wisdom of refusing the lesser-paying position and has written her former employer to determine whether that position might still be available.

Discussion.
The controlling case law in this Circuit is clear. The Court should grant a motion to dismiss for substantial abuse if the debtor has the ability to repay a substantial portion of her unsecured debt. 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)).

On the face of the pleadings, the United States Trustee has demonstrated that Debtor has at least $295.20 available each month with which to repay her unsecured creditors.[4] This would enable Debtor to repay $10,627.20 over a three-year period or $17,712.00 over a five-year period. Either sum represents a substantial portion of Debtor’s unsecured debt. To allow Debtor to remain in a chapter 7 if these funds were available to pay claims through a chapter 13 plan would be a substantial abuse of the bankruptcy process. See In re Dezell, Bankr. No. 00-40227, slip op. at 3 (Bankr.D.S.D. July 6, 2000).

However, while Debtor did not plead, and indeed could not have pled, the loss of her job in her Resistance to Motion to Dismiss, had she done so, the facts of the case as set forth in the pleadings would be far different. Debtor is correct in stating that at this juncture an evidentiary hearing is required to establish a proper record in this matter. For that reason, the Court will deny the United States Trustee’s Motion for Judgment on the Pleadings.

Debtor shall file and serve an amended Schedule D, an amended Schedule I, and an Amended Resistance to Motion to Dismiss on or before May 18, 2001. Debtor’s Amended Schedules D and I shall comply fully with LBR 1009-3. Debtor’s amended resistance shall comply fully with LBR 9014-2(a) and F.Rs.Civ.P. 8 and 10. Upon the filing of Debtor’s amended schedules and amended resistance, the Court will schedule a status conference, if needed.

The Court will enter an appropriate order.