In Bankruptcy Case No. 02-70904United States Bankruptcy Court, C.D. Illinois
May 28, 2002

LARRY LESSEN, United States Bankruptcy Judge

The issue before the Court is whether this case should be dismissed on the grounds of substantial abuse pursuant to 11 U.S.C. § 707(b).

The material facts are not in dispute, and the parties have agreed to submit this matter to the Court for a decision based upon the pleadings and documents in the Court file. The Debtors, Cedric and Lois Porter, filed a petition pursuant to Chapter 7 of the Bankruptcy Code on March 1, 2002. They have two boys, ages 6 and 9. Mrs. Porter is a pharmacist; Mr. Porter drives a truck for Access Springfield. In 2001, they had a combined total income of $92,329. They own a house which they value at $100,000. There are two mortgages on the house totaling $96,000. The Debtors own their cars — a 1987 Mercedes-Benz, a 1995 Ford Taurus, and a 2001 Chrysler PT Cruiser — which they value at $3,000, $2,000, and $17,000 respectively. There is a $9,500 lien on the Mercedes and a $17,000 lien on the PT Cruiser; the Taurus appears to be free and clear. The Debtors have unsecured debts of $100,000. This sum includes a $25,000 debt to Mrs. Porter’s 401(k) plan, a debt which they actually owe to themselves. They also have a $23,000 student loan. The balance of the debts are for credit cards and medical services. It is undisputed that the majority in number and amount of the scheduled debts are consumer debts.

The United States Trustee has filed a motion to dismiss pursuant to 11 U.S.C. § 707(b). The United States Trustee believes that the Debtors have the ability to significantly fund a Chapter 13 plan, and therefore granting a discharge would be a substantial abuse of the Bankruptcy Code. In support of this argument, the United States Trustee relies on the Debtors’ schedule of income and expenses. Schedule I shows a combined net monthly income of $4,623.36. The United States Trustee suggests that the sum should be increased to $5,861.79. The United States Trustee arrived at this sum by adding back to the Debtors’ monthly income deductions which the Debtors have taken from their gross income. These deductions include monthly contributions of $403 to Mrs. Porter’s pension fund, $108.33 to a savings account, and $727 each month to repay money borrowed from a pension fund. The Debtors’ Schedule J shows monthly expenses of $4,629.12. The United States Trustee believes that this figure should be reduced to $4,509.12 because the Debtors’ figure includes a $120 monthly payment to Citifinancial on an unsecured debt. The United States Trustee calculates that the Debtors can repay 100% of their undersecured and unsecured debt in 46 months.

The Debtors do not dispute the United States Trustee’s numbers. However, they point to the negative tax consequences which they would incur if they did not repay the amount borrowed from the 401(k) plan. They further argue that the current monthly contributions of $511.33 to the pension plan are reasonable and necessary monthly expenses and therefore should not be considered disposable income.

The repayment of the loan to Mrs. Porter’s retirement play is not appropriate; the Debtors are essentially repaying themselves.

This is not a reasonable or necessary expense for someone seeking Chapter 7 relief. In re Rubio, 249 B.R. 689, 697-98 (Bankr. N.D. Tex. 2000). (Depending on the facts and circumstances of the case, the Court in the past has permitted some repayment of 401(k) loans where the debtors agree to extend the plan from three years to five years and the unsecured creditors are not prejudiced by the repayment.) The Debtors current contributions to the pension plan are clearly unreasonable. In re Watkins, 216 B.R. 394, 396 (Bankr. W.D. Tex. 1997).

With gross income of over $90,000 a year, the Debtors have the ability to pay a substantial portion of their debts through a Chapter 13 plan. It is not necessary that the Debtors pay 100% of their debts in 46 months, or even the 78% in 36 months calculated by the United States Trustee. The important point is that the Debtors’ schedules indicate that they have the disposable income to pay a substantial part of their debts.

While the ability to fund a Chapter 13 plan is a primary factor in determining substantial abuse, In re Johnson, 115 B.R. 159, 163-64
(Bankr.S.D.Ill. 1990), it is not the only factor.

The Court must consider all relevant mitigating and aggravating factors in determining the totality of the circumstances. In re Pilgrim, 135 B.R. 314, 319 (C.D.Ill. 1992). The Debtors have not pointed to any sudden economic hardship, serious illness, unemployment, unforeseen calamity, or any other factor which would mitigate their ability to pay their debts through a Chapter 13 plan.

Based on the totality of the circumstances, the Court finds that this case should be dismissed for substantial abuse pursuant to 11 U.S.C. § 707(b). The Court will stay the entry of this Order for ten days to allow the Debtors the option to convert to Chapter 13.

This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.

See written Order.

For the reasons set forth in an Opinion entered this day,

IT IS HEREBY ORDERED that the above case be and is hereby dismissed pursuant to 11 U.S.C. § 707(b).

IT IS FURTHER ORDERED that the entry of this Order be and is hereby stayed for ten days to allow the Debtors the option to convert to Chapter 13.