Appeal from the United States Bankruptcy Court for the Central District of California Geraldine Mund, Bankruptcy Judge, Presiding BK No. SV 06-12592-GM
The opinion of the court was delivered by: Hawkins, Circuit Judge
Argued and Submitted March 12, 2009-Orange, California
Filed May 29, 2009; Amended August 3, 2009
Before: Michael Daly Hawkins, Marsha S. Berzon and Richard R. Clifton, Circuit Judges.
In this direct appeal from the bankruptcy court, Scott Lee Egebjerg ("Egebjerg") challenges the bankruptcy court's dismissal of his Chapter 7 petition for abuse under 11 U.S.C. § 707(b)(3). In an issue of first impression in this circuit under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), we consider whether a debtor's repayment of a 401(k) loan constitutes a "monthly payment on account of secured debts" or an "[o]ther [n]ecessary [e]xpense" that can be deducted from a debtor's monthly income for purposes of calculating the debtor's disposable monthly income under § 707(b)(2). Because we conclude it is not, the debtor's filing in this case was presumptively abusive under the "means test" of § 707(b)(2). We therefore affirm the bankruptcy court's dismissal of his Chapter 7 petition.
FACTS AND PROCEDURAL HISTORY
Egebjerg filed a voluntary Chapter 7 bankruptcy petition on December 31, 2006. At the time, he had been employed by Ralph's grocery store for twenty-seven years and earned a gross income of $6,115.56 per month. Egebjerg was single with no assets. His only secured property was an automobile he used for work and a timeshare. He had unsecured consumer debt of about $31,000.
Approximately two years before he filed for bankruptcy, Egebjerg had taken a loan from his 401(k) plan. The plan automatically deducted $733.90 from his paycheck each month to repay this loan, which was scheduled to be fully repaid by September 2008. According to Egebjerg's amended schedule of necessary expenses (in which he included the 401(k) repayment), he was left with a monthly disposable income of $15.31.*fn1
The U.S. Trustee moved to dismiss Egebjerg's Chapter 7 petition, arguing that Egebjerg had improperly included the 401(k) repayment in his necessary expenses. If, the Trustee urged, this amount were not subtracted from income as a necessary expense, Egebjerg's filing was presumptively abusive under the "means test" of § 707(b)(2). The Trustee further argued that even if the presumption of abuse did not arise under § 707(b)(2), the court should still dismiss the case because, under the totality of the circumstances, Egebjerg had sufficient means to repay a meaningful portion of his debts, especially once his 401(k) loan was repaid.
The bankruptcy court rejected the Trustee's first argument, concluding that the 401(k) loan was a "secured debt" and could be deducted from income for purposes of the means test. By including this figure, no presumption of abuse arose under § 707(b)(2).
Still, agreeing with the Trustee on the totality of the circumstances ground, the bankruptcy court dismissed the Chapter 7 petition under § 707(b)(3), noting that, at the time of the court's order in June 2007, the 401(k) loan would be repaid in just over a year, leaving $525 a month to repay unsecured creditors. The court concluded that the debtor could therefore pay a significant amount of his debts in a Chapter 13 proceeding and that, because of his ability to pay, it would be an abuse to permit the case to continue as a Chapter 7 proceeding. The court ordered the case to be dismissed unless the debtor converted to a Chapter 13 within ten days, which Egebjerg did not do.
Egebjerg filed a notice of appeal and requested that the bankruptcy court enter an order certifying the decision for direct appeal pursuant to 28 U.S.C. § 158(d)(2). The bankruptcy court entered the certification, and a motions panel of this court granted Egebjerg's petition for ...