Joseph Daniel Allen and Pantea Seyed Allen

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
JOSEPH D. ALLEN and
PANTEA S. ALLEN,
DEBTORS.
CASE NO. 09-08310-8-JRL
Chapter 7
ORDER
This case is before the court on the motion of the Bankruptcy Administrator under 11
U.S.C. § 707(b) to dismiss the debtors’ Chapter 7 case or convert to Chapter 13. A hearing was
held in Raleigh, North Carolina on April 6, 2010.
The debtors filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code
on September 25, 2009. Their debts are primarily consumer debts, which includes $182,095.38
of non-priority unsecured debt. They have two children, and they are both employed full-time.
On Schedule I, the male debtor indicates that he is employed by IBM, with gross monthly wages
of $4,761.00, and deductions of $1418.14. The female debtor states that she is an employee of
SAS, receives a gross monthly wage of $4,336.93, and takes deductions totaling $1190.19. On
form B22A, the debtors state that their combined monthly income for purposes of the means test
calculation is $9,238.40. Based on these calculations, the debtors assert that they cannot pay
25% or more of their unsecured debt in a Chapter 13 plan, and thus that they are eligible for
SO ORDERED.
SIGNED this 03 day of May, 2010.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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1 In the motion to dismiss, the BA argued that the deduction is only appropriate if the
amount reimbursed is included as a source of income. Neither party addressed the daycare
expense issue at hearing.
2
Chapter 7.
The Bankruptcy Administrator (“BA”) filed the motion to dismiss or convert based on
two improper deductions on the debtors’ means test calculation. First, the BA objects to the
debtors’ deduction of daycare expenses in the amount of $720.00 per month because the female
debtor’s employer reimburses the entire amount of the daycare expense.1 Second, the BA
objects to the inclusion of $390.17 in repayment of retirement loans as an “involuntary
deduction” citing In re Ethington, 2009 WL1751431 (Bankr. E.D.N.C. 2009), to support his
assertion that the repayment of a retirement loan is not an involuntary deduction for purposes of
the means test. Under the BA’s calculations, the debtors’ projected disposable income over a
sixty-month period is $75,234.00, which would provide unsecured creditors with a dividend of
41% in a Chapter 13 plan, and which renders the debtors ineligible for Chapter 7.
Repayment of a retirement loan is considered to be an involuntary deduction for purposes
of the means test calculation only if repayment of the loan is a requirement of the debtor’s
employment. See Ethington, 2009 WL1751431 at 2 (citing In re Turner, 376 B.R. 370 (Bankr.
D.N.H. 2007); In re Barraza, 346 B.R. 724 (Bankr. N.D. Tex. 2006). If the only consequence of
non-payment is that the debtor must recognize a taxable distribution, and there is no evidence
that default will result in termination of the debtor’s employment, then loan repayment is not an
involuntary deduction. Id. at 2-3. At hearing, the debtors were unable to establish any basis for
their contention that failure to adhere to the loan repayment terms would result in the loss of
employment. Although Fidelity, the administrator for both retirement accounts, states that it is
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3
not possible to discontinue the payroll deduction until the loans are paid in full or employment is
discontinued, the only enumerated consequence of default is the reporting of a taxable
distribution. Furthermore, each of the loan agreements provide that the loan is secured by up to
50% of the vested account balance, and that Fidelity may offset the unpaid loan balance against
any distributions from the account. The debtors testified that neither of their employers had
indicated that termination would result from default, nor were they aware of any person whose
nonpayment of a retirement loan resulted in the loss of employment.
Based on the foregoing, the court finds that the debtors’ monthly disposable income
exceeds the amount at which abuse is presumed under the means test, and thus that the debtors
are ineligible for Chapter 7. The Bankruptcy Administrator’s motion is GRANTED. The
debtors must file the appropriate motion to either dismiss or convert to Chapter 7 within 20 days
of the hearing on this matter.
“END OF DOCUMENT”
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