Peter Martin Castaneda and Susan Chavers Castaneda

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF WYOMING
In re
PETER MARTIN CASTANEDA and
SUSAN CHAVERS CASTANEDA,
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Case No. 05-20515
Chapter 7
Debtors.
ORDER ON UNITED STATES TRUSTEE'S MOTION TO DISMISS
On July 19,2005, the court held a hearing on the United States Trustee's Motion to
Dismiss Case Pursuant to 11 U.s.c. § 707 (b). The debtors opposed the motion.
The court has jurisdiction over this contested matter under 28 U.S.C. §§ 157 (a) &
1334 (a). This is a core proceeding. 28 U.S.C. § 157 (b)(2)(A).
Findings of Fact
Peter Castaneda and Susan Castaneda (Debtors) filed their voluntary chapter 7 petition
on March 25,2005. Their obligations are primarily consumer debts. The Debtors' scheduled
unsecured claims total $79,614.43, consisting of credit card debts and other loans. 	The
Debtors scheduled secured debt consisting of a mortgage on a residence with equity
sufficient to satisfy the homestead exemptions and consensual liens on several automobiles.
The unencumbered assets available for liquidation and distribution in this chapter 7
case include Mrs. Castaneda's half interest in unimproved real property and one or two
unencumbered, non-exempt vehicles with a scheduled value totaling $1,100.00. 	The real
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property has a scheduled total value of $35,000, but the trustee allegedly received an offer
of$50,000. The Debtors did not include the real property interest on their original schedules,
but disclosed the property to the chapter 7 trustee at the § 341 meeting and amended their
schedules.
The Debtors have a history of financial problems. Several years ago they consulted
a credit counselor who allegedly provided no assistance. 	In May 2004, the Debtors
refinanced the mortgage on their residence to pay bills.
In 2004, Mrs. Castaneda took a $10,000 per year pay cut that increased the Debtors'
inability to meet their obligations. 	Also in the spring of 2004, Mr. Castaneda suffered a
heart attack. He was released to work in September 2004, but did not return until October
2004. During most of his convalescent period, Mr. Castaneda received disability income of
$2,000, one third his usual income. 	Mr. Castaneda testified that most of the Debtors'
unsecured debt was incurred during the months after the heart attack.
The Debtors' income is stable. 	Mr. Castaneda will retire from the railroad in 3 Yz
years. Both debtors are enrolled in 401(k) plans, but make no current contributions. Mrs.
Castaneda has a loan to repay against her plan. The Debtors have little money saved for Mr.
Castaneda's retirement and his income will be reduced by half or more when he retires.
The United States Trustee applied several adjustments to the Debtors' reported income
and expenses by deducting vehicle payments included in two separate locations, increasing
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payroll tax deductions from Mr. Castaneda's income, and deducting a mechanic's lien of only
$400. The U.S. Trustee contends the Debtors have at least $631 per month, or as much as
$1,445, to contribute to a chapter 13 plan. Plan payments in those amounts could result in
a return to the unsecured creditors of28% or 59%, respectively.
The Debtors concede the adjustments, but introduced three months' checkbook
reconciliations to show they do not have sufficient money to pay their ongoing expenses.
Based on the checkbook reconciliations, the Debtors appear to be poor money managers.
However, there is no evidence of extravagant purchases.
The Debtors' food budget is quite large, $1,000 per month. This was explained by
Mrs. Castaneda as necessary because she works ten-hour days and therefore, the Debtors eat
out frequently.
The Debtors have two dependent sons, aged 11 and 17. Both needed orthodontics,
and the teenager will soon be a college student.
The Debtors' marriage is rocky. 	They both have considerable stress from their
employment, their marriage and their money problems.
Conclusions of Law
The U.S. Trustee contends this case should be dismissed for substantial abuse because
the debtors are able to repay a portion of their obligations under a chapter 13 plan. The U.S.
Trustee's motion is brought under 11 U.S.c. § 707(b) which states in part:
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[T]he court ... may dismiss a case filed by an individual debtor under
this chapter whose debts are primarily consumer debts if it finds that the
granting of relief would be a substantial abuse of the provisions of this chapter.
There shall be a presumption in favor of granting the relief requested by the
debtor.
In the case of In re Stewart, 175 F.3d 796,809 (lOth Cir. 1999), the Tenth Circuit
Court of Appeals adopted the totality of the circumstances test for application of § 707(b).
While the ability to pay in a chapter 13 case is the primary factor, the analysis must be made
on a case-by-case basis. 	Id. 	Other factors cited by the Tenth Circuit are relevant but not
necessarily decisive. 	Among the nonexclusive list of factors are: 	a debtor's good faith;
stability of income; extravagant spending habits; the existence of a unique hardship such as
illness; and excessive expenses.
There is no evidence of bad faith or extravagant spending in this case. 	Simply
because a Debtor can repay debts in chapter 13 is not bad faith. The failure to schedule one
item of property which is later disclosed is not unusual and is not necessarily bad faith.
The Debtors have stable income sufficient to fund a chapter 13 plan and repay at least
30% of their unsecured debts over a three-year period. On the other hand, the distribution
in this chapter 7 case could be significant as well, perhaps as much as 25% depending upon
the manner in which the property is liquidated and the amount of claims filed.
This case was precipitated by Mr. Castaneda's illness and Mrs. Castaneda's decrease
in salary, both of which resulted in a significant drop in income. 	Once the Debtors got
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behind on their credit card payments, a very high interest rate kicked in and they were over
their heads.
Mr. Castaneda's health and pending retirement are factors that create uncertainty
about the Debtors' financial future. The Debtors are legitimately concerned about saving for
retirement, providing for and educating their children, and the strain a chapter 13 case could
have on their precarious marital situation.
The court concludes that on balance, this case is not a substantial abuse of chapter 7.
THEREFORE, IT IS ORDERED that the United States Trustee's Motion to Dismiss is
denied.
DATED this -9- day of August, 2005.
By the Court
Service to:
All on matrix
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