Kirk Lee Jensen and Linda Jean Jensen

OCR transcription for search; preserved printed pages are authoritative

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AUTHENTIC
U.S. GOVERN
INFORMATI

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a.

eo ENTERED |

INOV'] 7 208

UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA

LOS ANGELES DIVISION

In re: Case No. 2:08-bk-15225 ER

Chapter 7
KIRK LEE JENSEN AND LINDA JEAN

MEMORANDUM OF DECISION

JENSEN,

Date: October 16, 2008

Time: 11:00 A.M.

Place: Ctrm. 1568, 15°" Fl.
255 E. Temple Street

Debtors. Los Angeles, CA 90012

Among the significant changes effected by the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005 (“BAPCPA”)+* was
the introduction of the § 707(b) (2) Means Test.”? Designed to
ferret out abusive bankruptcy petitions, the Means Test creates
a “presumption of abuse” if the debtor’s Current Monthly Income

(CMI)—as determined by a detailed statutory formula—is above a

+ Pub. L. No. 109-8, 119 Stat. 23 (2005).
? Unless otherwise indicated, all statutory citations refer to the Bankruptcy
Code, 11 U.S.C. §§ 101-1532.

ED
NT -l-
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certain amount. Debtors unable to rebut the presumption of abuse
may have their cases dismissed or be required to fund a Chapter
13 plan. However, even debtors who survive the Means Test may
see their cases dismissed pursuant to § 707(b} (3) (B), which
permits the Court to dismiss a case if “the totality of the
circumstances .. of the debtor's financial situation demonstrates
abuse.”

The present case requires the Court to determine the extent to
which the § 707(b) (3) (B) totality of the circumstances test is
constrained by the § 707(b) (2) Means Test. The United States
Trustee (“UST”) contends that in conducting the § 707(b) (3) (B)
totality of the circumstances analysis, one of the factors the
Court may consider is the amount of secured debt the debtors
have chosen to reaffirm. Debtors Kirk Lee Jensen and Linda Jean
Jensen (“Debtors”) disagree, pointing out that the Means Test
does not consider a debtor’s choice to reaffirm secured debt in
determining whether the presumption of abuse arises. If
reaffirmed secured debt does not affect the Means Test
determination, the Debtors argue, then neither can it affect the
8707 (b} (3) (B) totality of the circumstances analysis. The UST’s
rejoinder is that as a separate provision, 8§707(b) (3) is not in
any way constrained by § 707 (b) (2).

The Court declines to fully embrace the position of either the
debtors or the UST. Instead, the Court concludes that although
the § 707(b) (3) (B) totality of the circumstances analysis must
be undertaken independently of the provisions of § 707(b) (2),
the § 707(b) (3) (B) analysis cannot reach a result inconsistent

with the implicit policies of the § 707(b} (2) Means Test. Thus,

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absent additional indicia of abuse, a debtor’s choice to
reaffirm a high amount of secured debt is not a basis for

dismissing the debtor’s Chapter 7 petition under § 707(b) (3) (B).

I. Facts and Procedural Background

This matter is before the Court on the U.S. Trustee’s Motion
to Dismiss Chapter 7 Case Pursuant to 11 U.8.C. 88 707 (b) (1) and
(b) (3) (B) ("Motion to Dismiss”). See Dkt. 12. The Court has
jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157,
and General Order No. 266 of the U.S. District Court for the
Central District of California.

Kirk Lee Jensen and Linda Jean Jensen (“Debtors”) filed a
voluntary Chapter 7 petition in April 2008, seeking a discharge
of $87,234 in unsecured debt. Debtors’ Schedule J reports
average monthly income of $8,622.51 and average monthly expenses
of $8,893, leaving a monthly deficit of $270.49. In their
Chapter 7 Statement of Intention, Debtors stated that they would
reaffirm their secured-debt obligations on a motor home, boat,
and single family home. Debtors owe $63,256 on the motor home,
$30,423 on the boat, and $800,754 on the single family home.
Debtors make monthly payments of $396 on the motor home, $760 on
the boat, and $4,446 on the single-family home. All three assets
are now worth between 5% and 13% less than what the Debtors owe

on them,?

3 The motor home, on which Debtors owe $63,256, is now worth only §60,000
(5.15% less than what Debtors owe}. The boat, on which Debtors owe $30,423,
is worth $26,423 {13.17% less than what Debors owe). The single-family home,
on which Debtors owe $800,754, is worth $745,000 (6.96% less than what
Debtors owe) .

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Debtors purchased the motor home, boat, and single-family home
in April of 2006, approximately two years before filing for
bankruptcy. At that time, Debtors had sufficient income to
afford these items. Debtor Kirk Jensen’s income in 2006 was
$114,000; in 2007, his income increased to $152,000. However, in
2008, as the economy deteriorated, Jensen's overtime hours were
substantially reduced. The resulting loss of income precipitated
the present bankruptcy petition.

The UST concedes that Debtors’ petition does not trigger the
“presumption of abuse” under the § 707(b) (2) Means Test.
However, the UST argues that the Debtors’ petition should
nonetheless be dismissed pursuant to § 707(b) (3) (B) because the
“totality of the circumstances .. of the debtors’ financial
situation demonstrates abuse.” The UST notes that but for the
Debtors’ secured debt payments on the motor home and boat, the
Debtors would have $450.51 in monthly income available to repay
their unsecured creditors.’ Over a 60-month period, this would
enable the Debtors to repay $24,327 (or approximately 28%) of

> Motion to Dismiss 12. The motor home and

their unsecured debt.
boat, the UST argues, are luxury items which the Debtors should
not be permitted to retain to the detriment of their unsecured

creditors. Id. at 9.

4 To arrive at this figure, the UST subtracted payments for the boat and motor
home from Debtors’ Schedule J average monthly expense. The UST also increased
the Debtors’ average monthly expense by a net $200. To reach the net $200 per
month increase, the UST added in $325 per month to cover the Debtors’
anticipated additional daycare expenses, but subtracted the $125 per month
deduction the Debtors claimed for an “emergency expenses” account. The UST
maintains that the emergency expenses account is simply a savings account for
non-specific expenses.

5 The UST computed the $24,327 figure based on payments of $450.51 per month
over 60 months, less a 10% fee for a hypothetical Chapter 13 trustee.

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The Debtors argue that their decision to reaffirm their
obligations on the motor home and boat cannot form the basis for
the Court to dismiss their petition under the § 707(b) (3) (B)
totality of the circumstances test. Noting that the Means Test
expressly permits the deduction of monthly secured debt payments
from Current Monthly Income, § 707(b) (2) (A) (iii), the Debtors
argue that relying upon those same monthly secured debt payments
as a basis for dismissal under the totality of the circumstances
test would contravene Congressional policy. Debtor’s Opposition
to UST’s Motion to Dismiss (“Opposition”) (Dkt. 13) at 4.

The Debtors concede that in conducting the totality of the
circumstances test, the Court may assess aspects of their
financial situation that are not provided for by the Means Test.
But expenses which are already considered in the Means Test
calculation, the Debtors maintain, are off-limits: “While §
707(b) (3) allows the court to examine the ‘totality of the
circumstances,’ it does not allow the court to change

congressionally mandated calculations.” Opposition at 4.

II. Discussion
A. Interaction Between the § 707(b) (2) Means Test and the §
707 (b) (3) (B) Totality of the Circumstances Test
Resolving this dispute over the meaning of “totality of the

circumstances” requires an examination of the structure of §

707 (b), which was substantially revised by BAPCPA. Prior to
BAPCPA, § 707(b) stated simply that the Court “may dismiss a
case .. if it finds that the granting of relief would be a

substantial abuse of the provisions of this chapter.” The pre-

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BAPCPA code did not elaborate on what type of debtor conduct
would constitute “substantial abuse.”

BAPCPA retained the language permitting the Court to dismiss
cases for abuse, although it lowered the standard from
“substantial abuse” to “abuse.” The more significant change was
Congress's decision to further define the conduct constituting
Yabuse” in §§ 707(b) (2) and (b) (3}, a task that had previously
been left entirely to the courts. Section 707({(b) (2) sets forth
the Means Test, which creates a rebuttable presumption of abuse
if the debtor’s current monthly income (CMI), reduced by
statutorily permitted expenses, exceeds a certain threshold.
Section 707(b) (3) sets forth additional considerations for the
Court to evaluate in determining whether the case is abusive—
specifically, “whether the debtor filed the petition in bad
faith,” or whether “the totality of the circumstances of .. of
the debtor's financial situation demonstrates abuse.”

Courts and commentators have struggled to define the
interaction between 8§ 707(b} (2) and (b) (3}. At least one court
has held, in support of the Debtor’s position, that “while
ability to pay is a factor in the totality of circumstances
test, and may even be the primary factor to be considered, if it
is the only indicia of abuse, the case should not be dismissed
under that test.” In re Nockerts, 357 B.R. 497 (Bankr. E.D. Wis.
2006). This view is shared by commentators Culhane and White,
who contend “that Congress intended the means test to be the
only test of ability to pay under the revised Code”:

With the detailed statutory means test in place,

“filed in bad faith” and “totality of the

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circumstances” no longer authorize judges to define
ability to pay. Instead, these phrases must be read as
limited to serious debtor misconduct... The text and
structure of the amended Code strongly suggest that
the highly detailed means test is to replace, not just
precede, other measures of ability to repay. Standard
rules of interpretation direct courts to construe
statutes so that all parts have meaning, and when both
general and specific provisions cover the same subject
matter, to let the specific provisions control. Use of
judicial can-pay tests violates both of these rules,
making the means test superfluous, and allowing
general phrases to govern the specific. Section 707 (b)
as a whole makes sense when subsection two’s means
test governs ability to pay and subsection three
covers debtor misconduct. Marianne B. Culhane and
Michaela M. White, Catching Can-Pay Debtors: Is the
Means Test the Only Way?, 13 Am. Bankr. Inst. L. Rev.
665, 666-67 (2005).

But the majority of courts and commentators disagree with the
Nockerts court and with Culhane and White, holding instead that
the plain language of § 703(b) (3) permits consideration of the
debtor’s ability to pay: “By its terms, § 707(b) (3) ‘explicitly
mandates that the totality of the circumstances of the Debtor’s
financial situation be considered in determining whether there
is an abuse when the presumption of abuse under paragraph (b) (2}
does not arise or is rebutted.’ The broad language ‘totality of

the circumstances’ and ‘financial situation’ clearly encompasses

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a debtor’s ability to pay.” In re Lenton, 358 B.R. 651, 663
(Bankr. E.D. Pa. 2006) (citing In re Paret, 347 B.R. 12, 15
(Bankr. D. Del. 2006)). See also In re Zaporski, 366 B.R. 758,
771 {Bankr. E.D. Mich. 2007) (*[The] plain language [of §
707(b) (3) (B)] is broad enough to encompass, indeed require,
consideration of those facts that are probative of a debtor's
ability to repay his or her creditors.”); In re O’Brien, 373
B.R. 503, 506 (*This Court has observed, as have others, that §
707(b) (3) is best understocd as a codification of pre-BAPCPA
case law. Under pre-BAPCPA law, a debtor’s ability to pay was a
primary consideration in any § 707{b) analysis.”); In re McUne,
358 B.R. 397, 398 (Bankr. D. Or. 2006) (“A debtor's actual
ability to pay a portion of his unsecured debts may be
considered as part of the totality of the circumstances of the
debtor's financial situation under § 707(b})(3)."); In re
Henebury, 361 B.R. 595, 611 (Bankr. $.D. Fla. 2007) (“In
determining [under § 707(b) (3) (B)] if the granting of relief
would be an abuse of the provisions of Chapter 7, courts are
required to determine if the debtor has the ability to pay a
substantial portion of their unsecured claims through a Chapter

13 plan based upon the totality of the debtor's financial

elreumstances.").,

B. The 8 707(b) (3) (B) Totality of the Circumstances Test
Allows Courts to Fine-Tune the § 707(b) (2) Means Test

Presumption
The Court agrees with those authorities holding that the Means

Test is only the first step in determining whether a debtor’s

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petition is abusive. The Means Test functions as an initial
screen to weed out those Chapter 7 petitions that are most
clearly abusive. As one court explains, “Congress intended that
there be an easily applied formula for determining when the
Court should presume that a debtor is abusing the system by
filing a chapter 7 petition.” In re Fowler, 349 B.R. 414, 420-21
(Bankr. D. Del. 2006). However, as with any bright-line rule,
the Means Test presumption does not always provide the most
accurate snapshot of the debtor’s financial situation. That is
to be expected; a formula complex enough to accurately predict
every single debtor's ability to pay would be impossible to
effectively administer. The Means Test sacrifices some level of
accuracy in the interest of administrative efficiency.

Fortunately, the Bankruptcy Code anticipates that the Means
Test alone cannot eliminate every single abusive filing and
provides a backstop, the § 707(b) (3) {B) totality of the
circumstances test. The totality of the circumstances test is
best seen as providing a chance for the Court to refine the
Means Test estimate. Since it permits individualized case-by-
case examination, the totality of the circumstances test can
weigh unusual circumstances that the Means Test does not—and
could not reasonably be expected to-account for.

For example, the Means Test computes a debtor’s Current
Monthly Income (CMI) as the average of the debtor’s income over
the past six months. In the case of debtors who have recently
changed jobs, CMI may bear little resembiance to actual monthly
income. In fact, Debtors whose CMI diverges from their actual

monthly income constitute a substantial portion of those debtors

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who survive the Means Test only to see their cases dismissed
under the totality of the circumstances test. In In re Pak, the
Means Test presumption of abuse did not arise because the debtor
had been unemployed for most of the six months preceding his
bankruptcy petition. 343 B.R. 239, 241 (Bankr. N.D. Cal. 2006).
Substituting the debtor’s actual monthly income for his CMI, the
Pak court concluded that the debtor had the ability to repay a
substantial portion of his unsecured debt, and accordingly
dismissed his case as abusive under the totality of the
circumstances test. Id. at 246-47. See also Henebury, supra, at
613-14 {dismissing case because debtor’s newly acquired job
would provide substantial income to repay unsecured creditors).
Another way courts fine-tune the Means Test determination is
by considering a debtor’s actual expenditures, which often are
not the same as the estimated expenditures used to determine the
Means Test presumption. For example, the Means Test permits
debtors to subtract from CMI payments on a residence they do not
plan on retaining (on the theory that such payments provide an
estimate of a debtor’s eventual housing expenses}. In In re
Haar, debtors passed the Means Test, largely because of
substantial mortgage payments on a residence they intended to
surrender. In conducting the totality of the circumstances
analysis, the court noted that debtor’s monthly mortgage
payments of $2,243 had been replaced by monthly rental payments
of $§888—leaving substantial income to pay unsecured creditors.
The Haar court dismissed the case as an abuse of Chapter 7. See
also In re Edighoffer, 375 B.R. 789, 794 (Bankr. N.D. Ohio 2007)

(considering debtor’s actual rent expense, which was only one-

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third of debtor's mortgage expense on property that was to be

surrendered, in conducting the totality of the circumstances

analysis).

C. The § 707(b) (3) (B) Totality of the Circumstances
Determination Must Respect Policies Implicit in the §
707 (b) (2) Means Test

Although courts in the cases discussed above use the totality
of the circumstances test to refine the Means Test
determination, the adjustments the courts make are nonetheless
consistent with the underlying policies of the Means Test. By
contrast, in the present case, the UST asks the Court to use the
totality of the circumstances test in a manner that directly
contradicts the policies implicit in the Means Test.
Specifically, the UST asks the Court to classify the Debtors’
monthly secured debt payments on reaffirmed obligations as
income available to repay unsecured creditors, even though the
Means Test allows such payments to be deducted from CMI.

In the cases discussed above, the courts substituted debtor’s
actual payments on various obligations for the estimated
payments used in the Means Test. In this case, the UST is not
asking the court to replace the Means Test's payment estimate
with a more precise estimate of the debtor’s actual payments.
Instead, the UST requests that the entire amount of income the
Debtors allocate to secured debt payments debt be considered as
income available to pay unsecured creditors. Rather than fine-

tuning the Means Test presumption in accordance with the facts

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of an individual case, the UST asks the Court to completely
disregard the policies implicit in the Means Test.

“Tt is a cardinal principle of statutory construction that the
statute ought, upon the whole to be so construed that, if it can
be prevented, no clause, sentence or word shall be superfluous,
void, or insignificant.” TRW Inc. v. Andrews, 534 U.S. 19, 31
(2001). Congress has specified that for purposes of determining
the presumption of abuse, a debtor’s monthly payments on account
of secured debt shall not be considered. § 707(b) (2) {A) (iii).
Considering such payments under the § 707(b) (3) (B}) totality of
the circumstances test would render the language in § 707 (b) (2)
disallowing consideration of those payments superfluous, void,

and insignificant.

D. Dismissal Under the 8 707(b) (3) (B) Totality of the
Circumstances Test is Justified if Additional Indicia of
Abuse are Present
This is not to say that the Court may never classify a
debtor's secured debt payments on reaffirmed obligations as
income available to pay unsecured creditors. Such a
classification may be appropriate where other indicia of abuse
are present. While it is impossible to provide an exhaustive
list of the myriad ways in which debtors could abuse Chapter 7,
common forms of abuse include purchases made on the eve of
bankruptcy and purchases that cause the debtor to become
insolvent. For example, one court invoked the totality of the
circumstances test to dismiss the debtor’s Chapter 7 petition

based on the debtor’s intent to reaffirm secured-debt payments

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on an SUV purchased only twelve days prior to filing. In re
Worrell, 2007 WL 3374593, at *4 (Bankr. N.D. Iowa 2007).

Defining eve-of-bankruptcy purchases by reference to a precise
timetable (e.g., a purchase made X days prior to filing is
presumptively abusive) would be counterproductive, as
enterprising debtors would simply consult the timetable and make
their purchases one day before. Furthermore, determining whether
an eve-of-bankruptcy purchase is abusive under the totality of
the circumstances test is a case-by-case inquiry that, as the
test suggests, must be made only after considering all the
relevant circumstances peculiar to each debtor’s individual
case.

However, several generally applicable considerations are worth
noting. First, to avoid triggering a determination of abuse,
more expensive purchases must be made further in advance of
filing for bankruptcy than less expensive purchases. For
example, the presumption of abuse is more likely to be triggered
by a debtor who purchases a new $50,000 luxury car 60 days
before filing than it is by a debtor who purchases a $5,000 used
car 30 days before filing.

Whether a purchase is expensive must be evaluated in light of
the financial situation of each individual debtor. This can be
done by calculating the percentage of the debtor’s monthly
income necessary to fund the purchase. To illustrate, the
purchase of a $20,000 car would be considered expensive as to a
debtor who was required to devote 40% of monthly income to the
payments; whereas the same purchase would not be considered

expensive as to a debtor required to devote only 5% of monthly

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income to the payments. See also Worrell, supra, at *4 (filing
was abusive where debtors purchased two cars requiring total
payments equal to 38% of their monthly income; debtors purchased
one car twelve days before filing and the other ninety days
before filing).

Second, purchases that cause the debtor to become insolvent
generally give rise to a determination of abuse, regardless of
the length of time that elapses between the purchase and the
bankruptcy filing. The Bankruptcy Code is intended to afford
relief to the “honest but unfortunate debtor,” not to the debtor
who makes purchases that she knows she cannot afford. Brown v.
Felson, 442 U.S. 127, 128 (1979) (citing Local Loan Co. v. Hunt,

292 U.S. 234, 244 (1934}))}.

EB. The Debtors’ Petition Was Not Abusive Within the Meaning
of the § 707(b) (3) (B) Totality of the Circumstances Test
This case does not present indicia of abuse sufficient to
justify classifying the Debtors’ secured-debt payments as income
available to pay unsecured creditors, a classification that
would require the Court to find that the Debtors’ Chapter 7
petition is abusive. The Debtors did not incur the secured debt
obligations at issue shortly before bankruptcy. Instead, the
Debtors purchased the boat and the motor home two years prior to
filing. Furthermore, the purchase of the boat and the motor home
did not precipitate the Debtors’ insolvency. At the time Debtors
made the purchases in 2006, they had monthly income of $9,500.
The total monthly debt service on the purchases was $1,156, or

approximately 12% of the Debtors’ monthly income. In 2007,

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Debtors’ monthly income increased to $12,649; as a result,
Debtors were required to devote only 9% of their monthly income
to payments on the boat and motor home. Debtors were forced to
file for bankruptcy not because they spent more on luxury goods
than they could afford, but rather because the declining economy

adversely impacted Debtor Kirk Jensen's salary.

F. Refusing to Permit Debtors to Reaffirm Secured Debt
Would Contravene the Favorable Treatment for Secured
Creditors that Congress Expressly Provided for in §

707 (Bb) (2)

Some courts refusing to permit debtors to reaffirm high levels
of secured debt have emphasized the unfairness to unsecured
creditors. These courts understandably bristle at the prospect
of permitting debtors to continue enjoying luxury goods at the
expense of their unsecured creditors. One court confronting the
issue aptly observed that “there is no practicable reason why
the Debtors need to continue maintaining a ‘Pop-Up Camper’ and
an extra vehicle, the 2002 Ford Windstar.” In re Oot, 368 B.R.
662, 667 (Bankr. N.D. Ohio 2007).

This Court certainly shares the sense of discomfort other
courts have felt at the prospect of permitting debtors to retain
luxury goods in defiance of their unsecured creditors. However,
the Bankruptcy Code seeks to further policies other than making
unsecured creditors, especially in situations where unsecured
creditors can be made whole only at the expense of secured
creditors. Chief among these policies is advancing the

availability of secured credit. See, e.g., In re Proalert, LLC,

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314 B.R. 436, 441 (9th Cir. B.A.P. 2004) {(*Embodied in the
Bankruptcy Code is a policy decision to protect secured credit

practices.”).

Were the Court to adopt the UST’s position, many debtors would
be forced to default on their secured credit obligations as a
precondition of obtaining Chapter 7 relief. While secured
lenders could look te the collateral to make them whole, in many
cases—including this one-the value of the collateral would be
insufficient to satisfy the underlying obligation. The costs of
repossessing and reselling the collateral would further reduce
the secured creditor’s recovery.

The case of In re Oot illustrates the problem from the
perspective of secured creditors. In that case, the Court found
“especially disconcerting” the debtors’ decision to reaffirm a
vehicle whose value was at least $10,000 less than what was owed
on it. Oot, supra, at 667. Viewing the situation exclusively
from the perspective of unsecured creditors, the debtors’
decision is indeed troubling—-money that could go to unsecured
creditors is instead devoted to making payments on a vehicle
encumbered by far more debt than it is worth.

What the Oot court failed to account for is that the debtor’s
decision to reaffirm is a zero-sum game, in which either secured
creditors or unsecured creditors will emerge the winners. Had
the Court permitted the debtors to reaffirm their obligation on
the vehicle, their secured creditors would be spared the loss of
$10,000 associated with disposing of underwater collateral, but
their unsecured creditors would get nothing. Since the court did

not allow the debtors to reaffirm, their unsecured creditors

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received some recovery, but their secured creditors sustained
losses of at least $10,000.

Therefore, refusing to permit debtors to reaffirm does more
than punish the debtors—it also reallocates the balance of risk
between secured and unsecured creditors. As one commentator has
observed, in the zero-sum battle between secured and unsecured
creditors, “the secured creditor’s advantage is the unsecured
ereditor’s disadvantage.” Homer Kripke, Law and Economics:
Measuring the Economic Efficiency of Commercial Law in a Vacuum
of Fact, 133 U. Pa. L. Rev. 929, 949 (1985). As demonstrated by
the Means Test’s provisions permitting the deduction of secured-
debt obligations from CMI, Congress has conferred an advantage
on secured creditors by giving debtors the option of reaffirming
secured debt. Although Congress’s choice to confer various
advantages upon secured creditors is controversial,® it ig a
legislative choice that the Court will not disturb. Of course,
the unintended but unavoidable consequence of this Congressional
decision to favor secured credit is that some debtors will be
able to retain luxury goods if they are willing to continue
making the secured debt payments, even if that means their
unsecured creditors will not always be made whole.

The Court also notes that an interpretation of § 707(b) (3)

which permits debtors to reaffirm high levels of secured debt is

§ See, e.g., Lynn M. Lopucki, The Unsecured Creditor’s Bargain, 80 Va. L. Rev.
1887, 1946-47 (1994) (lamenting the “unsecured creditors’ loss of power when
the case moves to bankruptcy” and describing bankruptcy as “the unsecured
creditor’s .. nemesis”); Robert E. Scott, A Relational Theory of Secured
Financing, 86 Colum. L. Rev. 901, 302 (1986) (noting that the “benefits to
secured creditors from taking security are offset by the increased costs to
unsecured creditors who face a corresponding reduction in the pool of assets
available to them upon default.”).

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consistent with other provisions of the Bankruptcy Code that
extend favorable treatment to secured creditors. For example, §
363(e) entitles holders of secured claims to “adequate
protection” of those claims under certain circumstances. As
explained by the Supreme Court, § 363(e) requires the bankruptcy
court to “place such limits or conditions on the trustee’s power
to sell, use, or lease [the secured creditor’s] property as are
necessary to protect the creditor.” United States v. Whiting
Pools, Inc., 462 U.S. 198, 204 (1983). Similarly, secured
creditors are entitled to relief from the automatic if they can
satisfy the requirements of § 362(d).

Finally, substantial policy considerations support the Court’s
holding. As one scholar has pointed out, an “essential aspect of
granting security, from the viewpoint of both the secured
creditor’s interests and society’s interest in plentiful credit
and rapid credit decisions, is the favored treatment of secured
ereditors in the law of bankruptcy.” Kripke, supra, at 948.
Refusing to permit debtors to reaffirm their secured debt
obligations would take away one aspect of the favorable
treatment secured creditors receive in bankruptcy and would
correspondingly reduce the availability of secured credit. Cf.
Nobelman v. American Savings Bank, 508 U.S. 324, 332 (1993)
(Stevens, J., concurring) (explaining that the Bankruptcy Code’s
“favorable treatment of residential mortgagees was intended to

encourage the flow of capital into the home lending market”).

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Conclusion

For the reasons stated above, the UST’s Motion to Dismiss
Debtors’ case for abuse under the § 707(b) (3) (B) totality of the
circumstances test is denied. The court will enter an

appropriate order.

DATED: November 12, 2008

Zwwjcdé

Hon. Ernest M. Robles

United States Bankruptcy Judge

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