Douglas William Meyn

OCR transcription for search; preserved printed pages are authoritative

AUTHENTICATE
U.S. GOVERNME
INFORMATION

Case 8:04-bk-19108-KRM Doc64 Filed 09/12/05 Page 1 of 13

UNITED STATES BANKRUPTCY COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION

In re

DOUGLAS W. MEYN, Case No. 8:04-bk-19108-KRM
Chapter 7

Debtor.

oo a a ee

MEMORANDUM OPINION AND ORDER GRANTING MOTION
BY UNITED STATES TRUSTER TO DISMISS CHAPTER 7 CASE

Ts a debtor with nearly $900,000 in exempt assets
and at least $1,000 per month in monthly disposable income
eligible for relief under Chapter 7? The United States
Trustee (“UST”) argues that granting a Chapter 7? discharge to
this debtor, who has the ability to repay a material portion
of his debts and who did not provide complete and accurate
disclosures, would be a substantial abuse of Chapter 7.1 After
considering the totality of the circumstances of this case --
derived from the testimony at trial, the related exhibits, the
post-trial memoranda submitted by the debtor and the UST --

the Court concludes that granting this debtor a Chapter 7

GP

+ on January 3, 2005, the United States Trustee filed a Motion

to Dismiss this Chapter 7 Case under 11 U.S.C. § VO7(b), alleging that
granting the debtor a discharge would be a substantial abuse of the
provisions of a Chapter 7. It is undisputed that this case invoives
primarily “consumer debts.” The U.S. Trustee alternatively pled 11 U.S.C.
§ 7T07(a), stating that this case should be dismissed for “cause.”

Case 8:04-bk-19108-KRM Doc64 Filed 09/12/05 Page 2 of 13

discharge would be a substantial abuse of Chapter 7.

Accordingly, the UST’s motion will be granted.

BACKGROUND

The Debtor’s Financial Condition

At one time, the debtor was a highly paid senior
executive with a national telecommunications company, making
nearly $330,000 per year.” He lived in a large home in a
gated, country club community in the Tampa suburbs. In recent
years, however, he has gone through a costly divorce, a job
less, and periods of un- and under-employment.

The debtor’s divorce was bitterly contested from
2001 until the final judgment was entered on January 7, 2004.
The related legal fees are said to be in excess of $138,000.°
The state court awarded the debtor’s former spouse $2,700 per
month in permanent alimony and directed the debtor to make a
cash payment to her of $58, 730,50 as an “equitable

distribution.”

2 The debtor’s tax return for 2002 reported income of

$327,872.00.

3 More than 85% of the $310,346 of claims filed in this case

are related to the divorce. See notes 12-14 infra and accompanying text.

° On March 9, 2005, the debtor initiated an adversary
proceeding to determine the dischargeability, under 11 U.S.C. § 523(a} (15),
ef the former spouse's claim of $58,730.50. The trial in this proceeding
is abated pending the outcome of the UST’s Section 7Q7{(b} motion.

Case 8:04-bk-19108-KRM Doc64 Filed 09/12/05 Page 3 of 13

The debtor’s unemployment began in May 2002, when he

was terminated from his senior executive position after 23

years of service. He received severance, including $152,000,
certain stock options, and health and life insurance. The
debtor did not work between May and November 2002. In

February 2003, after a three month stint with another
telecommunications company, the debtor obtained employment as
a department manager for a national retail electronics
company. His annual salary is now about $72,000, plus
bonuses.

In 2004, the debtor remarried. His wife earns about
$95,000 per year, plus bonuses, from her job as a product
manager for a technology company. Her total income for 2004
Was about $113,500. Their combined household income is about
$185,000, before the debtor earns any bonuses.”

The debtor and his wife live in a 4,000 square foot
house estimated to be worth about $450,000, with an estimated
equity of about $110,000 after taking into account a $340,000
first mortgage. The debtor has another $750,000 of exempt

assets in an Individual Retirement Account. ®

° Their combined reported income in 2004 was $239,859.

© The IRA is comprised of assets rolled over from his former

employer’s retirement plan. The exempt status of the homestead and IRA is
not contested.

Case 8:04-bk-19108-KRM Doc64 Filed 09/12/05 Page 4 of 13

The 2003 Chapter 13 Case

In April 2003, the debtor filed for relief uncer
Chapter 13. The schedules listed $75,763.62 in unsecured
debt, with the debtor’s former spouse and her counsel being
scheduled as creditors holding uniiquidated claims in
undetermined amounts. A federal income tax claim in the
amount of $33,427.00, was also scheduled. The Chapter 13 case
was dismissed on January 26, 2004, for the debtor’s failure to

confirm a plan.

The Present Chapter 7 Case

The debtor filed this case on September 30, 2004,
about eight months after his Chapter 13 case was dismissed.
Approximately one month before filing this case, the debtor
received $60,000 from a former employer’s “key man” life
insurance policy. After taxes, the debtor netted $40,658,
which he used to satisfy the delinquent 2002 income taxes
($34,732) and to make a charitable contribution to his church
($3,100). Neither the receipt of the $60,000, nor the pre-
petition expenditures was disclosed in the debtor’s Statement
of Financial Affairs. He did not schedule the debts owed to

his former spouse and her attorney. The debtor also did not

Case 8:04-bk-19108-KRM Doc64 Filed 09/12/05 Page 5 of 13

disclose the stock options he received from the 2002 severance
package.’

The schedules initially filed in this case listed
$115,136 of unsecured debts.® After the UST filed the Section
7O7{b) motion, the debtor amended his Schedule F to add the
claim of his former spouse and her attorney, as a disputed
unsecured claim of $60,000. Scheduled unsecured debts were
stated to be $173,572.”

Initially, the debtor reported tetal monthly income
of $4,668 (after payroll deductions) and expenses of $8,683,
resulting in a net monthly income of a negative $4,015. After
the UST filed the Section 707{b) motion, the debtor amended
Schedules I and J to add $6,754.47 of his wife’s monthly
income and $2,635 of additional monthly expenses. As a
result, the amended Schedules I and J show net disposable

income of about $104 per month.

/ At trial, he testified that the options have no value

because the exercise price exceeds the current market value of the stock.

® These include credit card debts totaling $81,128.73, claims

of furniture and electronic stores, totaling $5,007.62, and the claim of
the debtor's divorce attorney, $29,000.

; Claims totaling $310,346.03 have been filed in this Chapter

7 case.

Case 8:04-bk-19108-KRM Doc64 Filed 09/12/05 Page 6 of 13

The testimony at trial, however, established that
amended Schedule J overstated the debtor's largest expenses by
at least $700 per month: (1) the mortgage payment on the
$450,000 home is stated to be $3,400 per month, but it is
actually $3,000; alimony is stated to be $3,000 per month, but
it is actually $2,700. By the debtor’s own admissions, he has
at least $700 per month of disposable income in addition to
the $104 initially stated, for a total of $804 of monthly

disposable income.

DISCUSSION

The court may dismiss a Chapter 7 case, pursuant to
Section 707(b) of current law, if it determines that the
granting of relief would be a substantial abuse of Chapter 7.
The term “substantial abuse” is not defined in the statute;
but, there is a statutory presumption in favor of granting the
relief requested by the debtor.?9

In the absence of controlling Eleventh Circuit

authority, bankruptcy courts in this District have examined

10 This case is governed by the provisions of Section 707(b)

prior to the enactment of the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 (“BAPCPA’) which becomes effective, as to Section
707 (b), on Gctober 17, 2005. Under current law, the court should dismiss a
Chapter 7? case only when a substantial abuse is clearly present. in re
Hail, 258 B.R. 45, 51-52 (Bankr. M.D. Fla. 2001),

Case 8:04-bk-19108-KRM Doc64 Filed 09/12/05 Page 7 of 13

the “totality of the circumstances” to determine whether to
dismiss a case for “substantial abuse.” See In re Shields,
322 B.R. 894, 896-97 (Bankr. M.D. Fla. 2005); In re Luikart,
319 B.R. 1 (Bankr. M.D. Pla. 2003) (applying “totality of
circumstances” test by viewing together the debtor’s ability
to pay, her economics, and her conduct in failing to
accurately disclose income and expenses); In re Brown, 301
B.R, 607 (Bankr. M.D. Fla. 2003) (applying the “totality of
circumstances” test and granting motion to dismiss); [In re
Hall, 258 B.R. 45, 51 (Bankr. M.D. Fla. 2001) (considering not
only the debtor’s ability to pay, but the totality of the
circumstances, to dismiss Chapter 7 case).

In employing this approach, courts have considered
various factors, including: {1} whether the Chapter 7
petition was filed because of a sudden unforeseen or
catastrophic event such as sudden illness, disability or
unemployment; (2} whether the debtor’s standard of living
would be substantially improved by the discharge; (3) the
debtor’s age, health, dependents and family responsibilities;
(4) the debtor’s eligibility for Chapter 13 and whether
creditors would receive a meaningful distribution in a Chapter
13 case; (5) whether the debtor incurred cash advances and

made consumer purchases far and in excess of his ability to

Case 8:04-bk-19108-KRM Doc64 Filed 09/12/05 Page 8 of 13

pay; (6) whether the debtor’s Proposed family budget is
excessive or unreasonable; (7) whether the debtor’s schedules
and statement of current income and expenses reasonably and
accurately reflect the true financial condition of the debtor;
{8) whether the petition was filed in good faith; and (9}
whether the debtor has the ability to repay creditors. in re
Shields, 322 B.R. at 896-97; In re Brown, 301 B.R. 607, 611
(Bankr. M.D. Fla. 2003); In re Engskow, 247 B.R. 314, 316-17
(Bankr. M.D. Fla. 2000).

The primary factor, however, is whether the debtor

has the ability to repay even a portion of his debts from

future income. See In re Shields, 322 B.R. at 897; In re
Leung, 311 B.R. 626, 631 (Bankr. S$.DdD. Pla. 2004). The
“totality of the circumstances” approach involves an

evaluation of the other stated factors as exacerbating or

mitigating the apparent abuse from the debtor’s ability to

repay. See In re Luikart, 319 B.R. at 4 ({Bankr. M.D. Fla.
2003). A finding of “bad faith” or dishonest conduct is not
required for a Section 727(b) dismissal. See In re Green, 934

F.2d 568 (4th Cir. 1991).
In this case, the debtor’s amended Schedule J
overstated his mortgage and alimony expenses by $700, Based

on these errors alone, the debtor has at least 5804 of

Case 8:04-bk-19108-KRM Doc64 Filed 09/12/05 Page 9 of 13

disposable income that would be available to fund a Chapter 13
plan. The UST argues that the debtor has as much as $1,524
per month of disposable income, because other monthly expenses
are Similarly inflated -- home maintenance, transportation,
recreation, and insurance ~- by a total of $720 per month.
The Court agrees, in part, that these expenses are overstated
by at least $200 per month.!+ See In re Weber, 208 B.R. 575,
O77 (Bankr. M.D. Fla. 2003); In re Brown, 301 B.R. 607, 611-12
(Bankr. M.D. Fla. 2003) (a court may find a debtor’s specific
expenses excessive or unreasonable). The Court finds that the
debtor has at least $1,000 per month of disposable income.

The debtor therefore has the ability to fund a
meaningful Chapter 13 plan from his disposable income. See In
re Shields, 322 B.R. at 897-99; [In re Leung, 311 B.R. at 631-
32. With at least $1,000 in monthly disposable income, the
debtor could make Chapter 13 plan payments of at least 360,000
over 60 months.

Although the debtor has suffered reversals in his

life over the past few years, he continues to enjoy an upper-

it Although the court is not to consider a debtor’s charitable

contributions in making a determination of “substantial abuse,” 11 U.S.C,
§ 7O7?(b), the debtor’s disclosure of such contributions further undermines
the credibility of his other stated expenses, In amended Schedule J,
charitable contributions are stated to be $425 per month, or $5,100 per
year; but the debtor’s check register (UST Exh. 11) reveals a total of only
$640 in charitable contributions in the 14-month period between March 2003
and May 2004.

Case 8:04-bk-19108-KRM Doc 64 _ Filed 09/12/05 Page 10 of 13

middle class lifestyle. Unlike the “unfortunate debtor” who
needs a fresh start, the debtor in this case has the ability
to repay a meaningful amount of his debts, while continuing to
enjoy a lifestyle defined by a 4,000 square foot house, two
cars, more than $185,000 in annual household income, and about
$750,000 in an IRA.

This case was not filed because of a sudden
catastrophic event. The principal reason for filing appears
to be to obtain the discharge of up to $268,810.31 of debts

related to the debtor’s divorce, as set forth below:

Claim of former spouse $ 60,000.00'%
Former spouse’s legal fees 120,168.74*7
Deptor’s legal fees 30,858.07
Credit cards from prior marriage 85,380.26
Other 3,261.31
Total $ 268,810.31"

It is beyond doubt that the debtor’s schedules and
statement of financial affairs were, and continue to be,
inaccurate, in ways that understate his ability to make

meaningful payments to creditors. The debtor failed to

te The debtor has filed an adversary proceeding to determine

the dischargeability of this debt.
3 This claim was filed as an unsecured priority claim, as it
relates to alimony, maintenance, or support owed to former spouse pursuant
to 11 U.S.C. § 507 (a) (7). In the earlier Chapter 13 case, the former
wife’s attorney filed a proof of claim in the amount of $106,055.15.

14
$310,346.03.

The total amount of claims filed in this Chapter 7 case is

16

Case 8:04-bk-19108-KRM Doc64 Filed 09/12/05 Page 11 of 13

disclose that he had received $60,000 within a month before

filing. He did not disclose that he holds certain options to
purchase Verizon stock. He did not disclose the pre-filing
payoff of non-dischargeable federal taxes. He did not list

the known claims of his former wife and her divorce attorney,
until after the dischargeability deadline had passed,
Finally, his amended Schedule J materially overstates his
expenses.

As my colleague, Judge Paskay, has explained:

This Court is in full agreement that the lack of
good faith is certainly an important factor in
considering a motion to dismiss a Chapter 7 case
for substantial abuse. A telling sign and red
flag indicating bad faith is an inflated budget,
especially an amended budget after the Debtor’s
right to remain in Chapter 7 is challenged.
Weber, 208 B.R. at 577.

The Court draws the inference that the debtor's
failure to accurately report his true financial condition was
not inadvertent, because all of the omissions and errors
Support the debtor’s self-portrait as a down-on-his-luck
debtor. The debtor owes creditors between $173,572 and
$310,346 (per claims filed). He has nearly $900,000 of exempt
assets and at least $1,000 per month of disposable income.

His conduct, combined with the his ability to pay, warrants a

finding of “substantial abuse.”

11

Case 8:04-bk-19108-KRM Doc64 Filed 09/12/05 Page 12 of 13

CONCLUSION

The debtor has the ability to repay a meaningful
portion of his debts from future disposable income. The
debtor omitted or misstated numerous material items of
required disclosure. The Court has considered the totality of
the circumstances presented in this case and finds that
granting relief to this debtor would constitute a substantial
abuse of the provisions of Chapter 7 pursuant to 11 U.S.C.
section 707 (b).

Accordingly, it is hereby

ORDERED:

1. This Chapter 7 case is dismissed.

2. The effective date of the dismissal will be

September 23, 2005, prior to which date the debtor may

convert this case to Chapter 13.

+h
DONE and ORDERED in Tampa, Florida, this /[Q day of

September, 2005.

WoL. Mo

K, RODNEY MAY
United States pankruntey Judge

12

Case 8:04-bk-19108-KRM Doc64_ Filed 09/12/05 Page 13 of 13

Copies Furnished To:

Douglas W. Meyn, Debtor, 11610 Renaissance View Court, Tampa,
Florida 33626

David Steen, Esquire, Attorney for Debtor, 602 South
Boulevard, Tampa, Florida 33606

Denise Barnett, Esquire, Office of United States Trustee,
Timberlake Annex, Suite 1200, 501 Bast Polk Street, Tampa,
Florida 33602

Shari Streit Jansen, Chapter 7 Trustee, P.O. Box 50667,
Sarasota, Florida, 34232

13