Haley F. Adams

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
In re: 	*
HALEY F. ADAMS, 	* 	Case No. 06-16027-JS
Debtor 	* 	Chapter 7
* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	*
MEMORANDUM OPINION GRANTING MOTION OF THE UNITED
STATES TRUSTEE TO DISMISS BANKRUPTCY CASE FOR ABUSE
This matter came on for hearing upon the motion of the United States Trustee
to dismiss for abuse, pursuant to 11 U.S.C. § 707(b)(1) and (b)(3). For the reasons
stated, the motion to dismiss will be granted.
FINDINGS OF FACT
1. On September 30, 2006, the debtor, Haley F. Adams (“Ms. Adams”), filed
the instant Chapter 7 petition in this Court.
2. Ms. Adams has had no income of her own since May 2004. On Schedule
I, she listed the income of her husband, Dr. Nael Adams (“Dr. Adams”), as $10,471.66
Date signed October 18, 2007
Entered: October 19, 2007 Case 06-16027 Doc 56 Filed 10/19/07 Page 1 of 13

1The $80,370 in household goods includes $18,000 in sofas and couches,
$11,000 in window coverings, a $4,000 refrigerator, a $5,000 piano, a $2,500 oven,
and a $2,000 microwave.
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per month. After taxes and other payroll deductions, Dr. Adams’ net monthly income
totals $7,724.46.
3. Dr. Adams testified that his main occupation is as a staff physician for Johns
Hopkins University. 	He also testified that he would be capable of earning a
substantially higher salary if he were promoted to Associate Professor and an even
greater salary if he entered the private practice of medicine.
4. On Schedule J, Ms. Adams listed monthly expenses of $11,745.74. 	This
figure included a monthly mortgage payment of $6,581, a monthly payment to Chase
Auto Finance of $1,229, and a monthly payment to Mercedes Financial of $655. The
three expenses alone total $8,465 per month, which represents more than 109% of the
net monthly income of the debtor’s household.
5. Ms. Adams scheduled $1,439,440 in assets, including her residence at 8517
Huntspring Drive, Lutherville, Maryland, which is owned by herself and her husband
as tenants by the entireties. She assigned a fair market value to the residence of $1.3
million. 	In addition, Ms. Adams scheduled $139,440 in personal property owned
jointly with her husband (including $80,370 in household goods and furnishings,1
$8,000 worth of paintings and artwork, $7,500 in a checking account, and $3,900
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worth of jewelry). She also listed among her assets a $25,000 lender liability lawsuit
which the debtor filed against Cendant Mortgage Corporation, which she also claims
she jointly owns with her husband as tenants by the entireties.
6. The debtor’s scheduled debts total $1,062,929. The major debt is a secured
debt of $975,000 on the residence. The debtor also listed unsecured debts in the total
amount of $87,929. 	Of ths amount, $68,320 is owed to 15 credit card companies.
Towards what purpose the charges were for, the debtor’s Schedules only disclose that
they were used for “miscellaneous purchases on retail credit account.” However, the
debtor and her husband both testified that some of the credit card debt was used to pay
off a mortgage on their residence. 	Another $19,449 in unsecured debt is owed to
DaimlerChrysler Financial Services for breach of contract on a motor vehicle that was
repossessed. The remaining $160 is owed to Ms. Adams’ gym and cellular phone
service provider.
7. Ms. Adams listed two minor children as dependents.
8. The debtor was formerly employed as an orthoptist at an annual salary of
$40,000. In October 2003, she was involved in an automobile accident, which she
testified caused her headaches so extreme that she left her employment in May 2004.
On November 1, 2006, Ms. Adams filed a lawsuit based on this accident, in which she
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alleged $5,000 in personal injuries to herself and $5,000 in personal injuries to her
children.
9. 	On April 17, 2004, Dr. And Ms. Adams entered into a contract for the
construction and purchase of a residence located at 2709 Merryman’s Mill Road,
Phoenix, Maryland (“the Merryman’s property”), for $727,000, for which they
obtained financing in the amount of $617,950.
10. In May 2004, they moved into the house. By June 2004, the couple had
moved out of the house, citing numerous problems with its construction, most notably
the presence of live electrical wires in the backyard that Dr. and Ms. Adams believed
represented a dangerous condition. They decided to sell the residence and resided
temporarily in hotels and an apartment until they found a new home.
11. On August 20, 2004, the couple took out an additional loan of $150,000
against the Merryman’s property.
12. On August 30, 2004, the couple purchased a new house that is their current
residence, for a purchase price of $950,000, for which they borrowed an additional
$854,610, via two separate loans.
13. It was not until July 12, 2005, that the Merryman’s property was sold at
private sale for a price of $804,000, from which the couple made a profit of $77,000.
However, both Dr. and Ms. Adams testified that they struggled financially from
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having to pay two mortgages for a number of months. They used the sale proceeds
to pay off the first mortgage.
14. 	On March 14, 2006, the couple refinanced the debt on their current
residence, obtaining a $975,000 loan and paying off the existing mortgages (the
balance of which had increased to $862,676.26), as well as settlement charges of
$12,857.52. 	They took $99,467 in cash out of the refinancing settlement. 	The
monthly payment on the new mortgage was $6,581, which represents 85% of the
couple’s monthly net income.
15. At the hearing before this Court on September 24, 2007, the U.S. Trustee
presented photographs of the Huntspring residence, from which this Court has
determined the debtor’s residence to be palatial in nature, and beyond the means and
needs of the debtor’s family.
16. The couple used the loan proceeds to pay off Dr. Adams’ credit card debts
as well as the couple’s joint debts. They testified that this was part of an attempt to
boost Dr. Adams’ credit score to enable him to renegotiate his loan under more
favorable terms.
17. Meanwhile, the couple continued to purchase personal property on credit,
which the debtor claimed as exempt because it was jointly held with her husband.
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18. In July 2005, a Mercedes Benz C Class vehicle was repossessed from the
debtor. After the repossession, she leased a new Mercedes Benz for a monthly lease
payment of $1,225.
19. The couple also paid $655 a month for a BMW X5 sport utility vehicle
(“SUV”).
20. The debtor and her husband enjoyed a lavish lifestyle through the use of
Ms. Adams’ credit cards. She testified at her deposition that she used her credit cards
to purchase items for her children, to have dinner at restaurants three times a week
with her family and to purchase groceries for her family at an approximate cost of
$500 per week.
21. 	Dr. and Ms. Adams insisted that they acted on the advice of a financial
advisor.
CONCLUSIONS OF LAW
1. This Court has subject matter jurisdiction over the instant motion to dismiss,
which is a core proceeding pursuant to 28 U.S.C. § 157(b).
2. Section 707(b)(1) of the Bankruptcy Code provides that “[a]fter notice and
a hearing, the court, on its own motion or on a motion by the United States trustee,
trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a
case filed by an individual debtor under this chapter whose debts are primarily
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consumer debts, or, with the debtor’s consent, convert such a case to a case under
chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse
of the provisions of this chapter.” 11 U.S.C. § 707(b)(1). Section 707(b)(3) provides
that “[i]n considering under paragraph (1) whether the granting of relief would be an
abuse of the provisions of this chapter in a case in which the presumption... the court
shall consider (A) whether the debtor filed the petition in bad faith; or (B) the totality
of the circumstances (including whether the debtor seeks to reject a personal services
contract and the financial need for such rejection as sought by the debtor) of the
debtor's financial situation demonstrates abuse.” 11 U.S.C. § 707(b)(3).
3. The test adopted by the Fourth Circuit to determine whether the totality of
the circumstances demonstrates abuse was delineated in Green v. Staples (In re
Green), 934 F.2d 568 (4th Cir. 1991). In Green, it was held that a finding of abuse
should consider the debtor’s ability to repay his debts, as well as
(1) Whether the bankruptcy petition was filed because of sudden
illness, calamity, disability, or unemployment;
(2) 	Whether 	the 	debtor 	incurred 	cash 	advances 	and 	made
consumer purchases far in excess of his ability to repay;
(3) Whether the debtor’s proposed family budget is excessive or
unreasonable;
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2Because Ms. Adams debts were so great there is no presumption of abuse
under the “means test” of 11 U.S.C. § 707(b)(2)(A). In the absence of a presumption
of abuse, the Court need not decide whether the BAPCPA amendments abrogate the
method of determining “totality of the circumstances” enunciated in In re Green,
supra. See In re Henebury, 361 B.R. 595, 605 (S.D. Fla. Mar. 16, 2007).
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(4) Whether the debtor’s schedules and statement of current
income and expenses reasonably and accurately reflect the true financial
condition; and
(5) Whether the petition was filed in good faith.
In re Green, 934 F.2d at 572 . 2 The Court finds that five out of the six factors apply
in this case, as follows.
4. The first factor is the debtor’s ability to repay her debts. The Court finds
that Ms. Adams has the ability to repay her debts. In determining ability to repay,
every reported case agrees that if the debtor herself has no income, the Court must
take into account the income of the debtor’s non-filing spouse when the spouse
receives significant income. See In re Travis, 353 B.R. 520, 530 (Bankr. E.D. Mich.
2006) (finding that the Court should consider a non-filing spouse’s income when it is
“substantial enough to significantly raise the debtor’s standard of living and generate
total household income in excess of the reasonable costs of food, clothing, shelter, and
other necessities”); In re Welch, 347 B.R. 247 (W.D. Mich. 2006) (not taking into
account the income of non-filing spouse when incomes were approximately
equivalent); In re Staub, 256 B.R. 567, 571 (Bankr. M.D. Pa. 2000) (considering non-
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filing spouse’s income when it was “so great that it could pay off the entirety of [filing
spouse’s] unsecured debt in a matter of months”). 	Contra, In re Baldino, 369 B.R.
858 (M.D. Pa. June 14, 2007) (non-filing spouse’s income is considered only to extent
it contributes to household expenses of the debtor or debtor’s dependents).
5. Because the income of the debtor’s husband represented the only income
devoted to the debtor’s household expenses, including the payments on the mortgage
and on the family car, and because that income was far less than these expenses, Dr.
Adams’ income must be considered even under the stricter test of Baldino.
6. Taking into account her husband’s income, the Court finds that the debtor
would be able to repay her debts if she had a reasonable budget.
7. The Court further finds that it is not reasonable to pay $6,581 per month in
mortgage payments and $1,884 per month in car payments with a monthly net income
of $7,740.46.
8. 	The second factor is whether the bankruptcy case was filed because of
“sudden illness, calamity, disability or unemployment.” 	In re Green, supra. This
Chapter 7 bankruptcy case was not filed for any of these reasons. In Shaw v. U.S.
Bankruptcy Adm’r, 310 B.R. 538 (M.D. N.C. 2004), the court weighed this factor
against the debtor, who was faced with unemployment about which she had significant
warning, because the unemployment was not sudden. Id. at 540.
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9. Likewise, the poor condition of the Merryman’s property combined with the
Adamses’ inability to sell it was neither sudden, nor was it a calamity. 	The word
“calamity” contemplates a catastrophic event and not the mere inability to sell a
property. 	Even if the term were applicable to the couple’s inability to sell the
Merryman’s property for slightly more than a year, that inability hardly qualifies as
a calamity, considering that the property was sold for a substantial profit of $77,000.
The Court finds that any financial hardship the Adamses suffered during the time the
Merryman’s property was on the market was caused by their extravagant lifestyle and
not merely by their inability to sell the property.
10. The third factor is whether the debtor incurred consumer expenses beyond
her ability to repay. Indeed, Ms. Adams incurred large consumer expenses, which,
while not beyond her ability to repay, are beyond her ability to repay under her current
budget.
11. The fourth factor is the debtor’s proposed budget. As described above, Ms.
Adams’ proposed family budget is excessive and unreasonable. The Court need not
rehash every line item in the debtor’s Schedule J. Suffice it to say, a budget based on
$7,740.46 net income that contains a $6,581 monthly mortgage payment and two car
payments totaling $1,884 a month is unreasonable on its face.
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12. 	The fifth factor is the debtor’s honesty. 	There is no evidence of any
dishonesty on the part of the debtor in the preparation of any part of her petition. The
Court finds that the debtor’s schedules and statement of current income and expenses
reasonably and accurately reflect her true financial condition. However, the debtor’s
honesty does not outweigh the other indicia of abuse which the Court has found.
13. The sixth and final factor is the debtor’s good faith. The Court finds that
the instant petition was not filed in good faith. 	The debtor and her husband have
engaged in acts designed to hinder, delay and defraud creditors. They have built up
debts in Ms. Adams’ name in order to invest in assets exempt from creditors under
state law or to reduce Dr. Adams’ debt load. The assets in which the Adamses have
invested are exempt either because they are jointly owned, owned individually by Dr.
Adams, or because they are exempt under Maryland state law. One example is the use
of the debtor’s credit cards to pay off the couple’s jointly-held mortgage. She built
up her individual debt in order to discharge it in bankruptcy. She invested this debt
in building equity in the jointly-owned residence, which is thereby exempt from the
claims of her individual creditors. 	She and her husband also paid down all of his
credit card debts, ostensibly to strengthen his credit rating. This amounts to bad faith,
despite the claim that the couple relied on an unnamed financial advisor. The fact that
one had financial advice does not negate bad faith when the Court finds the presence
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of an intent to defraud creditors. The fact that the couple lived such a lavish lifestyle
up to and during their bankruptcy also weighs against a finding of good faith. See In
re Oot, 368 B.R. 662, 680 (N.D. Ohio Mar. 19, 2007) (quoting Kornfield v. Schwartz
(In re Kornfield), 164 F.3d 778, 781 (2d Cir. 1999)) (“[t]his is a paradigm of the case
that Section 707(b) was designed for: debtors enjoying a substantial income but
seeking to transfer the cost of an unnecessary lifestyle to creditors.”); see also U.S.
Trustee for the Western Dist. of Va. v. Harrelson, 323 B.R. 176, 179 (W.D. Va. 2005).
14. The Court holds that residing in a $1.3 million dollar residence, driving a
luxury car with lease payments of $1,225 a month, and otherwise not conforming to
a reasonable budget while filing a Chapter 7 bankruptcy case to support such a lavish
lifestyle on the backs of creditors amounts to bad faith. Therefore, the Court finds
from the totality of circumstances that the filing of the instant case represented an
abuse of the bankruptcy system, requiring its dismissal.
WHEREFORE, the motion to dismiss for abuse will be GRANTED.
ORDER ACCORDINGLY.
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cc: 	Mark A. Neal, Esquire
Katherine A. Levin, Esquire
Hugh Bernstein, Esquire
Office of the United States Trustee
U.S. Courthouse, Suite 2625
101 West Lombard Street
Baltimore, Maryland 21201
Ms. Haley F. Adams
P.O. Box 988
Brooklandville, MD 21022-0988
Debtor
John K. Burkhardt, Esquire
John K. Burkhardt, P.A.
28 Allegheny Ave., Suite 500
Towson, MD 21204-3911
Counsel to the Debtor
David E. Rice, Esquire
Venable LLP
1800 PNC Bank & Trust Building
2 Hopkins Plaza
Baltimore, MD 21201
Chapter 7 Trustee
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