Wayne D. Meehean and Reda L. Meehean

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

In re: Case No. 19-46085

WAYNE D. MEEHEAN and Chapter 7

REDA L. MEEHEAN,

Judge Thomas J. Tucker

Debtors.

________________________________/

OPINION REGARDING UNITED STATES TRUSTEE’S MOTION

TO DISMISS THIS CASE UNDER 11 U.S.C. § 707(b)(3)

I. Introduction

This is a no-asset Chapter 7 case — that is, the Chapter 7 Trustee has determined that

there are no non-exempt assets he can administer for the benefit of creditors. But the Debtors,

Wayne D. Meehean and Reda L. Meehean, have monthly Social Security income, that when

combined with their other income, gives them the financial ability to pay off all of their

unsecured debts in about 41 months. And they can do that while at the same time continuing to

make the monthly mortgage payments for their home and the monthly lease payments on their

two vehicles. But instead of seeking to repay their unsecured creditors, through a repayment plan

in Chapter 13, the Debtors seek to discharge their unsecured debts in Chapter 7, without paying

anything.

Is this attempted use of Chapter 7 by the Debtors an impermissible “abuse” of Chapter 7,

within the meaning of 11 U.S.C. §§ 707(b)(1) and 707(b)(3)? What role, if any, does the

Debtors’ Social Security income play in this inquiry?

Pending before the Court is the United States Trustee’s motion to dismiss this Chapter 7

bankruptcy case, based on 11 U.S.C. § 707(b)(3).1 The United States Trustee (the “UST”)

argues, in the words of § 707(b)(3)(B), that the “totality of the circumstances” of “the Debtors’

financial situation” demonstrates “abuse” of Chapter 7. This is so, according to the UST,

because when considering all of the Debtors’ income, including the monthly amount that the

Debtors receive in Social Security benefits, the Debtors have ample disposable income with

which to pay their debts.2

The Debtors object to the UST’s motion.3 The Debtors argue that Congress, through the

enactment of 42 U.S.C. § 407, and certain provisions of the Bankruptcy Code, 11 U.S.C.

§§ 101(10A)(B)4 and 1325(b)(2), has shown an intent to protect Social Security benefits from the

reach of creditors, and that the Debtors’ retention of Social Security income cannot be the basis

for a dismissal under § 707(b)(3).5

This Court held a hearing on the UST’s motion. The Court has considered all of the oral

and written arguments of the parties as well as the briefs and exhibits filed by the parties. For the

reasons explained in this Opinion, the Court agrees with the UST, and will grant the UST’s

motion, as described in part V of this Opinion.

II. Jurisdiction

This Court has subject matter jurisdiction over this bankruptcy case and this contested

1 Docket # 18.

2 Id.

3 Docket # 20.

4 Formerly 11 U.S.C. § 101(10A)(B).

5 Id. at 5.

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matter under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.).

This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A) and 157(b)(2)(O).

This proceeding also is “core” because it falls within the definition of a proceeding

“arising under title 11" and of a proceeding “arising in” a case under title 11. See 28 U.S.C.

§ 1334(b). Matters falling within either of these categories in § 1334(b) are deemed to be core

proceedings. Allard v. Coenen (In re Trans-Industries, Inc.), 419 B.R. 21, 27 (Bankr. E.D. Mich.

2009). This is a proceeding “arising under title 11” because it is “created or determined by a

statutory provision of title 11,” including Bankruptcy Code § 707. Id. It is a proceeding “arising

in” a case under title 11 because it is a proceeding that “by [its] very nature, could arise only in

bankruptcy cases.” Id.

III. Facts

The following facts are undisputed. The Debtors filed this Chapter 7 bankruptcy case on

April 22, 2019. The Debtors’ original Schedule E/F listed no priority unsecured claims, and non-

priority unsecured claims totaling $202,696.97.6 But this amount erroneously included a secured

claim of $143,143.00 attributable to the mortgage on the Debtors’ residence.7 The Debtors later

amended Schedule E/F to remove the secured claim, and it now lists no priority unsecured

claims, and a total of $43,099.97 in non-priority unsecured claims.8

The Debtors’ Schedule I lists $4,007.00 in combined monthly income from Social

6 Schedule E/F (Docket # 1) at pdf pages 27, 34.

7 Id. at pdf page 31. The same mortgage debt was also listed in Schedule D, in the slightly lower

amount of $142,871.05. Id. at pdf page 25.

8 Amended Schedule E/F (Docket # 19) at pdf pages 3, 9.

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Security and $1,834.98 in combined monthly income from “Pension or retirement income,” for a

total monthly income of $5,814.98.9 The Debtors’ monthly expenses listed on Schedule J, which

include a monthly mortgage payment of $900.00 and monthly payments on two vehicle leases in

the combined amount of $630.55, total $5,745.55, resulting in a reported monthly net income

(surplus) of $96.43.10 But in listing their monthly expenses in Schedule J, the Debtors included

$1,300.00 per month which they described as “Social Security Income Excluded from CMI.”11 If

this Social Security income had not been listed as an expense in the Debtors’ Schedule J in this

way, the Debtors would show a monthly net income (surplus) of $1,396.43.12

This surplus amount actually appears to be slightly lower than $1,396.43 per month. As

explained in Part IV.E of this Opinion, two vehicle lease assumption agreements filed recently

indicate that the Debtors’ actual monthly net income (surplus) is $1,252.32.

On May 22, 2019, just after the Chapter 7 Trustee concluded the § 341 meeting of

creditors, the Trustee filed a “no asset” report, indicating that there are no non-exempt assets in

the bankruptcy estate that can be used to pay anything to creditors. From this it is clear that if

this case remains in Chapter 7, creditors will be paid nothing.

As discussed in more detail in part IV.E of this Opinion, it is clear that if the Debtors

9 Schedule I (Docket # 1) at pdf page 38.

10 Schedule J (Docket # 1) at pdf pages 39-41; Schedule G (Docket # 1) at pdf page 35.

11 Schedule J (Docket # 1) at pdf page 41, line 21.

12 The Debtors’ counsel stated during oral argument that the Debtors anticipate incurring

increased expenses at some point, associated with the care of grandchildren. But no specifics were given.

And as of the date of this Opinion, the Debtors have not filed amended schedules I or J or any other

document indicating any additional expenses. The Debtors have filed nothing to quantify, document, or

otherwise support their attorney’s vague assertion about increased expenses.

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wanted to do so, they could afford to propose, confirm, and perform a Chapter 13 plan that would

pay their unsecured creditors in full in about 41 months. But instead of doing this, the Debtors

seek to use Chapter 7 to discharge all of their unsecured debts, keep all of their income, including

all of their Social Security income, and pay their unsecured creditors nothing. For the reasons

stated below, the Court finds this to be an “abuse” of Chapter 7, within the meaning of

§§ 707(b)(1) and 707(b)(3).

IV. Discussion

A court may dismiss a case filed under Chapter 7 or, with the debtor’s consent, convert

the case to Chapter 13, if the court finds that “the granting of relief would be an abuse of the

provisions of [Chapter 7].” 11 U.S.C. § 707(b)(1).

“Abuse of the provisions of” Chapter 7, within the meaning of

§ 707(b)(1), can be shown in two alternative ways. The first of

these is based on an unrebutted presumption of abuse under

§ 707(b)(2). If the presumption of abuse does not arise under

§ 707(b)(2) or is rebutted, the Court must consider whether abuse

is established under § 707(b)(3), by determining “whether the

debtor filed the petition in bad faith” or whether “the totality of the

circumstances . . . of the debtor’s financial situation demonstrates

abuse.” 11 U.S.C. § 707(b)(3).

In re Maura, 491 B.R. 493, 497 (Bankr. E.D. Mich. 2013).

In this case the UST does not argue that there is a presumption of abuse under the “means

test” established by § 707(b)(2). Rather, the UST argues abuse based only on § 707(b)(3).

A. Section 707(b)(3)

Section 707(b)(3) states:

(3) In considering . . . whether the granting of relief would be an

abuse of the provisions of [Chapter 7] in a case in which the

presumption in paragraph (2)(A)(i) does not arise or is rebutted, the

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court shall consider–

(A) whether the debtor filed the petition in bad faith; or

(B) [whether] 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)(A) and (B).

The UST does not allege “bad faith” under § 707(b)(3)(A). Rather, the UST argues that

dismissal is required because “the totality of circumstances of the debtor’s financial situation

demonstrates abuse.”13 See 11 U.S.C. § 707(b)(3)(B).

In the Sixth Circuit, In re Krohn, 886 F.2d 123 (6th Cir. 1989) is the leading case for

determining abuse under § 707(b)(3).14 Under Krohn, a finding of abuse can be made when there

is a want of “need” for Chapter 7 relief. See id. at 126. In this case, the UST asserts that the

Debtors are not “needy” because they have $1,396.43 (actually, $1,252.32) in monthly disposable

income available to pay their debts.

“Among the factors to be considered in deciding whether a debtor is needy is [his or her]

ability to repay [his or her] debts out of future earnings.” Id. (citing In re Walton, 866 F.2d 981

(8th Cir.1989) and In re Kelly, 841 F.2d 908 (9th Cir. 1988)). “That factor alone may be

13 Mot. to Dismiss (Docket # 18) at 1, 7.

14 Krohn was decided before the enactment of the Bankruptcy Abuse Prevention and Consumer

Protection Act of 2005 (“BAPCPA”) and thus applied the “substantial abuse” standard stated in the pre-

BAPCPA § 707(b). Courts in the Sixth Circuit continue to apply the analysis of Krohn to determine

whether there is “abuse” under current § 707(b)(3)(B). See In re Weixel, 494 B.R. 895, 901 (B.A.P. 6th

Cir. 2013) (“Although BAPCPA changed the standard of substantial abuse to abuse and eliminated the

presumption in favor of the debtor being granted relief, § 707(b)(3) otherwise essentially codifies the

principles of pre-BAPCPA case law concerning § 707(b)”); see also Moutousis v. United States Trustee

(In re Moutousis), 418 B.R. 703, 707-08 (E.D. Mich. 2009); In re Zaporski, 366 B.R. 758 (Bankr. E.D.

Mich. 2007).

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sufficient to warrant dismissal. For example, a court would not be justified in concluding that a

debtor is needy and worthy of discharge, where his disposable income permits liquidation of his

consumer debts with relative ease.” Krohn, 886 F.2d at 126; see also In re Modiri, 474 B.R. 511,

514 (Bankr. E.D. Mich. 2012) (“Clearly, it is an abuse of Chapter 7 for a debtor to seek a

discharge of debts that the debtor can pay, since the purpose of bankruptcy is to grant relief to

those debtors who cannot pay their debts.”).

The Court in Krohn further stated:

Other factors relevant to need include whether the debtor enjoys a

stable source of future income, whether he is eligible for

adjustment of his debts through Chapter 13 of the Bankruptcy

Code, whether there are state remedies with the potential to ease

his financial predicament, the degree of relief obtainable through

private negotiations, and whether his expenses can be reduced

significantly without depriving him of adequate food, clothing,

shelter and other necessities.

Krohn, 886 F.2d at 126-27.15 An additional factor is “whether the debtor’s financial situation is

the result of an unforeseen catastrophic event.” Behlke v. Eisen (In re Behlke), 358 F.3d 429, 437

(6th Cir. 2004).

15 The district court in Moutousis agreed that the Krohn factors continued to be relevant after

BAPCPA. But the court rejected the United States Trustee’s argument that “a bankruptcy court can

dismiss a petition based on the ability to pay without considering any other circumstances.” Id. at 708.

The court found the argument:

inconsistent both with the language of Krohn and that of the statute,

which requires the bankruptcy court to determine whether the petition is

an abuse of Chapter 7 under the ‘totality of circumstances’ of the

debtor’s financial situation. A better reading of Krohn is that the ability

of the debtor to repay his debts out of future earnings may be the

dispositive factor, but it does not permit the bankruptcy court to fail to

consider the other Krohn factors in determining whether the petition is

abusive under the totality of the circumstances.

Moutousis, 418 B.R. at 709.

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B. Consideration of Social Security income in the § 707(b)(3) “abuse” inquiry

1. Statutory provisions relating to Social Security income

The UST argues that when the Debtors’ Social Security income is included, the Debtors

have a substantial monthly surplus with which to pay their debts. But according to the Debtors,

the Court cannot consider their Social Security income at all, in determining the Debtors’ ability

to pay their debts, as part of the “totality of the circumstances of [the Debtors’] financial

situation” under § 707(b)(3)(B).

The Debtors point out that the Bankruptcy Code expressly excludes Social Security

benefits from the definition of “current monthly income.” 11 U.S.C. § 101(10A)(B)(ii)(I). This

exclusion has two direct statutory effects of possible relevance here. First, in Chapter 7 cases,

Social Security income is not considered in calculating whether a presumption of abuse exists

under the means test provisions of § 707(b)(2). Rather, the only income considered under the

means test is that which is within the definition of “current monthly income.” See 11 U.S.C.

§ 707(b)(2)(A)(i).

Second, in Chapter 13 cases, Social Security income is not considered in determining

whether a proposed plan meets the confirmation requirement that “all of the debtor’s projected

disposable income to be received” during the plan’s “applicable commitment period”16 “will be

applied to make payments to unsecured creditors under the plan.” See 11 U.S.C.

16 In the Sixth Circuit, for a Chapter 13 plan that does not pay unsecured creditors in full, the

“applicable commitment period” determines the minimum length that the Chapter 13 plan must run —

either 3 years or 5 years — depending on whether the debtor’s current monthly income is below the

applicable State’s median family income or above it. See 11 U.S.C. §§ 1322(d)(1), 1322(d)(2),

1325(b)(1)(B); Baud v. Carroll, 634 F.3d 327, 338, 344, 356-57 (6th Cir. 2011); see also In re Riggs, 495

B.R. 704, 716 (Bankr.W.D.Va. 2013).

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§ 1325(b)(1)(B). That is because the term “disposable income” as used in § 1325(b) includes

only “current monthly income.” See 11 U.S.C. § 1325(b)(2).

The direct effect of these provisions in a Chapter 7 case is that a debtor’s Social Security

income is disregarded entirely in determining whether the case is an “abuse” of Chapter 7 under

the means test provisions of § 707(b)(2). (The effect of these provisions in a Chapter 13 case is

discussed in part IV.C of this Opinion.) This is why, for example, the Debtors in this case have

no problem with the means test under § 707(b)(2). Disregarding the Debtors’ Social Security

income, which is roughly 69% of their total income, and counting only their other income,

insures that the presumption of abuse under § 707(b)(2) does not arise.17

But in contrast to § 707(b)(2), there is no language in the “totality of the circumstances”

provision of § 707(b)(3) expressly requiring the Court to disregard the Debtors’ Social Security

income.

The Debtors further cite the anti-assignment provisions of a Social Security statute, 42

U.S.C. § 407. That section is discussed in more detail in part IV.D of this Opinion. Among

other things, that section says that Social Security benefits are not “subject to execution, levy,

attachment, garnishment, or other legal process, or to the operation of any bankruptcy or

insolvency law.” 42 U.S.C. § 407(a). Inclusion of the phrase “or to the operation of any

bankruptcy . . . law” in this section has led some courts to hold that a bankruptcy debtor’s right to

receive Social Security benefits is not property of the bankruptcy estate under 11 U.S.C.

§ 541. See, e.g., Carpenter v. Ries (In re Carpenter), 614 F.3d 930, 936 (8th Cir. 2010). This is

17 This is reflected by the means test form filed by the Debtors in this case, Official Form 122A-

1 (Docket # 4).

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so even though the Bankruptcy Code’s exemption provisions, 11 U.S.C. § 522, provide

exemptions for Social Security benefits. See 11 U.S.C. §§ 522(b)(3)(A) (a debtor electing state

law exemptions also has the benefit of any non-bankruptcy exemptions under federal law);

522(b)(2) and 522(d)(10)(A) (a debtor electing the federal exemptions under § 522(d) has an

exemption for the “right to receive — a social security benefit”). Providing exemptions for

Social Security benefits in § 522 implies that Social Security benefits can be property of the

bankruptcy estate under § 541. This is because § 522 only permits the debtor to “exempt from

property of the estate” the types of property listed in § 522. See 11 U.S.C. § 522(b)(1).

In any case, the Debtors argue that the statutory provisions just described show a

Congressional intent to completely protect the Debtors’ Social Security income from the effects

of any bankruptcy case. And, the Debtors say, such Congressional intent requires the Court to

disregard the Debtors’ Social Security income in deciding whether this case is an abuse under

§ 707(b)(3).

But there is nothing that actually says this, in § 707(b)(3) or anywhere else in the

Bankruptcy Code.

The Debtors also argue that it makes no sense to invoke § 707(b)(3) against them,

because if they were forced to proceed in Chapter 13, they would be able to confirm a plan that

pays nothing to their unsecured creditors. This argument is based, in part, on the fact that Social

Security income is not counted as part of the Debtors’ “projected disposable income” under

§ 1325(b)(1)(B), as noted above. The Court discusses that argument in part IV.C of this Opinion.

2. Case law

Courts have reached differing conclusions on the question of whether Social Security

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income may be considered in deciding whether to dismiss a Chapter 7 case for abuse under

§ 707(b)(3). The Sixth Circuit Court of Appeals has not ruled on the issue.

i. Cases favoring the UST’s position

The court in the case of In re Calhoun, 396 B.R. 270 (Bankr. D.S.C. 2008), aff’d. on

other grounds sub nom. Calhoun v. U.S. Trustee, 650 F.3d 338 (4th Cir. 2011),18 did consider the

Social Security income of the debtors in finding abuse under § 707(b)(3)(B). The debtors in

Calhoun reported a monthly net income of $133.00 on Schedule J. The debtors had included, in

their calculation of monthly expenses on Schedule J, $1,538.00 in excluded Social Security

income. Id. at 272. In considering the debtors’ ability to pay their debt, the Calhoun court

stated:

In the case at hand, testimony and other evidence establishes the

Debtors’ ability to make a substantial payment to their creditors.

The Court’s analysis must begin with Schedules I and J. Debtors

admit to $133.00 per month of disposable income. The Debtors

report and then subtract income from Social Security shielding it

from creditors. This is not proper. In two instances Social

Security benefits are specifically excluded from income

calculations by the Bankruptcy Code. Income received under the

Social Security Act is excluded from “current monthly income” in

computing the means test for the purpose of determining whether a

presumption of abuse arises under § 707(b)(2). See

§ 101(10A)(B). Social Security income is also excluded from the

calculation of disposable income for above median income chapter

13 debtors. See §§ 1325(b)(2); 101(10A)(B) . . . Congress clearly

knew how to exclude benefits under the Social Security Act from

consideration but did not do so in connection with the

§ 707(b)(3)(B) totality of the circumstances test. Because this test

was added to the Bankruptcy Code at the same time exclusions of

18 The Fourth Circuit Court of Appeals did not consider the question of whether the

consideration of Social Security income was proper in the § 707(b)(3)(B) context, because the court

found that the debtors had the ability to pay their creditors even without considering their Social Security

income. Calhoun v. U.S. Trustee, 650 F.3d 338, 342-43 (4th Cir. 2011).

11

Social Security Act income were added to other sections of the

Bankruptcy Code the failure to exclude the benefits is even more

significant. Such income should not therefore be excluded from

consideration in analyzing ability to pay as a component of the

totality of the debtor’s financial circumstances under § 707(b)(3).

Calhoun, 396 B.R. at 276 (citations omitted).

In re Riggs, 495 B.R. 704 (Bankr. W.D. Va. 2013), is another case where the court held

that Social Security income should be considered under the § 707(b)(3)(B) “totality of the

circumstances” test. In so holding, the court reconciled § 707(b)(2)(A) (the presumption of abuse

standard which utilizes the debtor’s “current monthly income” — defined in § 101(10A) as

excluding Social Security income) with § 707(b)(3)(B) (the totality of circumstances standard):

[This Court] believes that the plain meaning of the “totality of [the

debtor’s] financial situation” is that the receipt of Social Security

benefits, clearly a reliable and continuing source of income, is part

of that “totality,” a term which strikes this Court as being as

inclusive as it is possible to employ. It finds nothing in § 707(b)(1)

or (b)(3) to suggest that Congress intended to exclude wholly the

fact of a debtor’s receipt of Social Security income from any

consideration whatsoever in evaluating the complete picture of a

debtor’s financial circumstances, as in fact it did do with respect to

qualifying charitable contributions.19 Second, it believes that

Congress recognized that while Social Security income is part of

the entire financial picture, it is also “special” and intended for a

special purpose. Therefore, it should not be treated the same as

other regular income which a bankruptcy debtor might enjoy.

Accordingly, its receipt is excluded from the operation of general

automatic rules which otherwise would require dismissal of a

Chapter 7 petition or would require that a Chapter 13 debtor must

propose a five year plan or devote all projected disposable income

to the payment of unsecured indebtedness. Lastly, Congress

recognized that, in a particular case, a debtor’s receipt of Social

Security income, taking into account all other relevant

circumstances presented in that case, might well support a

19 The Court notes that this reference in the Riggs case to charitable contributions is to the

language in 11 U.S.C. § 707(b)(1), which is quoted in footnote 21 of this Opinion.

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conclusion that the case represented an abusive filing under the

general provisions of Chapter 7, or that the use of some of a

debtor’s Social Security income towards the funding of a Chapter

13 plan might be necessary for the court to be persuaded of the

debtor’s good faith or to satisfy other applicable requirements for

plan confirmation, such as, for example, the Chapter 7 “liquidation

test” contained in § 1325(a)(4). To be sure, making such decisions

is not as easy as applying fixed and very objective rules or criteria

in deciding whether a specific Chapter 7 case should be permitted

to go forward or a particular Chapter 13 plan should be confirmed,

but that is ultimately the critical role of a judge—to make fine

distinctions and determinations in those close cases which arguably

could go either way. Congress seems to have recognized that it just

was not possible to anticipate every situation which might arise, or

to devise detailed rules which could fairly and appropriately decide

every case, or perhaps even to provide an entirely satisfactory all

encompassing definition of what constitutes “abuse” of Chapter 7

by consumer debtors. Assuming that Congress wished to provide

for cases demonstrating “abuse” by consumer debtors but not

coming within the parameters of the “automatic” rules, it probably

had no viable alternative to giving bankruptcy judges the discretion

to weigh all of the circumstances in those atypical cases in the hope

that most of the time they would be appropriate gate keepers to

access to bankruptcy relief. This balancing of all factors presented

in particular cases, including both the receipt of and the special

nature and intended purpose of Social Security income, seems to

this judge to provide the best coherent and “holistic” understanding

of these statutory provision

Riggs, 495 B.R. at 716-17 (footnote omitted) (footnote added).

In re Booker, 399 B.R. 662, 667 (Bankr. W.D. Mo. 2009), also held that Social Security

income could be considered in determining whether the totality of the circumstances

demonstrates abuse under § 707(b)(3). The Booker court rejected the debtors’ argument that the

exclusion of Social Security income from the definition of current monthly income in 11 U.S.C.

§ 101(10A)(B) indicated Congressional intent that Social Security income was not required to be

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committed to the payment of unsecured creditors.20 Id.

ii. Cases favoring the Debtors’ position

Other courts have held that Social Security income cannot be considered part of the

“totality of circumstances” under § 707(b)(3)(B). In re Moriarty, 530 B.R. 637 (Bankr. W.D.

Va. 2015), for example, rejected the distinction made by the Riggs case, between the statutory

exclusion of Social Security income under § 707(b)(2)(A) (the means test) and the absence of

such exclusion language in § 707(b)(3)(B). Id. at 645.

The Court . . . cannot read the statute in isolation from the context

of the entire statutory scheme. Congress specifically excluded

Social Security benefits from consideration in the Means Test,

meaning such income could not give rise to a presumption of

abuse, no matter the amount received. It would make no sense for

Congress to specifically exempt Social Security income from the

Court’s consideration in determining abuse under the Means Test,

but then for the Court [to] find abuse based on the debtor’s receipt

of such income anyway. Thus, reading the statutory scheme as a

whole, the most natural understanding of the provision would

exclude Social Security income from consideration.

Id. at 646 (footnote omitted); see also In re Suttice, 487 B.R. 245, 254 (Bankr. C.D. Cal.2013)

(“[T]his Court is persuaded that Congress intended social security benefits to be protected from

inclusion in a § 707(b)(3)(B) analysis . . . as shown by the Debtors’ social security income being

20 In a later case, the judge issuing the Booker decision changed his position, and ruled that

Social Security income “should not be considered in assessing the totality of a debtor’s financial

circumstances when ruling on a motion to dismiss under § 707(b)(3)(B).” See In re Johnson, No. 13-

20542, 2014 WL 814740, at *4 (Bankr. W.D. Mo. Feb. 28, 2014).

The change in position was based upon an intervening decision by the Eighth Circuit Court of

Appeals, Carpenter v. Ries (In re Carpenter), 614 F.3d 930 (8th Cir. 2010). The Eighth Circuit, in

Carpenter, held that the “anti-assignment” provision of the Social Security Act, 42 U.S.C. § 407,

“operates as a complete bar to the forced inclusion of past and future social security proceeds in the

bankruptcy estate.” Id. at 936. The 42 U.S.C. § 407 issue was not raised in the Booker case.

This Court addresses the § 407 issue in part IV.C of this Opinion.

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definitively excluded from the means test of § 707(b)(2).”). Both Moriarty and Suttice cited

§ 407 of the Social Security Act as further support for the conclusion that Social Security benefits

are excluded from the totality of circumstances test. See Moriarty, 530 B.R. at 649; Suttice, 487

B.R. at 254. This Court addresses § 407 in part IV.C of this Opinion.

iii. This Court’s view

This Court is persuaded by Calhoun and Riggs that those cases take the better view —

that Social Security income should be included in the § 707(b)(3)(B) totality of circumstances

analysis. The Court finds it telling that the exclusion of Social Security income from

consideration for purposes of the § 707(b)(2) means test is made by clear and explicit language in

the Bankruptcy Code, while there is no such language in the Code that excludes such income for

purposes of the § 707(b)(3) “totality of the circumstances” test. If Congress intended to exclude

Social Security income from consideration under § 707(b)(3), Congress could have done so

expressly in Bankruptcy Code. The fact that Congress did not do so indicates that Congress did

not intend such an exclusion.

And it is clear that §§ 707(b)(2) and 707(b)(3) are separate and independent grounds for

finding abuse under § 707(b)(1). Courts “have uniformly held that the debtor’s ability to pay

may still be considered under Section 707(b)(3)’s totality of circumstances test notwithstanding

the debtor’s avoidance of the Section 707(b)(2) presumption [of abuse].” In re Mains, 451 B.R.

428, 435 (Bankr. W.D. Mich. 2011). As stated in In re Mestemaker, 359 B.R. 849, 854-55

(Bankr. N.D. Ohio 2007):

Specifically, in determining whether granting relief would be an

abuse of the provisions of Chapter 7 in a case in which the

presumption “does not arise or is rebutted,” a court is required to

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consider whether “the totality of the circumstances . . . of the

debtor’s financial situation demonstrates abuse.” 11 U.S.C.

§ 707(b)(3)(B). The plain meaning of the phrase “debtor’s financial

situation” must include a debtor’s actual income and expenses,

since such information is the starting point for any analysis of an

individual’s financial situation. There is no provision in § 707(b)

stating that the means test is the only method through which a court

may determine whether there is abuse based on a debtor’s ability to

pay. Rather, the plain language of § 707(b)(3), read in conjunction

with § 707(b)(1) and (2), is clear and compels a conclusion that a

court must consider a debtor’s actual debt-paying ability in ruling

on a motion to dismiss based on abuse where the presumption does

not arise or is rebutted.

Id.; see also In re Zaporski, 366 B.R. 758, 770 (Bankr. E.D. Mich. 2007) (“Section 707(b)(2)(A)

creates a statutory presumption of abuse in certain circumstances but offers no safe harbor to

those debtors with respect to whom this statutory presumption does not arise. Section 707(b)(3)

permits a court to dismiss for abuse even absent the statutory presumption. . . .”).

Thus, contrary to the conclusions reached by the courts in Moriarty and Suttice, the

exclusion of the Debtors’ Social Security income from the calculation of the means test under

§ 707(b)(2) does not imply that such income is also excluded under the totality of the

circumstances test of § 707(b)(3). Rather, it implies just the opposite. “Congress clearly knew

how to exclude benefits under the Social Security Act from consideration but did not do so in

connection with the § 707(b)(3)(B) totality of the circumstances test.” Calhoun, 396 B.R. at 276.

The Court also finds it telling that in providing for dismissal of a Chapter 7 case for abuse

in § 707(b)(1), Congress expressly precluded the courts from considering the debtor’s making

certain charitable contributions. See 11 U.S.C. § 707(b)(1).21 This further tends to show that if

21 Section 707(b)(1) states, in pertinent part:

In making a determination whether to dismiss a case under this section,

16

Congress intended to exclude Social Security income from consideration for § 707(b)(3)

purposes, Congress would have done so expressly in the Bankruptcy Code. But it did not, in

§ 707(b)(3) or in any other provision of the Code, and this indicates that Congress did not intend

such an exclusion.

C. Social Security income and a Chapter 13 plan

A primary way courts consider a debtor’s ability to pay, for the purposes of determining

whether there is abuse under 11 U.S.C. 707(b)(3)(B), is to assess whether the debtor has

sufficient disposable income to fund a Chapter 13 plan. See Behlke, 358 F.3d at 435; see also In

re Jones, 556 B.R. 327, 334 (Bankr. E.D. Mich. 2016).

In this case, the Debtors argue that it would be pointless for this Court to find abuse under

§ 707(b)(3), and thereby force the Debtors to convert to Chapter 13 or face dismissal. This is so,

the Debtors say, because in Chapter 13 they could confirm a plan that paid nothing to the

unsecured creditors. The Debtors argue that such a plan would meet all the requirements for

confirmation, including those in §§ 1325(b)(1)(B) and 1325(a)(3). Section 1325(b)(1)(B)

requires that if the Chapter 13 plan does not provide for full payment of unsecured claims, “the

plan provides that all of the debtor’s projected disposable income to be received in the applicable

commitment period . . . will be applied to make payments to unsecured creditors under the plan.”

11 U.S.C. § 1325(b)(1)(B). Section 1325(a)(3) requires that “the plan has been proposed in good

faith and not by any means forbidden by law.” 11 U.S.C. § 1325(a)(3).

the court may not take into consideration whether a debtor has made, or

continues to make, charitable contributions (that meet the definition of

“charitable contribution” under section 548(d)(3)) to any qualified

religious or charitable entity or organization (as that term is defined in

section 548(d)(4)).

17

The Debtors correctly note that their Social Security income cannot be considered in

calculating their “projected disposable income” for purposes of § 1325(b)(1)(B). See discussion

in part IV.B.1 of this Opinion; 11 U.S.C. §§ 1325(b)(1)(B), 1325(b)(2); Baud v. Carroll, 634

F.3d 327, 345 (6th Cir. 2011). So the Debtors could meet the requirement of § 1325(b)(1)(B)

without paying their unsecured creditors anything.

The Debtors also argue that, as a matter of law, the Court could not find a lack of good

faith solely because the Debtors proposed a plan that does not include the income they receive

from Social Security. Therefore, according to the Debtors, they could propose and confirm a

Chapter 13 plan that pays nothing to their unsecured creditors.

The Court disagrees, because the Debtors are incorrect about the § 1325(a)(3) good faith

requirement.

The Debtors’ argument raises an issue that is not yet settled in this Circuit — namely,

whether a court may find that a Chapter 13 plan is not “proposed in good faith” under 11 U.S.C.

§ 1325(a)(3), because the plan does not propose to pay available Social Security income. In Baud,

the Sixth Circuit recognized that courts around the country were split on a similar issue — i.e.,

whether an above-median-income debtor’s failure to commit available Social Security income to

pay unsecured creditors could be considered in the good faith analysis under 11 U.S.C.

§ 1325(a)(3). Baud, 634 F.3d at 346 n.13. The Sixth Circuit did not decide that issue in Baud,

because the debtors in that case had proposed to commit their Social Security income to pay

unsecured creditors. Id.

More generally, Sixth Circuit cases have held that in assessing a Chapter 13 debtor’s

“good faith,” the courts must consider the totality of the circumstances, including the debtor’s

18

ability to pay creditors. See Soc’y Nat’l Bank v. Barrett (In re Barrett), 964 F.2d 588, 591-92 (6th

Cir. 1992). In conducting a good faith analysis, “[t]he bankruptcy court must ultimately determine

whether the debtor’s plan, given his or her individual circumstances, satisfies the purposes

undergirding Chapter 13: a sincerely-intended repayment of pre-petition debt consistent with the

debtor’s available resources.” Metro Employees Credit Union v. Okoreeh-Baah (In re Okoreeh-

Baah), 836 F.2d 1030, 1033 (6th Cir. 1988) (emphasis added). The Court must consider the

following factors, several of which directly concern the debtor’s ability to pay:

(a) the amount of income of the debtor and the debtor’s spouse

from all sources;

(b) the regular and recurring living expenses for the debtor and his

dependants;

(c) the amount of the attorney’s fees to be awarded in the case and

paid by the debtor;

(d) the probable or expected duration of the Chapter 13 plan;

(e) the motivations of the debtor and his sincerity in seeking relief

under the provisions of Chapter 13;

(f) the ability of the debtor to earn and the likelihood of future

increase or diminution of earnings;

(g) special situations such as inordinate medical expense, or unusual

care required for any member of the debtor’s family;

(h) the frequency with which the debtor has sought relief under any

section or title of the Bankruptcy Reform Act or its predecessor’s

statutes;

(i) the circumstances under which the debtor has contracted his debts

and his demonstrated bona fides, or lack of same, in dealing with his

creditors;

(j) whether the amount or percentage of payment offered by the

19

particular debtor would operate or be a mockery of honest,

hard-working, well-intended debtors who pay a higher

percentage of their claims consistent with the purpose and spirit

of Chapter 13;

(k) the burden which the administration of the plan would place on

the trustee; and

(l) the salutary rehabilitative provisions of the Bankruptcy Reform

Act of 1978 which are to be construed liberally in favor of the

debtor.

Okoreeh-Baah, 836 F.2d at 1032 n.3 (emphasis added); see also Hardin v. Caldwell (In re

Caldwell), 851 F.2d 852, 859 (6th Cir. 1988); Hardin v. Caldwell (In re Caldwell), 895 F.2d 1123,

1126-27 (6th Cir. 1990); Alt v. United States (In re Alt), 305 F.3d 413, 419 (6th Cir. 2002); Copper

v. Copper (In re Copper), 426 F.3d 810, 815 (6th Cir. 2005).

1. Cases that favor the Debtors’ narrower view of “good faith” under § 1325(a)(3)

Some courts have held that Social Security income cannot be considered in the Chapter 13

good faith analysis. See, e.g., Anderson v. Cranmer (In re Cranmer), 697 F.3d 1314, 1319 (10th

Cir. 2012); Drummond v. Welsh (In re Welsh), 711 F.3d 1120, 1132 (9th Cir. 2013); Vadenbosch v.

Waage (In re Vandenbosch), 459 B.R. 140, 144 (M.D. Fla. 2011); In re Manzo, 577 B.R. 759, 768

(N.D. Ill. 2017); In re Ogden, 570 B.R. 432, 438 (Bankr. N.D. Ga. 2017), amended on other

grounds, No. 16-12280, 2017 WL 2124413 (Bankr. N.D. Ga. May 15, 2017); see also Beaulien v.

Ragos (In re Ragos), 700 F.3d 220, 226-27 (5th Cir. 2012). These courts are persuaded by the fact

that Congress specifically excluded Social Security income from the calculation of “projected

disposable income” that must be paid to unsecured creditors in a Chapter 13 case under

§ 1325(b)(1)(B). See, e.g., Welsh, 711 F.3d at 1131 (“We cannot conclude, however, that a plan

prepared completely in accordance with the very detailed calculations that Congress set forth is not

20

proposed in good faith. To hold otherwise would be to allow the bankruptcy court to substitute its

judgment of how much and what kind of income should be dedicated to the payment of unsecured

creditors for the judgment of Congress.”); Ragos, 700 F.3d at 227 (“Having already concluded that

Debtors’ plan fully complied with the Bankruptcy Code, it is apparent that Debtors are not in bad

faith merely for doing what the Code permits them to do. We thus hold that retention of exempt

social security benefits alone is legally insufficient to support a finding of bad faith under the

Bankruptcy Code.”).

In the case of In re Mihal, No. 13-54435, 2015 WL 2265790 (Bankr. E.D. Mich. May 6,

2015) another judge of this Court followed the Welsh and Cranmer line of cases discussed above,

and concluded that the Chapter 13 debtors’ failure to include any of their Social Security income in

their plan did not constitute a lack of good faith under § 1325(a)(3).22 In reaching this conclusion,

the Court reasoned:

The good faith requirement in § 1325 has been a part of the

Bankruptcy Code since its enactment in 1978, and “good faith” is

undefined in the Bankruptcy Code. In re Welsh, 711 F.3d at 1127. In

the Sixth Circuit, “good faith” has been defined as a subjective

analysis of the totality of the circumstances including, but not limited

to, a twelve factor test stated In re Okoreeh–Baah, 836 F.2d 1030,

1032 (6th Cir.1988) and in other cases. As such, the good faith

requirement is an amorphous, flexible, and nearly boundless

requirement, meant to be tailored and responsive to a myriad of

circumstances, even such not specifically provided for in the

Bankruptcy Code. A debtor’s refusal to include his or her Social

Security income as part of their “disposable income” however,

cannot be categorized or described as general. On the contrary, it is

unmistakably statutorily specific that a debtor is required to commit

all of his or her “disposable income” to the Chapter 13 plan, and that

“disposable income” is defined to specifically exclude Social

22 The trustee in In re Mihal did not assert that there was any other basis for finding a lack of

good faith. Mihal, 2015 WL 2265790, at *2.

21

Security income. Section 1325(a), which contains the good faith

requirement, begins with the phrase “except as provided in

subsection (b)”, thereby explicitly referring and giving precedence to

subsection (b), which, as noted, clearly states that Social Security

income is not part of a debtor’s disposable income. In that sense,

“[w]hen Congress speaks directly to one of the good faith factors, the

judicial good faith inquiry is narrowed accordingly.” In re Welsh,

711 F.3d at 1131. To adopt the Trustee’s position would be to

render this specific statutory exclusion meaningless, and to invalidate

the benefits of this exclusion under the guise of the “good faith”

requirement.

.

In re Mihal, 2015 WL 2265790, at *2.

2. Cases that take a broader view of § 1325(a)(3) “good faith”

Other courts have held that Social Security income may be considered as part of the

Chapter 13 good faith analysis. In the case of In re Upton, 363 B.R. 528 (Bankr. S.D. Ohio 2007),

the debtors proposed a Chapter 13 plan that committed only a portion of their monthly Social

Security income to pay unsecured creditors. The court noted that some courts have “opined that

the express exclusion of social security income [from the calculation of ‘projected disposable

income’ under § 1325(b)(1)(B)] eliminates the elements of debtor’s income and surplus from the

good faith analysis.” Id. at 536. But the Upton court rejected that view:

As have many other courts, the Sixth Circuit Court of Appeals has

specified the debtor’s income and surplus as factors for consideration

in the determination of good faith. Congress, armed with the

knowledge of that interpretation, did not amend the requirement of

good faith contained in § 1325 or the elements to be considered in

that analysis. Congress is presumed to know the case law

interpreting a statute, and if no amendment to the statute is crafted,

then Congress is presumed to be satisfied with the effect of the

statute as applied by the courts. Furthermore, Congress . . . indicated

a clear intent to curb opportunistic filings and its displeasure with the

practice of allowing debtors, who are able to repay their debts, to

avoid their obligations to creditors.

22

In re Upton, 363 B.R. at 536 (footnote omitted) (citations and quotations omitted). In examining

the facts in the case before it, the Upton court noted:

According to Schedule J, the Debtors in this case have net monthly

income in the amount of $2,689.98, and their monthly chapter 13

plan payment is only $2,150. As a result, the Debtors have

approximately $539 of monthly net income that is not being

committed to the plan, which will allow the Debtors to accumulate

approximately $32,340 in savings, or surplus, over the life of the

plan. This fact weighs heavily against a finding that the Debtors’

plan is proposed in good faith pursuant to 11 U.S.C. § 1325(a)(3).

. . . [N]either the projected disposable income test, nor § 1325(a)(3)’s

good faith requirement, either independently or in combination,

permit debtors to accumulate savings while paying unsecured

creditors less than 100%. Unless the Debtors can show justification

for reserving such an amount, the Court would find it difficult to

approve the Debtors’ plan as proposed.

In re Upton, 363 B.R. at 536-37 (citation omitted); see also In re Bartelini, 434 B.R. 285, 297

(Bankr. N.D.N.Y. 2010) (citing 11 U.S.C. § 1325(a)(3) (“[T]his Court also recognizes, as did [the

court in Upton], that a debtor’s failure to commit [Social Security Income] for purposes of

repaying the maximum amount to creditors may be considered as one of many factors under a

totality of the circumstances inquiry to determine good faith.”).

Similarly, the court in In re Thomas, 443 B.R. 213, 217 (Bankr. N.D. Ga. 2010), rejected

the notion that compliance with § 1325(b) is sufficient to satisfy the good faith requirement of 11

U.S.C. § 1325(a)(3). Although the court in Thomas stated “it should be the rare debtor whose

proposed plan is technically in compliance with § 1325(b) but cannot meet the burden of good

faith,” the court went on to conclude, that, in the case before it:

Debtor’s plan, however, does not pass the requirement of good faith

under § 1325(a)(3). As Trustee noted, if Debtor contributed all his

Schedule J net monthly income to his plan, all unsecured creditors

could be paid in full within twenty-one months. Debtor’s plan

23

instead creates a surplus of more than two times his plan every

month without any payment to unsecured creditors. Considering the

totality of the circumstances, Debtor’s plan is not proposed in good

faith; a balance must be struck.

Id. at 219 (emphasis in original).23

Finally, in the case of In re Mains, 451 B.R. 428 (Bankr. W.D. Mich. 2011), aff’d sub nom.

Mains v. Foley, Nos. 1:11-CV-456, 1:11-CV-740, 2012 WL 612006 (W.D. Mich. 2012), the

debtors had $6,321.19 in after tax monthly income, $2,905.00 of which was from Social Security

benefits. The debtors’ Schedules I and J showed a monthly net income of $1,339.30. Id. at 429.

But the debtors proposed in their Chapter 13 plan to pay only $324.00 per month. They argued that

the plan was proposed in good faith because their Social Security benefits should not be

considered. Id. at 429-30.

The bankruptcy court in Mains noted that, although the Sixth Circuit has not yet decided

whether Social Security benefits should be included in the § 1325(a)(3) good faith analysis, Sixth

Circuit decisions “clearly establish that ability to pay remains an important factor in assessing a

debtor’s good faith under Section 1325(a)(3).” Id. at 434 (citing In re Okoreeh-Baah, 836 F.2d at

1037). The court reasoned:

Therefore, this court sees no reason why the Sixth Circuit would not

take into consideration all of a debtor’s income, including social

security benefits, in considering the sincerity of his repayment plan

regardless of whether those benefits were included or not under

Section 1325(b). After all, “Best efforts under 11 U.S.C.

§ 1325(b), without more, are not enough.”

23 Another bankruptcy judge in the Northern District of Georgia disagreed with the Thomas

court’s conclusion. See In re Ogden, 570 B.R. 432, 438 (Bankr. N.D. Ga. 2017), amended on other

grounds, No. 16-12280, 2017 WL 2124413 (Bankr. N.D. Ga. May 15, 2017), cited previously in this

Opinion.

24

In re Mains, 451 B.R. at 434 (quoting Hardin v. Caldwell (In re Caldwell), 895 F.2d 1123, 1126

(6th Cir. 1990)).

The Mains court went on to note that courts that have adopted a “safe harbor”approach to

§ 1325(b) ignore how courts have “addressed similar issues in connection with the interplay

between Sections 707(b)(2) and (b)(3).” Id.

The similarities between these two subsections and Sections

1325(a)(3) and 1325(b) are unmistakable. Each section includes an

intentionally vague term—in Section 707(b) it is “abuse” and in

Section 1325(a) it is “good faith” — and then complements it with

an objective test. Indeed, Congress incorporated into Section

1325(b) the very same means test it added to Section 707(b) in the

2005 amendments. And Section 707(b)(3) also uses the same phrase

— totality of the circumstances — that the Sixth, Seventh, Ninth,

and Tenth Circuits have all used in describing how good faith is to

be determined under Section 1325(a)(3).

Given these similarities, one would expect that courts also would be

split over whether Section 707(b)(2)’s objective assessment of the

debtor’s available income precludes further consideration of the

same under Section 707(b)(3). However, while some academics

have advocated a safe harbor approach, no court has reached this

conclusion. Courts instead have uniformly held that the debtor’s

ability to pay may still be considered under Section 707(b)(3)’s

totality of the circumstances test notwithstanding the debtor’s

avoidance of the Section 707(b)(2) presumption. . . .

. . . .

If, though, courts are satisfied that a debtor’s ability to pay is relevant

for purposes of Section 707[(b)](3), then without question a debtor’s

ability to pay must also be included in assessing the debtor’s good

faith under Section 1325(a)(3). Otherwise, the whole purpose of

Sections 707(b)(2) and (b)(3) would be defeated. Debtors’ situation

is a case in point. Remember, Debtors are not willing participants in

this Chapter 13 proceeding. They would have preferred not paying

their creditors at all by keeping their case in Chapter 7. Indeed, the

only reason they are proposing to pay even something in a Chapter

13 plan is because the totality of their circumstances, which included

consideration of the substantial amount of pension income Debtors

25

receive in addition to their social security benefits, evidenced an

abuse of the Chapter 7 process.

Debtors should not, then, be able to turn around and now abuse the

Chapter 13 process. There is no question that social security benefits

are to be excluded from the objective Section 1325(b) analysis, just

as these benefits are to be excluded from the Section 707(b)(2)

analysis. However, these benefits, when considered with the rest of

Debtors’ circumstances, are just as relevant to assessing whether

Debtors are proposing “a sincerely intended repayment of

pre-petition debt” under Section 1325(a)(3) as they were to assessing

whether Debtors’ financial situation evidenced abuse under Section

707(b)(3).

In re Mains, 451 B.R. at 434-36 (footnotes omitted).

3. This Court’s view of § 1325(a)(3)

This Court respectfully declines to follow Mihal and the other cases that take a narrower

view of the good faith requirement in § 1325(a)(3). Rather, this Court finds more persuasive the

reasoning in the Upton, Bartelini, Thomas, and Mains cases discussed above.

Under this Court’s view of the “good faith” confirmation requirement of § 1325(a)(3), it is

very doubtful that the Debtors in this case could confirm a plan that paid the unsecured creditors

nothing. It is much more likely that the Debtors could confirm only a plan that paid their

unsecured creditors in full.

Contrary to the Debtors’ argument, therefore, it is not pointless to find that the Debtors’

attempted use of Chapter 7, rather than pursuing relief under Chapter 13, is an abuse.

D. 42 U.S.C. § 407 and the consideration of Social Security income

The Debtors argue that regardless of whether the Bankruptcy Code permits the

consideration of Social Security income for the purposes of § 707(b)(3)(B) or § 1325(a)(3), the

Social Security Act prevents consideration of such income. The Debtors cite the “anti-assignment”

26

provision in 42 U.S.C. § 407(a). That section states, in pertinent part:

The right of any person to any future payment under this subchapter

shall not be transferable or assignable, at law or in equity, and none

of the moneys paid or payable or rights existing under this

subchapter shall be subject to execution, levy, attachment,

garnishment, or other legal process, or to the operation of any

bankruptcy or insolvency law.

42 U.S.C. § 407(a). Additionally, § 407(b) states:

No other provision of law, enacted before, on, or after April 20,

1983, may be construed to limit, supersede, or otherwise modify the

provisions of this section except to the extent that it does so by

express reference to this section.

42 U.S.C. § 407(b).

Section 407 “imposes a broad bar against the use of any legal process to reach all social

security benefits.” Hildebrand v. Soc. Sec. Admin. (In re Buren), 725 F.2d 1080, 1084 (6th Cir.

1984) (quoting Philpott v. Essex Cty. Welfare Bd., 409 U.S. 413, 416 (1973)). The Sixth Circuit in

Buren held that § 407 prevents bankruptcy courts from compelling the Social Security

Administration to pay a debtor’s Social Security benefits directly to a Chapter 13 trustee. Buren,

725 F.2d at 1087.

The Sixth Circuit has not ruled on whether § 407 prevents the consideration of Social

Security income in the Chapter 7 abuse analysis under § 707(b)(3), or in the § 1325(a)(3) good

faith analysis in a Chapter 13 case. Courts have reached differing results on the issue, with respect

to the Chapter 13 good faith analysis.

Some courts have held that the consideration of Social Security income in the Chapter 13

good faith analysis would violate 42 U.S.C. § 407. In Mihal, for example, the Court stated:

Absent any provision in the Bankruptcy Code on the subject of

inclusion of Social Security income, that provision [§ 407(a)] alone

27

can be seen as dictating the result the Debtors seek here. To mandate

that a debtor commit (or that there be taken into account for purposes

of the good faith determination) future Social Security payments

would be to necessarily subject such payments “to the operation of

any bankruptcy . . . law” by any definition of the term “operation.”

No one argues that a Chapter 13 debtor cannot voluntarily use Social

Security income to pay creditors through a confirmed plan or even

outside bankruptcy. That differs from where a bankruptcy court

mandates that such income be so utilized, lest confirmation be

denied in the first place.

In re Mihal, 2015 WL 2265790, at *3 (italics in original).

Again, this Court respectfully disagrees with Mihal. Rather, this Court finds persuasive the

§ 407 analysis employed by the district court in the case of Mains v. Foley, Nos. 1:11-CV-456,

1:11-CV 740, 2012 WL 612006 (W.D. Mich. Feb. 24, 2012). In that case, the district court

affirmed the decision of the bankruptcy court, described in Part IV.C.2 above. This Court agrees

with the district court’s reasoning about § 407:

[D]ebtors argue that considering Social Security benefits in the good

faith analysis effectively subjects them “to the operation of any

bankruptcy or insolvency law,” contrary to the Act. This Court

disagrees. The entire focus of section 407 is on a third party’s

compelled acquisition through legal process of someone else’s Social

Security benefits. That is not what the good faith test of the

Bankruptcy Code section 1325(a) is doing. The good faith test

simply requires a debtor to demonstrate good faith in its Chapter 13

plan proposal if the Debtor wishes to receive the benefits of Chapter

13. It is a transactional test no different in principle than a Social

Security beneficiary’s decision to use his or her benefits to purchase

anything of value that the beneficiary desires. No one would suggest

that such a beneficiary has immunity from paying the restaurant bill

he or she incurred just because the cash to pay came from Social

Security benefits. By the same token, nothing in section 407 of the

Social Security Act gives a debtor immunity from demonstrating

good faith as a pre-condition to confirmation of a Chapter 13 plan,

even if in a particular case — like this one — demonstrating good

faith requires including some or all of the Social Security benefits in

the plan.

. . . .

28

There is nothing in the two Sixth Circuit precedents cited by Debtors

that compels a contrary result. As already noted, Baud explicitly left

the question open for later decision. In re Buren, 725 F.2d 1080 (6th

Cir.1984), decided a question not presented here. In Buren, the Sixth

Circuit simply held that section 407 of the Social Security Act

prevents a bankruptcy court from imposing income deduction orders

on the Social Security Administration. Id. at 1087. Nothing in Buren

reaches the issue presented here of whether section 407 prohibits a

bankruptcy judge from considering Social Security benefits as one of

many factors in a subjective good faith assessment.

Mains v. Foley, 2012 WL 612006, at *5-6.

The Court also finds persuasive the dissenting opinion in Drummond v. Welsh (In re

Welsh), 465 B.R. 843 (B.A.P. 9th Cir. 2012), aff’d, 711 F.3d 1120 (9th Cir 2013), which stated:

[t]hat 42 U.S.C. § 407(a) may place Social Security benefits out of

the reach of, for example, a hungry chapter 7 bankruptcy trustee

trying to assemble funds to distribute to creditors is no justification

to disregard the existence of such income in judging a debtor’s good

faith in proposing a particular plan under Chapter 13. In a Chapter

13 case, a debtor’s Social Security benefits are not being garnished,

seized, or “subjected to” the reach of creditors. Plainly,

consideration of Social Security income does not violate either the

letter or spirit of 42 U.S.C. § 407(a) . . . .

Welsh, 465 B.R. at 859-60 (Pappas, J., dissenting).24

24 The bankruptcy court in Welsh found that the Chapter 13 trustee’s “good faith objection on

the basis of [Social Security income] cannot be sustained without running afoul of 42 U.S.C. § 407(a),”

because “Section 1325(a)(3) does not include the express reference to § 407 which § 407(b) requires in

order to limit or otherwise modify § 407(a)’s prohibition against ‘the operation of any bankruptcy . . .

law’ against [Social Security income].” In re Welsh, 440 B.R. 836, 850 (Bankr. D. Mont. 2010).

On appeal, the Bankruptcy Appellate Panel for the Ninth Circuit affirmed, and its majority

quoted 42 U.S.C. § 407, but did not analyze why consideration of Social Security income in the good

faith analysis under § 1325(a)(3) would violate 42 U.S.C. § 407. See In re Welsh, 465 B.R. 843, 855-56

(B.A.P. 9th Cir. 2012). The Ninth Circuit affirmed the bankruptcy court and the BAP decisions, but

noted that “[b]ecause we conclude that Congress’s adoption of the means test precludes us from

considering, as part of our good faith inquiry, a debtor’s retention of Social Security income, we have no

occasion to decide whether such consideration would violate § 407’s prohibition.” In re Welsh, 711 F.3d

1120, 1132 n.56 (9th Cir. 2013).

29

This Court agrees that the consideration of Social Security income in the good faith

analysis of 11 U.S.C. § 1325(a)(3) is not contrary to § 407 of the Social Security Act. Given the

similarities between the “subjective tests” of § 1325(a) (“good faith”) and § 707(b)(3)(B) (“totality

of circumstances . . . of the debtor’s financial situation”), see In re Mains, 451 B.R. at 434, it

follows that 42 U.S.C. § 407 does not bar the Court from considering the Debtors’ Social Security

income in the abuse inquiry under § 707(b)(3)(B).

E. The totality of circumstances of the Debtors’ financial situation in this case

This Court now considers “the totality of the circumstances” of the Debtors’ “financial

situation.” 11 U.S.C. § 707(b)(3)(B). As discussed previously, the ability of a debtor to repay his

or her debts out of future earnings is relevant to the determination of whether there is abuse under

§ 707(b)(3), based upon lack of need. Krohn, 886 F.2d at 126. Courts have found an ability to pay

under § 707(b)(3) when a debtor has sufficient disposable income to fund a Chapter 13 plan.

Behlke, 358 F.3d at 435; Jones, 556 B.R. at 334. As discussed in Part IV.D above, this Court

agrees with the UST that the Debtors’ monthly Social Security income is properly considered

under § 707(b)(3).

When the Debtors’ total monthly income, including their Social Security income, is

considered, the Debtors have disposable income of $1,252.32 per month. As described in Part III

of this Opinion, the Debtors’ Schedules I and J show a monthly surplus of total income over total

expenses (i.e., disposable income) of $1,396.43 per month. This amount is what Schedules I and J

show the Debtors have left each month, after paying their living expenses, including their home

mortgage payment of $900.00 per month and monthly payments totaling $630.55 on their two

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vehicle leases.25

The Debtors lease two vehicles, a 2019 Ford F150 pickup truck and 2018 Ford Escape.26

Lease assumption agreements filed recently show that the monthly payments on these leases are

$239.18 for the Ford Escape and $535.48 for the Ford F150, for a total of $774.66 per month, and

that the Debtors have remained current in their payments on both leases.27 Using these monthly

lease payment amounts, which are higher than the amounts listed by the Debtors in their Schedule

J, reduces the Debtors’ monthly disposable income from $1,396.43 to $1,252.32.

Based on this, it is clear that the Debtors could fund a Chapter 13 plan under which the

Debtors continue to pay their home mortgage and their vehicle lease payments, and repay all of the

their unsecured debts (which total $43,099.97) in full, in only 41 months, which is far less time

than the maximum 60 months that a Chapter 13 plan may run.28 This is the calculation:

Monthly surplus ($1,252.32) x 41 $ 51,345.12

less Chapter 13 Trustee Fee (7.5%) - $ 3,850.88

Subtotal $ 47,494.24

less attorney fee (if case converts) - $ 3,500.00

Amount available to pay unsecured

creditors $ 43,994.24

25 Schedule J (Docket # 1) shows a $900.00 per month mortgage payment, on Line 4, and

Schedule D (Docket # 1) and Line 5 of Schedule J together show that the Debtors have only one

mortgage on their home. Schedule J shows the two vehicle lease payments, on Lines 17a and 17b, of

$391.55 and $239.00 per month.

26 See Schedule G (Docket # 1).

27 See Lease Assumption Agreements, filed November 15, 2019 (Docket ## 28, 29) (each listing

the monthly lease payments and stating that the lease payments “are not in default”).

28 See 11 U.S.C. § 1322(d).

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In considering the totality of the circumstances of the Debtors’ financial situation, the Court

finds it significant that the Debtors’ sources of future income (social security and private

pension/retirement income) are stable and, as the above computation shows, the Debtors clearly

have the ability to fund a Chapter 13 that pays all of their unsecured debts in only 41 months. And

the Debtors, who have no dependents,” can do this even while continuing to drive their two nearly-

new and rather expensive leased vehicles. These factors “strongly suggest that [the Debtors] can

readily repay a substantial dividend to their creditors and that [they] do not need Chapter 7 relief.”

See Modiri, 474 B.R. at 514. The Debtors have not asserted any other circumstances that militate

against a finding of abuse. Nor is a finding of abuse negated by any of the other Krohn factors

noted in Part IV.A above.

The Court finds that granting the Debtors in this case a discharge under Chapter 7 would be

an abuse of Chapter 7. So under §§ 707(b)(1) and 707(b)(3), this case must be dismissed, or, if the

Debtors so choose, converted to Chapter 13.

V. Conclusion

For the reasons stated in this Opinion, the Court will enter an order granting the UST’s

Motion. The Order will allow the Debtors 14 days to file a motion to convert this case to Chapter

13, and provide that if no such motion is timely filed, the Court will dismiss this case.

Signed on January 27, 2020 SEM,

ma /s/ Thomas J. Tucker

ee a United States Bankruptcy Judge

°° See Schedule J (Docket # 1), Line 2.

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