SCHEDULE J of the bankruptcy petition shows the actual monthly expenses of the debtor. This is different from the means test which specifies the allowable deductions of debtor using IRS guidelines to determine if there is a presumption of abuse. What is a reasonable rent expense for a single person who files for bankruptcy? According to the means test $1,600 is reasonable rent for a single person. So what happens when a single person who files for bankruptcy has rent that is $3,000? The answer is that debtor’s case will be subject of a motion to dismiss filed by the US Trustee pursuant to § 707 (b), due to abuse of bankruptcy law. To successfully oppose this motion, debtor must convince the court that the rent of $3,000 is reasonable and necessary.
In Re Modiri, the Chapter 7 debtor had $81,850 in unsecured debt. According to Schedules I and J, he had monthly net income of $5,731 and expenses of $5,728. The US Trustee asked the court to dismiss the debtor’s case pursuant to 707 (b). The UST objected to the debtor’s $3,000 rent expense and the $1,000 transportation expense. At the hearing on the UST’s motion, the debtor testified that he moved to Southern California to look for work after being laid off for two years. He still owned a home in Michigan that was being foreclosed upon. He said he could not find cheaper rent because of his bankruptcy.
He also said he decided to rent vehicles on a short term basis rather than trying to buy a car. His monthly transportation expense included tolls and parking, as well as insurance purchased from the rental agency. When the court asked him about his apartment, the debtor admitted that it was virtually on the beach facing the Pacific Ocean. His living room and balcony overlooked his building’s pool, the Pacific Coast Highway, and the beach. The court found that the debtor’s housing expense was not reasonably necessary for his support. I mean, why rent by the beach for $3,000, when you can make friends with all the home boys in East LA, or the Crips in Watts, practically rent free? I can see where the Judge is coming from. But the ocean view was too much for the court to bear. Debtor testified that he was legally blind and could not enjoy the view. The court responded that “you may not be able to see it, but you can still smell it!”
“Plainly the debtor has rented an ocean-view apartment at a premium rental rate. The Court simply cannot credit the debtor’s testimony that his bankruptcy prevented him from finding a less expensive rental. In this regard, the Court notes that the Central District of California is the highest filing district in the country for bankruptcy; it seems highly unlikely that any of those debtors have been forced to rent ocean-view apartments because of their bankruptcies,” the court said. “In any event, when the debtor filed his petition, the applicable IRS local housing and utilities standard for Orange County, California, was $1,509 for rent or mortgage costs and $490 for non-mortgage expenses, for a total of $1,999. Accordingly, if the debtor’s housing expense comported with the IRS guideline, he would have $1,001 in additional net disposable income.” The court also found that the debtor’s transportation expense was unnecessarily high. It exceeded the IRS guideline by $209. “In a consumer bankruptcy case, the ‘totality of circumstances… of the debtor’s financial situation’ consists of the debtor’s income, expenses, assets and liabilities. Therefore, those are the factors that § 707(b) (3)(B) mandates the Court to consider. Based on the Court’s consideration of those factors, it finds that this case is an abuse of Chapter 7 because the debtor’s financial situation strongly suggests that he can readily repay a substantial dividend to his creditors and that he does not need chapter 7 relief,” the court said. The court gave debtor 14 days to convert his case to Chapter 13.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.
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