U.S. Bankruptcy Court Opinions

IN RE BRADSHAW, (E.D.Tenn. 2006) In re ROBIN LYNN BRADSHAW,
Chapter 7 Debtor. No. 06-50413. United States Bankruptcy
Court, E.D. Tennessee, Southern Division. August 25, 2006

Deborah A. Yeomans, Esq., Legal Aid of East Tennessee,
Inc., Johnson City, Tennessee, Attorney for Robin Lynn
Bradshaw

Margaret B. Fugate, Esq., Anderson, Fugate & Givens,
Johnson City, Tennessee, Chapter 7 Trustee.

MEMORANDUM

MARCIA PARSONS, Bankruptcy Judge

This chapter 7 case is before the court on the debtor’s
Amended Application for Waiver of the Chapter 7 Filing Fee
for Individuals Who Cannot Pay the Filing Fee in Full or
in Installments pursuant to 28 U.S.C. § 1930(f). For
the reasons set forth below, the application will be
denied. This is a core proceeding. See 28 U.S.C. §
157(b)(2)(A).

I.

The debtor Robin Lynn Bradshaw filed for bankruptcy relief
under chapter 7 on May 31, 2006. In her original Schedules I
and J, the debtor respectively lists her total combined
monthly income as $719.98 and her total monthly expenses as
$1,577.68, resulting in a negative monthly net income of
$857.70. In her Summary of Schedules, the debtor lists
$3,400.56 as her total assets, all of which is personal
property, and total liabilities in the amount of $14,809.
The debtor’s attorney also filed a Disclosure of
Compensation of Attorney for Debtor, stating that she had
agreed to receive no compensation for representing the
debtor.

On June 5, 2006, the debtor filed the Application for
Waiver of the Chapter 7 Filing Fee for Individuals Who
Cannot Pay the Filing Fee in Full or in Installments which
is presently before the court. The chapter 7 trustee,
Margaret B. Fugate, objected to the application on that
basis that the debtor’s payment advices and income tax
return reflected an average net monthly income of $927.75.
The trustee also asserted that because the debtor should
have included the Social Security income of her husband on
Schedule I, she has a sufficient surplus to permit payment
of the filing fee in installments.

The court scheduled a hearing on the matter for June 27,
2006. Prior thereto, on June 8, 2006, the debtor filed
amended Schedules A, I, and J. On the amended Schedules I
and J, the debtor respectively lists her total combined
monthly income as $1,924.98 and her total monthly expenses
as $1,702.68, resulting in monthly excess income of
$222.30. The debtor then amended her application on June
16, 2006, to reflect these changes in her income and
expenses. At the scheduled hearing, the debtor’s attorney
asserted that the debtor could not pay the filing fee based
on the totality of the circumstances, notwithstanding the
excess monthly income shown on the debtor’s amended
schedules and amended application. According to counsel, if
the debtor had claimed the full amount of expenses allowed
under Internal Revenue Service expense standards as
considered Page 2 by the court in In re Nuttall, 334 B.R.
921 (Bankr. W.D. Mo. 2005), the debtor would have a
negative monthly net income, thus making her unable to pay
the filing fee. More specifically, the debtor’s attorney
proffered that had the debtor claimed the full amount
allowable by the IRS for housing expenses, $679, instead of
claiming only $450, the debtor would have a monthly net
income of negative $7. The debtor’s attorney concluded by
stating that, despite any excess income, if any medical
expenses or other possible expenses were to arise in the
near future, the debtor would find herself in extreme
financial hardship. The debtor did not testify at the
hearing.

II.

Bankruptcy courts may now waive the filing fee in an
individual debtor’s chapter 7 case as a result of a
provision included in the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 (Pub.L. 109-8, §
418, 119 Stat. 23, 109) that added section (f) to 28 U.S.C.
§ 1905. In pertinant part, this new section
provides:

Under the procedures prescribed by the Judicial
Conference of the United States, the district court or the
bankruptcy court may waive the filing fee in a case under
chapter 7 of title 11 for an individual if the court
determines that such individual has income less than 150
percent of the income official poverty line (as defined by
the Office of Management and Budget, and revised annually
in accordance with section 673(2) of the Omnibus Budget
Reconciliation Act of 1981) applicable to a family of the
size involved and is unable to pay that fee in
installments. . . .

28 U.S.C. 1905(f)(1). Promulgated on August 11, 2005, the
Judicial Conference of the United States established the
following standards to assist the courts in determining a
debtor’s eligibility for a fee waiver under this new
provision:

1. The district court or the bankruptcy court may waive
the chapter 7 filing fee for an individual debtor who: (a)
has income less than 150 percent of the poverty guidelines
last published by the United States Department of Health
and Human Services (DHHS) applicable to a family of the
size involved; and (b) is unable to pay that fee in
installments.

2. The DHHS guidelines defines poverty guidelines
separately for: (a) the 48 contiguous states and the
District of Columbia; (b) Alaska; and (c) Hawaii. It does
not define guidelines for Puerto Rico, the U.S. Virgin
Islands, American Samoa, Guam, the Republic of the
Marshall islands, the Federated States of Micronesia, the
Commonwealth of the Northern Mariana Islands, and Palau.
For these areas, the guidelines for the 48 contiguous
states and the District of Columbia should be used. Page
3 The administrative Office of the United States Courts
will post the last published guidelines and the 150
percent comparison levels on the J-Net.

3. The income for comparison to the poverty guideline is
the “Total Combined Monthly Income” as reported (or as
will be reported) on Line 16 of Schedule I. Non-cash
governmental assistance (such as food stamps or housing
subsidies) is not included. The income of a spouse is
included whether or not a joint petition is filed, unless
the spouses are separated and a joint petition is not
filed. The income of any other family member listed on
Schedule I as a dependent also is included.

4. Family size” is defined as the debtor(s), the debtor’s
spouse (unless the spouses are separated and a joint
petition is not being filed), and any dependents listed on
Schedule I.

5. The district court or the bankruptcy court should
consider the totality of the circumstances in determining
whether the debtor is unable to pay the fee in
installments as provided for in amended Section 1930(f)(1)
of title 28, United States Code. Official Form 3B elicits
information relevant to this determination. A debtor is
not disqualified for a waiver of the filing fee solely
because the debtor has paid (or promised to pay) a
bankruptcy attorney, bankruptcy petition preparer, or debt
relief agency in connection with the filing.

6. In any determination regarding a filing fee waiver
application, the debtor has the burden of showing that the
application should be granted.[fn1]

In sum, in order to waive the filing fee for an individual
debtor pursuant to 28 U.S.C. § 1930(f), the debtor
must establish that he or she has income less than 150
percent of the poverty guidelines and inability to pay the
fee based on the totality of the circumstances.

Because the statute in issue only applies to chapter 7
cases filed on or after October 17, 2005, case law is still
limited. Three cases, however, have addressed the issue,
including the Nuttall decision cited by the debtor. In
Nuttall, the court found that the debtors did not have the
ability to pay the filing fee based on the totality of the
circumstances. After first concluding that the debtors
therein met the initial requirement of having income less
than 150 percent of the official income poverty line, the
court moved to an examination of the debtors’ expenses. In
re Nuttall, Page 4 334 B.R. at 923-24. Observing that
Congress has not set forth any guidelines as to “reasonable
expenses” in the waiver of fees context, the court stated
that the Internal Revenue Service guidelines, while not
controlling, “do establish a standard as to expenses which
have been accepted by Congress elsewhere as a starting
point in determining reasonableness.” Id. at 924. In this
regard, the Nuttall court found that the debtors’ expense
claims for housing and utilities, transportation, and other
living expenses were all below the IRS standards. Id.
Further, the court determined that the debtors did not have
any assets from which they could pay the filing fee and
noted that the debtors had neither paid nor promised to pay
anything to their bankruptcy attorney. Id. at 924-25.
Because the debtors’ expenses, which exceeded their monthly
income by almost five hundred dollars, were reasonable, the
court granted the debtors’ application to waive the filing
fee. Id. at 925.

In contrast, in In re Lineberry, 344 B.R. 487 (Bankr. W.D.
Va. 2006), the court found that the debtors did have the
ability to pay the filing fee in installments based on the
totality of the circumstances. After concluding that the
debtors had income less than 150 percent of the income
poverty line, the court followed the approach used in
Nuttall, namely an examination of the debtors’ expenses in
relation to IRS standards. Id. at 492. Although the
debtors’ living expenses exceeded the IRS standard by $49,
their transportation expenses were just below the IRS
regional standard, and, individually, each debtor’s housing
and utility expenses were well below IRS local standards.
Id. However, because the debtors filed a joint petition,
their housing and utility expenses had to be combined even
though the couple was separated and maintained separate
residences. Id. As a result, these expenses exceeded the
IRS local standard. Id. at 492-93.

In addition to this analysis of the debtors’ expenses, the
court found two other factors to be determinative. First,
the debtors received federal and state tax refunds for 2005
totaling $3,400 and divided the money equally between them.
The wife spent her half on various bills, clothing, and
taxes. Id. at 490. The husband never explained how he spent
his portion of the refund. Id. at 493. As such, the court
concluded that the debtors had failed to meet their burden
of demonstrating that they did not have the financial means
to pay the filing fee. Id. Second, the court discussed an
affidavit filed by the debtors, wherein the wife indicated
her intention to purchase a $489 school ring for their
fourteen-year-old son. Opining that paying the normal
governmental charge for bankruptcy Page 5 relief should be
a higher priority than the discretionary purchase of a
child’s ring, the court concluded that the debtors were
capable of arranging their finances to pay the filing fee.
Id.

Similarly, in In re Burr, 344 B.R. 234 (Bankr. W.D.N.Y.
2006), the court held that the debtor failed to meet her
burden of establishing by a preponderance of the evidence
that she lacked the ability to pay the filing fee in
installments. The debtor, an unmarried student with no
income and an infant child, testified that she was covered
by her father’s health insurance and had access to his
automobile and that she and her child were able to survive
by living with her boyfriend (the child’s father), who
provided for them. Id. at 236-37. In light of this
testimony, the court found that the debtor’s ability to pay
the filing fee turned on the total income and expenses of
the debtor’s household unit. Id. at 237. Because the
debtor provided neither evidence of household income nor
any explanation as to why her boyfriend’s income was not
relevant, the court concluded that she failed to meet her
burden. Id. The court found that the debtor, through the
support of others, enjoyed financial advantages most
debtors who pay the filing fee do not have, and that
expecting the debtor to find the necessary financial
support for the filing fee was not unreasonable. Id.

In the case at hand, reliance by the debtor on In re
Nuttal and its utilization of the IRS expense standards is
misplaced. Although the Nuttall court did consider the IRS
expense standards in its examination of the debtors’
expenses, the court correctly noted that the IRS guidelines
are not controlling and merely used the guidelines as a
starting point in evaluating the reasonableness of the
debtors’ claimed expenses. Such an analysis was necessary
in that case because the debtors’ monthly expenses exceeded
their monthly income, an occurrence often reflected in the
schedules of a debtor and, if left unrefuted, would usually
be determinative of a debtor’s inability to pay the filing
fee. In the present case, however, reference to the IRS
standards is not necessary. The debtor’s monthly income
exceeds her monthly expenses and there has been no
allegation that her expenses are unreasonable. Congress has
given no directive that the court apply the IRS standards
to applications to proceed in forma pauperis, in contrast
to the 11 U.S.C. § 707(b) means test where use of
the IRS standards is expressly mandated. See 11 U.S.C.
§ 707(b)(2)(A). Regardless of what the IRS guidelines
would indicate for an individual’s expenses, the debtor’s
sworn-to schedules establish that she has excess monthly
income of $222.30, an amount more than sufficient for her
Page 6 to pay the $299 filing fee in monthly installments.

As to counsel’s argument that the debtor needs this excess
income to pay possible medical expenses or any other
unforeseen expense which may arise in the future, the court
must respond that the debtor offered no evidence indicating
that such additional expenditures were likely, such as the
presence of a medical condition or disability, advanced
age, or the need to replace an older automobile. Absent
evidence as to the likelihood of such need, this court is
reluctant to conclude that the mere possibility of future
need is sufficient to warrant a finding that the debtor is
unable to pay the filing fee in this case.

In this regard, the court is cognizant of the fact that
waiver of the filing fee would result in the lack of
compensation to the chapter 7 trustee since the trustee is
compensated from the filing fee. Thus, this court will not
take lightly any request by a debtor to waive the filing
fee and will only grant a waiver where the debtor carries
her burden of establishing that her income is less than 150
percent of the poverty guidelines and that she is unable to
pay the fee in installments based on a totality of the
circumstances. The debtor herein having failed to establish
the latter,[fn2] her application will be denied.

III.

Accordingly, the court will enter an order denying the
debtor’s Application for Waiver of the Chapter 7 Filing Fee
for Individuals Who Cannot Pay the Filing Fee in Full or
in Installments.

[fn1] See Judicial Conference of the United States Interim
Procedures Regarding the Chapter 7 Fee Waiver Provisions of
the Bankruptcy Abuse Prevention and Consumer Protection Act
http://www.uscourts.gov/bankruptcycourts/jcusguidelines.htm
of 2005, available at l.

[fn2] It appears a factual question may exist in this case
as to whether the debtor satisfies the initial requirement
of 28 U.S.C. § 1930(f), namely that her income be
less than 150 percent of the poverty guidelines. In
Tennessee, 150 percent of the 2005 DHHS poverty guideline
for a family of two is $19,245. Assuming the debtor’s total
combined monthly income on her amended Schedule I,
$1,924.98, is accurate over a twelve month period, her
annual income would amount to $23,099.76, making her unable
to satisfy the first requirement of the statute.

Furthermore, the debtor’s amended schedules and
application appear to present conflicting information
regarding the marital status of the debtor. In Schedule I,
the debtor indicates that she has no dependents and that
she and her husband are separated, yet on her application
for waiver of the filing fee, the debtor lists “2” as her
family size. The directions on the application instruct a
debtor to not include a spouse if the couple is separated
and a joint petition is not being filed. Page 1