Opinion ID: 948912
Heading Depth: 3
Heading Rank: 3

Heading: Analysis of the Bankruptcy Court’s Decision

Text: The record supports the bankruptcy court’s decision. The Weixels, despite being in financial difficulty since 2007, made no attempt to change their upscale lifestyle. The most visible example of their lifestyle was their residence. Rather than vacate the residence, move to a more affordable residence, and adjust to a new lifestyle, the Weixels chose instead to cease paying upon the mortgage loan, reside in the residence at the lender’s expense, and wait for a foreclosure. The Weixels ceased making payments on the house by November 2009 and filed their bankruptcy petition on February 26, 2012, the day before the rescheduled foreclosure sale. The Weixels’ avoidance of belt-tightening is also exhibited through their recreational habits. Rather than eliminate his poker travels or use his poker winnings to pay some of his delinquent taxes or other necessities, Mr. Weixel chose to use some of those winnings for expenses to continue his poker hobby. The Weixels have continued to expend funds by eating at restaurants, and Mr. Weixel traveled unnecessarily to play poker. The evidence supports the trial court’s finding that the Weixels failed to adjust their upscale lifestyle despite their financial circumstances. The accumulation of significant consumer debt, including the purchase of a $590,000 residence with 100% of it financed, followed by the borrowing of an additional $50,000, the failure to file their tax returns and pay income taxes for multiple years, and the lack of any unforeseen or catastrophic event leading to the bankruptcy are all factors that support the “dishonest” debtor element of Krohn. Even assuming that the downturn in the real estate market was not foreseeable, the downturn does not explain or justify the extent of the risk in which the Weixels engaged by leveraging their residence or their failure to adjust their lifestyle by finding more affordable housing 11 and reducing other expenses once the housing collapse occurred. They were able to maintain their upscale lifestyle by remaining in their house and not paying their mortgage payments and tax obligations. The Weixels argue that the bankruptcy court failed to consider their future housing expense and the payments that they will have to make to the taxing authorities in determining that their filing constituted an abuse under Chapter 7. The fallacy of this argument is that it focuses on the “needy” element of the § 707(b)(3) analysis, while side-stepping the “honesty” element of the totality of the circumstances test. Krohn teaches that need is not the sole consideration in determining whether a debtor seeks to abuse Chapter 7 – but rather that the need for bankruptcy relief based upon unprincipled accumulation of consumer debt may also constitute abuse. Moreover, in considering the Weixels’ housing expense, the bankruptcy court did not err in its “needs” analysis. The court specifically found the Weixels’ current housing was too expensive and the Weixels presented no evidence to support the $3,500 figure for housing. The bankruptcy court found that after the residence was sold and other changes were made, it was possible that the Weixels could be eligible for Chapter 7 relief. The Weixels never explained why they should be entitled to a housing expense almost three times the standard means test allowance. The bankruptcy court was entitled to consider the means test figure used by the UST as the more reasonable figure. In any event, the Weixels effectively waived this particular position. At the closing argument, after never disputing the UST’s housing figure during the hearing, Weixels’ counsel stated that, with the exception of the priority taxes, the Weixels “adopted the U.S. Trustee’s analysis of our expenses.” [Hr’g Tr., p. 75]. The bankruptcy court also did not err in failing to consider the $240,000 in scheduled priority taxes as the Weixels argue. There are a number of flaws in the Weixels’ position. First, the Weixels never proposed how they would pay the tax debt or budget it as an expense. The UST used a $1,000 monthly figure for the repayment of these obligations in assessing the Weixels’ disposable income. The Weixels argued at the hearing that the figure should be $4,000 based upon the means test formula. But a § 707(b)(3) analysis is not limited to using specific figures from the means test calculation of § 707(b)(2), including the scheduled priority tax debt, but is an overall analysis of the totality of the Weixels’ financial condition. In re Booker, 399 B.R. 662, 666-67 (Bankr. W.D. Mo. 2009). Second, it is not clear how much the Weixels owe in back taxes or how their tax liabilities 12 might be compromised in the future. Mr. Weixel conceded that the Weixels did not file all their prepetition tax returns nor did they provide all their filed returns to the UST. Having not even filed all the required returns and having made no effort to compromise these scheduled debts, the bankruptcy court was entitled to conclude that the Weixels cannot rely on the $240,000 figure to assert that they lack disposable income because those same taxes need to be repaid. Disposable income is independently determined by the court and is not dependent on the financial figures provided by the Weixels. In re Brenneman, 397 B.R. 866, 871 (Bankr. N.D. Ohio 2008) (citing In re Gonzalez, 378 B.R. 168, 173 (Bankr. N.D. Ohio 2007)). Third, although the bankruptcy court did not specifically refer to the taxes in her oral ruling, the record demonstrates she was well aware of the issue and even questioned Mr. Weaver about it during the hearing. Under the circumstances, the bankruptcy court was entitled to decide what weight to give the limited evidence available concerning the tax debt. Overall, the record shows that the Weixels made no attempt to adjust their lifestyle over several years to address a house they could not afford and income taxes they were not paying. Mr. Weixel continued his poker playing, and the evidence supported the bankruptcy judge’s conclusion that this pursuit did not pay for itself. The Weixels continued to spend an inappropriate amount of funds on entertainment in the midst of their financial crisis.10 The Weixels have not completed and filed all their tax returns in order to explore with the federal, state, and local tax agencies to what extent their tax debt could be compromised. The Weixels’ financial history shows that these taxing agencies were conveniently used as “the lender of last resort.” Finally, despite financial hardships, the Weixels’ income is significantly higher than the median income for their household size.11 This potential future income available to the Weixels weighs in favor of dismissal. Brenneman, 397 B.R. at 871; In re Peterlin, 457 B.R. 630, 634 (Bankr. N.D. Ohio 2011) (“A substantial level of income weighs in favor of abuse.”). 10 Mr. W eixel testified that some unspecified portion of the entertainment expenses constituted business expenses, but he provided no documentation and indicated he failed to deduct these expenses on the W eixels’ tax returns. 11 On their Official Form B22A, the W eixels listed the applicable median family income for their household size as $93,099. 13