By Sophia Blair

On January 5, 2017, the Fourth Circuit published an amended opinion for the civil case, Lynch v. Jackson, originally decided on January 4, 2017.

Bankruptcy Court Decision and Appeal to the Fourth Circuit

Gabriel and Monte Jackson (“Jackson”) filed a petition for Chapter 7 bankruptcy relief. Marjorie Lynch (“Lynch”), a Bankruptcy Administrator, moved to dismiss their case as an abuse. Lynch alleged that the Jacksons over reported their expenses when filing for relief because they used the National and Local Standard amounts in their application form instead of their actual expenses, which were lower.

In filing for Chapter 7 bankruptcy, the Jacksons had to fill out a means test because they earned over the median income for a family of their size. The test is used to determine the amount of a debtor’s disposable income, which may reveal abuse if that income is above a certain level and prevent them from proceeding under Chapter 7. The Jacksons followed the instructions of form 22A-2, which says, “Deduct the expense amounts set out in lines 6-15 regardless of your actual expense. In later parts of the form, you will use some of you actual expenses if they are higher than the standards.” The Jacksons used the standard mortgage and car payment expenses, even though both were higher than their actual expenses.

Lynch argued that the official forms were incorrect and that a Chapter 7 debtor was “Limited to deducting their actual expenses or the applicable National or Local Standard, whichever [was] less.” The Jacksons countered, stating the statute was unambiguous. The Bankruptcy Court denied Lynch’s motion to dismiss on the basis that the Jackson’s interpretation comported with the plain meaning of the statute, and both parties filed a request for permission to directly appeal to the Fourth Circuit.

The Fourth Circuit held that they had jurisdiction over the appeal, and granted the appeal with respect to the question: does 11 U.S.C. § 707(b)(2) permit a debtor to take the full National and Local Standard amounts for expenses even though the debtor incurs actual expenses that are less than the standard amounts?

Was there an abuse of Bankruptcy Relief?

The Fourth Circuit held that under the plain meaning of the statute, a debtor is entitled to deduct the full National and Local Standard amounts even though their actual expenses are below the standard amounts.

In order to determine whether the Jacksons abused bankruptcy relief, the Fourth Circuit looked to the plain meaning of § 707(b)(2)(A)(ii)(I) of the statute. This section states: “the debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor’s actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides . . . .”

Where the statute’s language is plain, the Fourth Circuit ends its inquiry after enforcing the statute according to its terms in the context of the overall statutory scheme. See Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6 (2000); Davis v. Mich. Dep’t of Treasury, 489 U.S. 803, 809 (1989). The court found that the language of  § 707(b)(2)(A)(ii)(I) was clear on its face because it specified that “[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards.” The court relied on the theory of statutory construction that where Congress uses different words in the same statute, they should have different meanings. Here the court distinguished between “applicable monthly expenses” in the first clause of the statute, and “actual monthly expenses” in the second clause. Therefore, the court understood that the”applicable monthly expenses” were the full National and Local Standard amounts.

Additionally, the Fourth Circuit opined that to construe “applicable” and “actual” to have the same meaning would have the absurd result of punishing frugal debtors. A frugal debtor would be punished to for spending less. Relying on Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 575 (1982), the court sought to read the statute in such a way as to avoid absurd results.

Disposition

The Fourth Circuit affirmed the bankruptcy court’s judgment to deny Lynch’s motion to dismiss, because the Jacksons had not abused bankruptcy relief by providing the National and Local Standard amounts, instead of their actual expenses in form 22A-2.

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