Calhoun v. U.S. Trustee

John and Glenda Calhoun (debtors) filed for Chapter 7 bankruptcy in 2008, seeking to discharge $106,707 in unsecured debt. Before filing, the Calhouns had entered a payment plan with a credit-management company, under which the Calhouns had paid their unsecured creditors $2,638 monthly for 22 months. After becoming discouraged by the small amount of income left each month once they had made their payment-plan payments, the Calhouns filed for bankruptcy. The Calhouns did not file as a result of sudden illness, calamity, disability, or unemployment. Based on evidence, the bankruptcy court found that the Calhouns’ monthly expenses were borderline extravagant and their budget had ample room for reduction. The Calhouns (1) paid $439 monthly on life-insurance policies, even though Glenda would receive 75 percent of John’s monthly income after his death; (2) claimed to spend $930 per month on food and had expenses for cable, internet, laundry, and dry cleaning; and (3) did not justify their excessive transportation expenses. Under the means test, which provides a formula that evaluates debtors’ income and expenses to determine whether debtors are able to repay their debts, the Calhouns’ monthly net income was insufficient to create a presumption that granting relief would be an abuse of Chapter 7 under § 707(b)(3) of the United States Bankruptcy Code. Still, the bankruptcy court dismissed the case for § 707(b)(3) abuse, finding that based on the totality of their financial circumstances, the Calhouns were able to pay their creditors. The district court affirmed the dismissal, and the Calhouns appealed.