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Lenton v. United States Trustee

June 29, 2009

KENNETH LENTON APPELLANT,
v.
UNITED STATES TRUSTEE APPELLEE.
IN RE: KENNETH LENTON, DEBTOR.



The opinion of the court was delivered by: Goldberg, J.

Chapter 13

Bankr. No. 06-10520

MEMORANDUM OPINION

Before the Court is Kenneth Lenton's (hereinafter, "Debtor") appeal from the December 15, 2006, Opinion and Order of the United States Bankruptcy Court, denying him Chapter 7 bankruptcy relief. Debtor has challenged the Bankruptcy Court's ruling that a finding of abuse pursuant to 11 U.S.C. § 707(b)(3) under the totality of the circumstances may be based solely on Debtor's ability to pay. Debtor also claims that the Bankruptcy Court erred in ruling that the Trustee had established "abuse" under that section. Having concluded, however, that these claims are moot, we need not examine these issues, and for reasons set forth herein, dismiss Debtor's appeal.

I. Procedural and Factual History

Debtor filed a Chapter 7 bankruptcy claim on February 7, 2006. At that time, he had been employed by Sunoco, Inc. for eighteen (18) years and had voluntarily contributed to his company's ERISA-qualified 401(k) plan. While making these contributions, Debtor also accumulated a sizable amount of credit card debt and voluntarily obtained two 401(k) loans from his 401(k) plan in an aggregate amount of $42,500.00 in order to pay off a portion of this debt.*fn1 In re Lenton, 358 B.R. 651, 654-55 (Bankr.E.D.Pa. 2006).

On July 12, 2006, the Trustee filed a motion to dismiss pursuant to 11 U.S.C. § 707(b), asserting that Debtor should not be permitted to deduct these loans to avoid or rebut the presumption of abuse under the means test of 11 U.S.C. § 707(b)(2)(A). On December 15, 2006, the Bankruptcy Court granted the motion to dismiss. In so ruling, the Bankruptcy Court held that:

- The loans taken from Debtor's 401(k) could not be deducted from income, and thus, under the "mean test" of § 707(b)(2)(A), Debtor's Chapter 7 claim was presumptively abusive;

- Debtor had adequately rebutted the presumption of abuse by proving that his obligations to repay his 401(k) loans constituted special circumstances; and

- Considering "the totality of the circumstances," pursuant to § 707(b)(3)(B), Debtor's ability to repay a significant portion of his outstanding debts was sufficient to establish a finding of abuse.

Id. at 661-62, 666.In an accompanying order, the Bankruptcy Court ruled that the case "shall be dismissed within ten (10) days following entry of this order unless Debtor converts this case to one under Chapter 13." Id. at 666.

On December 20, 2006, Debtor filed a praecipe and plan to convert his case from Chapter 7 to Chapter 13. An Order converting the case to Chapter 13 was subsequently entered on December 21, 2006. (Bankr. Docket No. 06-10520).

On December 22, 2006, Debtor filed a notice of appeal from the Bankruptcy Court's Opinion and Order, but did not petition for a stay of that ruling. At oral argument before this Court, when Debtor's counsel was asked why a stay was not sought, he explained that Debtor preferred to make payments under the five (5) year Chapter 13 plan rather than wait for the conclusion of his appeal. (N.T. 3/27/09, pp. 9-10, 33-34).

On April 9, 2007, Debtor filed an amended Chapter 13 plan, which was confirmed on May 24, 2007, and accepted by the Trustee the next day. Finally, on May 27, 2007, an Order was issued confirming that the Chapter 13 plan was entered and notices were mailed to interested parties. Debtor has ...


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