## Facts

- Scott and Stephanie Fredman filed a Chapter 7 petition in June 2011 and were above-median income debtors.
- They owned two parcels of real property: a residence in Marion, Illinois, and a property in Colorado.
- In their Statement of Intention, the debtors stated they would surrender the Colorado property and retain the Illinois residence (claiming a homestead exemption).
- On the Chapter 7 means test form (Form B22A), the debtors deducted mortgage payments for both properties as “future payments on secured claims.”
- Including the Colorado mortgage deduction produced negative projected disposable income over 60 months, eliminating any presumption of abuse under the means test.
- The United States Trustee objected, arguing the Colorado mortgage payments were not properly deductible because the debtors intended to surrender the collateral and thus would not make those payments.

## Issues

1. Whether above-median Chapter 7 debtors may deduct mortgage payments on real property they have stated they will surrender when calculating disposable income under 11 U.S.C. § 707(b)(2).
2. Whether “amounts scheduled as contractually due” under § 707(b)(2)(A)(iii) includes secured-debt payments on collateral the debtor will not keep or pay for post-petition.

## Decision

- The court held that debtors may not deduct mortgage payments for property they intend to surrender when applying § 707(b)(2)(A)(iii).
- The court concluded that, after an unequivocal stated intent to surrender, those mortgage payments are not “scheduled as contractually due” for means-test purposes.
- Removing the improper deduction resulted in a finding of abuse under § 707(b).
- The court granted the United States Trustee’s motion to dismiss the Chapter 7 case, subject to the debtors’ ability to convert to another chapter.

## Legal Principles

- Under 11 U.S.C. § 707(b)(2)(A)(iii), deductions for secured-debt payments are limited to amounts that are meaningfully “scheduled as contractually due” in light of the debtor’s post-petition plan for the collateral.
- A debtor’s stated intention to surrender collateral indicates that the related secured payments will not be made and should not be used to reduce disposable income on the means test.
- The means test is applied to identify cases where Chapter 7 relief would be abusive by permitting debtors with repayment ability to avoid paying unsecured creditors through deductions for payments they will not make.

## Conclusion

The bankruptcy court ruled that above-median Chapter 7 debtors cannot deduct mortgage payments for real property they intend to surrender because those payments are not “scheduled as contractually due” under § 707(b)(2)(A)(iii), and it dismissed the case for abuse unless the debtors converted to another chapter.


In re Fredman, 471 B.R. 540 (Bankr. S.D. Ill. 2012)