Ranta v. Gorman

• Decision Date: 01 July 2013
• Docket Number: No. 12–2017.,12–2017.
• Citation: 721 F.3d 241
• Parties: Robert D. MORT RANTA, Debtor–Appellant, v. Thomas Patrick GORMAN, Trustee–Appellee. National Association of Consumer Bankruptcy Attorneys, Amicus Supporting Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

721 F.3d 241

Robert D. MORT RANTA, Debtor–Appellant,

v. Thomas Patrick GORMAN, Trustee–Appellee.National Association of Consumer Bankruptcy Attorneys, Amicus Supporting Appellant.

No. 12–2017.

United States Court of Appeals, Fourth Circuit.

Argued: March 20, 2013.

Decided: July 1, 2013.

ARGUED:Daniel Mark Press, Chung & Press, PC, McLean, Virginia, for Appellant. Eva Choi, Office of the Chapter 13 Trustee, Alexandria, Virginia, for Appellee. ON BRIEF: Tara A. Twomey, National Association of Consumer Bankruptcy Attorneys, San Jose, California, for Amicus Supporting Appellant.

Before GREGORY and AGEE, Circuit Judges, and DAVID A. FABER, Senior United States District Judge for the Southern District of West Virginia, sitting by designation.

Vacated and remanded by published opinion. Judge GREGORY wrote the majority opinion, in which Judge AGEE joined. Senior Judge FABER wrote a dissenting opinion.

GREGORY, Circuit Judge:

Robert D. Mort Ranta filed a voluntary petition for bankruptcy under Chapter 13 of the Bankruptcy Code, 11 U.S.C. §§ 1301–1330, seeking to adjust various secured and unsecured debts. The bankruptcy court denied confirmation of his proposed Chapter 13 plan on the grounds that it did not accurately reflect his disposable income and that it was unfeasible if Mort Ranta's Social Security income was excluded from his “projected disposable income,” as Mort Ranta urged.¹ The district court affirmed. We hold that the plain language of the Bankruptcy Code excludes Social Security income from the calculation of “projected disposable income,” but that such income nevertheless must be considered in the evaluation of a plan's feasibility. For these reasons, we vacate and remand to the district court with instructions to remand the case to the bankruptcy court for further proceedings consistent with this opinion.

I.

At the time he filed the Chapter 13 petition, Mort Ranta owed $20,000 in arrears on his home mortgage loan, $12,981 in individual credit card debt, and $8,295 in joint credit card debt with his wife. On Form B22 (C), Mort Ranta reported a “current monthly income” of $3,097.46, a figure derived from the couple's combined average monthly income from employment over the previous six months.

On Form B6I (“Schedule I”), however, Mort Ranta reported his “combined average monthly income” as $7,492.10. That figure reflected the couple's current monthly take-home pay from employment, plus an additional $3,319 in combined monthly Social Security benefits. His monthly expenses were reported on Form B6J (“Schedule J”) as $6,967.24. Subtracting that figure from his “combined average monthly income,” his “monthly net income” per Schedule J was $524.86.

Mort Ranta proposed a plan requiring payments of $525 per month for five years, for a total of $31,500. From that amount, the plan would pay off in full his mortgage arrears and joint credit card debt. However, his individual credit card debt would be paid off at less than one percent. ²

The Trustee objected to the plan, claiming that it failed to dedicate Mort Ranta's full “projected disposable income” to creditors as required by 11 U.S.C. § 1325(b)(1)(B).³ Specifically, the Trustee contended that the expenses listed on Schedule J were overstated and that Mort Ranta's disposable income therefore was higher than it appeared to be.

In a hearing before the bankruptcy court, Mort Ranta conceded that some of his expenses were overstated, but argued that his plan nevertheless complied with § 1325(b)(1)(B) because Social Security income is excluded from the calculation of “disposable income.” Thus, even after adjusting his expenses downward, he argued that his disposable income would be negative because his expenses would still exceed his non-Social Security income. As a result, Mort Ranta contended he was not required to make any payments to unsecured creditors under § 1325(b)(1)(B).

In a colloquy with the parties, the bankruptcy court determined that if Mort Ranta's monthly payments were increased to reflect his actual net income, including Social Security, the total payments under the plan would be approximately $50,000. That amount would allow for full repayment of all debts, including the individual credit card debt that would be paid off at less than one percent under Mort Ranta's proposed plan. Thus, the Trustee noted, the holder of that unsecured debt would either “get paid pretty much in full like everybody else or [under Mort Ranta's proposed plan] they get nothing.”

The bankruptcy court agreed with the Trustee that Mort Ranta “[could] afford something greater [than what he proposed to pay] because there's ... income from Social Security.” The court then found that Mort Ranta's plan was not feasible, explaining:

If you don't want to count Social Security for the purposes of the income then I think you have to go back to the rule of law of disposable income. If you're not going to add it to income you're not going to have feasibility for the plan. It's not feasible.

At this point, Mort Ranta asked the court to grant an interlocutory appeal, and the court denied his request. The court subsequently issued a written order denying confirmation of the plan and ordering the case dismissed in 21 days unless Mort Ranta took one of the actions enumerated in Rule 3015–2 of the Local Bankruptcy Rules for the United States Bankruptcy Court of the Eastern District of Virginia.⁴

Mort Ranta appealed to the United States District Court for the Eastern District of Virginia. In a motion for leave to appeal, Mort Ranta noted that “the majority rule is that denial of confirmation is interlocutory,” but preserved his position that the denial should be considered a final order for purposes of appeal. The Trustee opposed the motion, arguing that the appeal did not meet the criteria for interlocutory appeal under 28 U.S.C. § 158(a)(3).

Without addressing the basis for its jurisdiction or the motion for leave to file, the district court affirmed the bankruptcy court's denial of confirmation in a written order. The court reasoned:

In this case, the Bankruptcy Court appropriately found that the Debtor could afford to pay an amount greater than that proposed in his Chapter 13 plan. Neither the Bankruptcy Code nor the Social Security Act prohibits a bankruptcy court from determining a debtor's ability to repay his or her creditors, and in this case part of that consideration included Debtor's supplemental Social Security retirement benefits. Because Debtor voluntary [sic] chose not to include Social Security benefits for purposes of income in this particular case, the Bankruptcy Court found that Debtor's proposed Chapter 13 Plan was not feasible.... [T]hese findings of the Bankruptcy Court are neither erroneous nor contrary to law....

Ranta v. Gorman, No. 1:12–CV–505 at 2 (E.D.V.A. August 6, 2012). Mort Ranta timely appealed.

On appeal, Mort Ranta asks us to reverse the district court's order affirming the bankruptcy court's denial of confirmation, thereby overruling the Trustee's objection to confirmation. He argues first that the Bankruptcy Code expressly excludes Social Security income from the calculation of projected disposable income; and second, that his plan is feasible based on his Social Security income. Before turning to the merits of his appeal, first we must satisfy ourselves of our appellate jurisdiction over the case.

II.

Mort Ranta asserts appellate jurisdiction under 28 U.S.C. § 158(d)(1), which grants the courts of appeal jurisdiction over appeals from “all final decisions, judgments, orders, and decrees” entered by the district court sitting in review of the bankruptcy court.⁵ Both the district court order and the bankruptcy court order must be final for our jurisdiction to be proper under § 158(d)(1). See In re Computer Learning Ctrs., Inc., 407 F.3d 656, 660 (4th Cir.2005).

When a bankruptcy debtor's proposed plan is confirmed, we have generally allowed creditors and trustees whose objections to the plan were overruled to appeal as a matter of right. See, e.g., In re Quigley, 673 F.3d 269, 270 (4th Cir.2012) (trustee's appeal from district court's affirmance of bankruptcy court order overruling in part trustee's objection to proposed plan); Neufeld v. Freeman, 794 F.2d 149, 150 (4th Cir.1986) (creditor's appeal from district court's affirmance of bankruptcy court's confirmation of proposed plan).

By the same token, we have a long history of allowing appeals from debtors whose proposed plans are denied confirmation, without questioning the finality of the underlying order. See, e.g., In re Coleman, 426 F.3d 719, 722, 727 (4th Cir.2005) (appeal from bankruptcy court order, affirmed by district court, withdrawing confirmation of debtor's plan and granting debtor 30 days to file an amended plan); In re Witt, 113 F.3d 508, 509, 513 (4th Cir.1997) (appeal from district court order reversing bankruptcy court's confirmation of plan and remanding to allow debtor to propose amended plan); In re Solomon, 67 F.3d 1128, 1130–31 (4th Cir.1995) (appeal from bankruptcy court order, affirmed by district court, denying confirmation of plan); Caswell v. Lang, 757 F.2d 608, 608 (4th Cir.1985) (same); Deans v. O'Donnell, 692 F.2d 968, 968 (4th Cir.1982) (same).⁶

However, as described below, the finality of an order denying confirmation of a proposed plan but not dismissing the underlying bankruptcy petition is an issue that has divided other circuits. On one side, four circuits have held that such orders are strictly interlocutory, while two other circuits have held that they can be final for purposes of appeal. See infra pp. 246–48. Given this circuit split, and the fact that we have not squarely addressed this issue before, we asked the parties to file supplemental briefs addressing the basis for our appellate jurisdiction. After considering the principles of finality unique to bankruptcy cases and the decisions of other circuits, we conclude that the bankruptcy court's...