Baud v. Carroll

• Decision Date: 04 February 2011
• Docket Number: No. 09–2164.,09–2164.
• Citation: 634 F.3d 327
• Parties: Richard L. BAUD and Marlene Baud, Appellees,v.Krispen S. CARROLL, Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

634 F.3d 327

Richard L. BAUD and Marlene Baud, Appellees,
v.
Krispen S. CARROLL, Appellant.

No. 09–2164.

United States Court of Appeals, Sixth Circuit.

Argued: Aug. 6, 2010.Decided and Filed: Feb. 4, 2011.

[634 F.3d 329]

ARGUED: Krispen S. Carroll, Office of the Chapter 13 Trustee, Detroit, Michigan, for Appellant. Melissa A. Caouette, Livonia, Michigan, for Appellees. ON BRIEF: Krispen S. Carroll, Maria Gotsis, Office of the Chapter 13 Trustee, Detroit, Michigan, for Appellant. Melissa A. Caouette, Charles J. Schneider, Livonia, Michigan, for Appellees.Before: COLE and CLAY, Circuit Judges; KATZ, District Judge. ^*

[634 F.3d 330]

OPINION

COLE, Circuit Judge.

As numerous courts and commentators have noted, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) has created many difficult problems of statutory interpretation, none more vexing than those arising from application of the “projected disposable income test” imposed by 11 U.S.C. § 1325(b)(1). Under § 1325(b)(1)(B) of the Bankruptcy Code (the “Code”), if the Chapter 13 trustee or the holder of an allowed unsecured claim objects to the confirmation of a debtor's plan that does not provide for full payment of unsecured claims, the plan may be confirmed only if it “provides that all of the debtor's projected disposable income to be received in the applicable commitment period ... will be applied to make payments to unsecured creditors under the plan.” 11 U.S.C. § 1325(b)(1)(B) (emphasis added). In addition to replacing the phrase “three-year period” formerly used in § 1325(b)(1)(B) with the term “applicable commitment period” and inserting in that subsection the phrase “to unsecured creditors” before “under the plan,” BAPCPA substantially redefined the term “disposable income” and established different applicable commitment periods depending on whether the “current monthly income” (as defined in § 101(10A)) of the debtor and the debtor's spouse combined, when multiplied by 12, is above or below the median income of the relevant state. Three interpretative issues raised by these changes are presented in this appeal. First, if the trustee or the holder of an unsecured claim objects to the confirmation of a Chapter 13 plan of a debtor with positive projected disposable income who is not proposing to pay unsecured claims in full, does § 1325(b) require the plan to have a duration equal to the applicable commitment period in order to be confirmed? Second, how does the amended definition of disposable income set forth in § 1325(b)(2) affect the calculation of a debtor's “projected disposable income”? Third, if the calculation demonstrates that the debtor has zero or negative projected disposable income, does any temporal requirement imposed by § 1325(b) apply?

Krispen Carroll, Chapter 13 Trustee for the Eastern District of Michigan (the “Appellant”), contends that § 1325(b) imposes a minimum plan length and that there is no exception for debtors who have zero or negative projected disposable income. Even if there were such an exception, debtors Richard and Marlene Baud (the “Appellees”) would not qualify for it, the Appellant argues, contending that they do in fact have positive projected disposable income. The Appellees counter that § 1325(b) establishes a minimum amount that must be paid to unsecured creditors, not a minimum duration of the plan and that, even if § 1325(b) does mandate a minimum plan length, there is an exception for debtors, like them, with negative projected disposable income.

Whether § 1325(b) as amended by BAPCPA requires a Chapter 13 plan that has drawn an objection and that provides for a less than full recovery for unsecured claimants to have a duration equal to the applicable commitment period if the debtor has positive projected disposable income, whether the amended definition of disposable income signifies that courts must no longer include in the calculation of projected disposable income certain categories of income they typically included prior to BAPCPA and must permit above-median-income debtors to deduct certain expenses they might not have been able to deduct before BAPCPA, and whether any temporal requirement set forth in § 1325(b) applies to debtors with zero or negative projected

[634 F.3d 331]

disposable income, are questions that have deeply divided the courts.

Our holding today is three-fold. First, we hold that, if the trustee or the holder of an allowed unsecured claim objects to confirmation of a Chapter 13 plan of a debtor with positive projected disposable income who is not proposing to pay unsecured claims in full, the plan cannot be confirmed unless it provides that all of the debtor's projected disposable income to be received in the applicable commitment period will be applied to make payments over a duration equal to the applicable commitment period imposed by § 1325(b). Further, we hold that the calculation of a debtor's projected disposable income: (a) must not include items—such as benefits received under the Social Security Act—that are excluded from the definition of currently monthly income set forth in § 101(10A); and (b) must deduct expenses that the Code, as amended by BAPCPA, permits above-median-income debtors to deduct. Finally, we hold that there is no exception to the temporal requirement set forth in § 1325(b) for debtors with zero or negative projected disposable income. Accordingly, we AFFIRM in part and REVERSE in part the district court's opinion and order, and REMAND the case to the district court with instructions to remand to the bankruptcy court for further proceedings consistent with this opinion.

I. BACKGROUND A. The Statutory Framework

Prior to BAPCPA's passage, the Code required that, if the Chapter 13 trustee or the holder of an allowed unsecured claim objected to confirmation, then the debtor's plan could be confirmed only if it (1) called for full payment of the unsecured claim(s) or (2) provided that “all of the debtor's projected disposable income to be received in the three-year period beginning on the date that the first payment is due under the plan will be applied to make payments under the plan.” 11 U.S.C. § 1325(b)(1) (2000). The Code defined “disposable income” loosely as “income which is received by the debtor and which is not reasonably necessary to be expended ... for the maintenance or support of the debtor or a dependent of the debtor, including charitable contributions ... and ... if the debtor is engaged in business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business.” 11 U.S.C. § 1325(b)(2) (2000). Bankruptcy courts determined a debtor's income and reasonably necessary expenses based on the debtor's actual financial circumstances, using “the best information available at the time of confirmation,” 6 Keith M. Lundin, Chapter 13 Bankruptcy § 494.1 (3d ed. 2000 & Supp.2006), making adjustments to “account [for] foreseeable changes in a debtor's income or expenses.” Hamilton v. Lanning, –––U.S. ––––, 130 S.Ct. 2464, 2469, 177 L.Ed.2d 23 (2010) (describing pre-BAPCPA practice).

BAPCPA extensively amended § 1325(b) by substituting the term “applicable commitment period” for “three-year period” in § 1325(b)(1), redefining “disposable income” in § 1325(b)(2), and adding § 1325(b)(3) and (b)(4). Subsections (b)(1) and (b)(2) now read as follows:

(b)(1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan—

(A) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or

(B) the plan provides that all of the debtor's projected disposable income to be received in the applicable commitment

[634 F.3d 332]

period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.

(2) For purposes of this subsection, the term “ disposable income ” means current monthly income received by the debtor (other than child support payments, foster care payments, or disability payments for a dependent child made in accordance with applicable nonbankruptcy law to the extent reasonably necessary to be expended for such child) less amounts reasonably necessary to be expended—

(A)(i) for the maintenance or support of the debtor or a dependent of the debtor, or for a domestic support obligation, that first becomes payable after the date the petition is filed; and

(ii) for charitable contributions ... in an amount not to exceed 15 percent of gross income of the debtor for the year in which the contributions are made; and

(B) if the debtor is engaged in business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business.

11 U.S.C. § 1325(b)(1)-(2) (Supp.2010) (emphasis added). Consequently, determining whether a plan may be confirmed over objection now requires several steps. First, in order to determine the debtor's “disposable income” according to the revised definition in § 1325(b)(2) (which itself expressly excludes certain categories of income), one must calculate the debtor's “current monthly income” and the “amounts reasonably necessary to be expended” for, inter alia, the maintenance or support of the debtor or a dependent of the debtor.

Under 11 U.S.C. § 101(10A), the term “current monthly income” means the average gross monthly income that the debtor receives, derived during a six-month look-back period, excluding “benefits received under the Social Security Act” and certain other payments not relevant here. See 11 U.S.C. § 101(10A)(B). Because current monthly income is based on the debtor's past income (in most cases, income the debtor receives that is derived during the 6–month period immediately before the bankruptcy ¹) and excludes certain payments, it will not necessarily...