Danielson v. Flores (In re Flores)

• Decision Date: 29 August 2013
• Docket Number: No. 11–55452.,11–55452.
• Citation: 735 F.3d 855
• Parties: In the Matter of Cesar Ivan FLORES; Ana Maria Flores, Debtors. Rod Danielson, Trustee–Appellant, v. Cesar Ivan Flores; Ana Maria Flores, Debtors–Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

735 F.3d 855

In the Matter of Cesar Ivan FLORES; Ana Maria Flores, Debtors.

Rod Danielson, Trustee–Appellant,

v.Cesar Ivan Flores; Ana Maria Flores, Debtors–Appellees.

No. 11–55452.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted En Banc March 19, 2013.

Filed Aug. 29, 2013.

Elizabeth A. Schneider, Office of Rod Danielson, Chapter 13 Trustee, for Trustee–Appellant.

Robert J. Pfister (argued), Klee, Tuchin, Bogdanoff & Stern LLP, Los Angeles, CA, and Nancy B. Clark, Borowitz & Clark, LLP, West Covina, CA, for Debtors–Appellees.

William Andrew McNeal (argued) and Gilbert B. Weisman, Becket & Lee LLP, Malvern, PA, for Amici Curiae American Express Travel Related Services Co., Inc., American Express Bank, FSB, and American Express Centurion Bank.

Tara Twomey, National Consumer Bankruptcy Rights Center, San Jose, CA, for Amicus Curiae National Association of Consumer Bankruptcy Attorneys.

Appeal from the United States Bankruptcy Court for the Central District of California, Meredith A. Jury, Bankruptcy Judge, Presiding. D.C. No. 6:10–29956–MJ.

Before: KOZINSKI, Chief Judge, and PREGERSON, O'SCANNLAIN, THOMAS, SILVERMAN, GRABER, WARDLAW, PAEZ, MURGUIA, CHRISTEN, and NGUYEN, Circuit Judges.

OPINION

GRABER, Circuit Judge:

In Maney v. Kagenveama (In re Kagenveama), 541 F.3d 868, 875 (9th Cir.2008), we held that 11 U.S.C. § 1325(b)(1)(B) does not impose a minimum duration for a Chapter 13 bankruptcy plan if the debtor has no “projected disposable income,” as defined in the statute. Today, sitting en banc, we overrule that aspect of Kagenveama and hold that the statute permits confirmation only if the length of the proposed plan is at least equal to the applicable commitment period under § 1325(b)(4). Accordingly, we affirm the judgment of the bankruptcy court.

I. Background

Debtors Cesar and Ana Flores filed a petition for relief under Chapter 13 of the Bankruptcy Code. They have unsecured debts. They proposed a plan of reorganization under which they would pay $122 per month (1 %) of allowed, unsecured, nonpriority claims for three years. Chapter 13 Trustee Rod Danielson objected to the plan, arguing, as now relevant, that § 1325(b) requires a minimum duration of five years for persons in Debtors' circumstances.¹

The bankruptcy court sustained the Trustee's objection, holding that Debtors were not entitled to a shorter plan duration because the Supreme Court's decision in Hamilton v. Lanning, 560 U.S. 505, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010), is clearly irreconcilable with Kagenveama.² The bankruptcy court confirmed a plan of five years' duration, which provided for monthly payments of $148 to unsecured creditors.³

Debtors timely appealed to the Bankruptcy Appellate Panel. The bankruptcy court then certified the plan-duration issue for direct appeal to this court pursuant to 28 U.S.C. § 158(d)(2). A divided panel of this court reversed, reasoning that Lanning is not clearly irreconcilable with Kagenveama and that, under Kagenveama,§ 1325(b) allows a shorter plan duration for Debtors. Danielson v. Flores (In re Flores), 692 F.3d 1021, 1038 (9th Cir.2012). We then voted to rehear the case en banc. Danielson v. Flores (In re Flores), 704 F.3d 1067 (9th Cir.2012).⁴

II. Analysis

Chapter 13 is a mechanism available to “individual[s] with regular income” whose debts are within statutory limits. 11 U.S.C. §§ 101(30), 109(e). Unlike Chapter 7, which requires debtors to liquidate nonexempt assets to pay creditors, Chapter 13 permits debtors to keep those assets if they “agree to a court-approved plan under which they pay creditors out of their future income.” Lanning, 130 S.Ct. at 2468–69 (citing 11 U.S.C. §§ 1306(b), 1321, 1322(a)(1), 1328(a)). A bankruptcy trustee oversees the filing and execution of the plan. 11 U.S.C. § 1322(a)(1); see also28 U.S.C. § 586(a)(3).

Section 1325 of the Bankruptcy Code sets forth the circumstances in which the bankruptcy court “shall” confirm a debtor's proposed repayment plan and those in which it “may not” do so. Under subsection 1325(b)(1), if the trustee or an unsecured creditor objects to a debtor's proposed plan, the court may not approve the plan unless at least one of two conditions is met. As relevant here, the second of those conditions is that “the plan provides that all of the debtor's projected disposable income to be received in the applicable commitment 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.” 11 U.S.C. § 1325(b)(1)(B) (emphasis added). The statute further provides that the “applicable commitment period” of a plan “shall be” either

(A) subject to subparagraph (B), ...

(i) 3 years; or

(ii) not less than 5 years, if the [debtor's] current monthly income ..., when multiplied by 12, is not less than [the median annual family income in the applicable state]; and

(B) may be less than 3 or 5 years, whichever is applicable under subparagraph (A), but only if the plan provides for payment in full of all allowed unsecured claims over a shorter period.

Id. § 1325(b)(4). The debtor's “current monthly income” and “disposable income” are calculated according to statutorily defined formulae. See id. § 101(10A) (defining “current monthly income”); id. § 1325(b)(2) (defining “disposable income”); see also Lanning, 130 S.Ct. at 2469, 2471–74, 2478 (holding that courts must calculate “ projected disposable income,” which is not statutorily defined, using a “forward-looking” approach (emphasis added)).

It is undisputed that Debtors' current monthly income is above-median and that subsection 1325(b)(4)(B)'s exception to the five-year applicable commitment period set forth in § 1325(b)(4)(A)(ii) does not apply. Debtors nonetheless contend that their proposed three-year plan was permissible because § 1325(b)(1)(B) does not set forth a minimum plan duration for debtors who, like them, have no projected disposable income.

Courts have interpreted § 1325(b)(1)(B)'s condition for plan confirmation in three distinct ways. See Baud v. Carroll, 634 F.3d 327, 336–38 (6th Cir.2011) (describing split of decisions and collecting cases), cert. denied,––– U.S. ––––, 132 S.Ct. 997, 181 L.Ed.2d 732 (2012). First, a minority of bankruptcy courts view the “applicable commitment period” solely as a monetary “multiplier”; under that “monetary” approach, the number of months in the applicable commitment period is multiplied by the debtor's projected disposable monthly income to determine the total payments that a debtor must make, but the period has no temporal significance. Id. at 336–38 & n. 7. Second, other bankruptcy courts, as well as this court in Kagenveama, have held that, although the statute does set forth a temporal requirement, that temporal requirement does not apply to debtors whose projected disposable income is less than or equal to $0. Baud, 634 F.3d at 337. Third and finally, a majority of courts have held that a plan cannot be confirmed unless its length is at least as long as the applicable commitment period, without regard to “whether the debtor has positive, zero[,] or negative projected disposable income.” Id. at 336–37. We therefore must consider two issues: (1) whether, under § 1325(b)(1)(B), the applicable commitment period acts as a temporal requirement that defines a plan's minimum duration; and (2) if it does, whether that requirement applies to debtors who have no projected disposable income.

With respect to the first issue, we hold that the statute defines a temporal, as distinct from a monetary, requirement for confirmation under § 1325(b)(1)(B). Most importantly, the statute defines the applicable commitment period as having a duration: “3 years,” “not less than 5 years,” or “less than 3 or 5 years,” depending on the debtor's current monthly income and the plan's provisions for payments to unsecured creditors. 11 U.S.C. § 1325(b)(4). Furthermore, the requirement of § 1325(b)(1)(B) that the plan provide for payment of the debtor's disposable income “to be received in the applicable commitment period” suggests an ongoing series of payments for the future duration of that period. A plan cannot provide for the payment of income to be received during a defined period unless it remains in effect during that period.⁵

Three of our sister courts—the Sixth, Eighth, and Eleventh Circuits—are among the courts that have rejected the view that the applicable commitment period is merely a monetary multiplier for determining the amount that the debtor must pay to unsecured creditors. Baud, 634 F.3d at 344;Whaley v. Tennyson (In re Tennyson), 611 F.3d 873, 880 (11th Cir.2010); Coop v. Frederickson (In re Frederickson), 545 F.3d 652, 660 (8th Cir.2008). We join those courts and hold that the applicable commitment period determines the minimum duration that a plan must have to be confirmable under § 1325(b)(1)(B). In doing so, we reaffirm one aspect of the decision in Kagenveama, in which the panel reasoned that, in general, the applicable commitment period imposes a temporal requirement because the “plain meaning of the word ‘period’ indicates a period of time.” 541 F.3d at 876.

With respect to the second issue, we must decide whether a court may confirm a plan that is shorter than the applicable commitment period defined by § 1325(b)(4) if the debtor has no projected disposable income. In light of the statute's text, purpose, and legislative history, we now hold that the temporal requirement of § 1325(b) applies regardless of the debtor's projected disposable income.

In Kagenveama, we held that the § 1325(b)(1)(B) temporal requirement contains an implicit exception because the “ ‘applicable commitment period’ is exclusively linked to § 1325(b)(1)(B) and the ‘projected disposable income’ calculation.” 541 F.3d at 876. Noting that “[n]othing in the Bankruptcy Code states that the ‘applicable commitment period’ applies to all Chapter 13 plans,” the panel concluded that “[w]...