DeHart v. Humes (In re Humes), CASE NO. 1:13-bk-00651MDF
| Decision Date | 13 December 2013 |
| Docket Number | CASE NO. 1:13-bk-00651MDF |
| Parties | IN RE: MICHAEL D. HUMES, Debtor CHARLES J. DeHART, III, Standing Chapter 13 Trustee, Objectant v. MICHAEL D. HUMES, Respondent |
| Court | U.S. Bankruptcy Court — Middle District of Pennsylvania |
Before me is the objection of the Chapter 13 Trustee, Charles J. DeHart, III, (the "Trustee") to the Second Amended Chapter 13 Plan (the "Plan") filed by Michael D. Humes ("Debtor"). The issue presented is whether a below median income Chapter 13 debtor may extend the term of his plan from three years to five years while committing only his projected disposable income for three years. For the reasons set forth below, I find that Debtor has not established cause for extending the term of the Plan to five years and must pay all projected disposable income into a plan over three years.
On February 8, 2013, Debtor filed a petition under Chapter 13. On June 26, 2013, he amended Schedules I and J and filed the Plan.1 This matter came before the Court after the Trustee filed an objection to the Plan. An evidentiary hearing was held on October 3, 2013, and the parties subsequently submitted a stipulation of facts and briefs.
According to Debtor's Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income (the "Means Test"), his monthly income is below the median household income for a single debtor living in Pennsylvania. Therefore, under 11 U.S.C. § 1325(b)(4), the "applicable commitment period" for the Plan is three years. The provisions of the Plan are straightforward. Debtor proposes to surrender one vehicle and make payments outside the Plan for the vehicle he has decided to retain and for his home. His home and car payments are current, and he has no arrearages to cure through the Plan. No priority claims were filed, thus all disbursements from the Plan will be made to satisfy administrative claims and to provide a distribution to unsecured creditors.
The dispute between Debtor and the Trustee has arisen in this case because Debtor's disposable income will rise significantly when he pays off a 401(k) loan in May 2015. Once the loan payment of $639.17 is no longer required, Debtor will have additional disposable income to commit to the Plan. Debtor's current monthly net income is $167.08, but beginning in May 2015, he is projected to have $806.25 in monthly net income. Debtor proposes to make payments of $167.08 per month for the first twenty-six months of the Plan and to make stepped-up payments of $288.43 for the balance of the Plan term, while also extending the term to five years. In other words, Debtor is proposing to pay all of the projected disposable income he would receive for three years, but he also is seeking authorization to spread those payments out over five years.
The Trustee objects, asserting that if the Court finds cause for extending the Plan to five years, Debtor is required to pay all his disposable income for the remainder of the term, not just the three-year commitment period. The Trustee argues that Debtor should not be permitted toextend his Plan to five years, with attendant benefits such as the automatic stay, without committing all disposable income received during that period to the Plan.2
Two sections of the Bankruptcy Code must be considered to resolve this issue. If a trustee objects to the confirmation of a plan, it may not be confirmed unless all unsecured creditors are paid in full3 or "the plan 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 . . . ." 11 U.S.C. § 1325(b)(1) (2013) (emphasis added). For below median income debtors, the "applicable commitment period" is three years. See 11 U.S.C. § 1325(b)(4) (2013). However, a below median income debtor may propose a plan that provides for payments over a period up to five years if cause for a longer term is established. See 11 U.S.C. § 1322(d)(2) (hanging paragraph) (2013).
The term "applicable commitment period" originated under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23 § 318 (April 20, 2005) ("BAPCPA"), to distinguish between plan requirements for below median income andabove median income debtors. Prior to the passage of BAPCPA, Chapter 13 plans for all debtors typically lasted a minimum of three years and a maximum of five years. See 11 U.S.C. § 1322(d) (2004). A debtor could propose a plan for less than three years if all other conditions for confirmation were met and no objections were filed. See In re Pedersen, 229 B.R. 445, 452 n.10 (Bankr. E.D. Cal. 1999); 11 U.S.C § 1325(b) (2004). Former § 1322(d), which applied to all Chapter 13 debtors regardless of income level, provided that a plan could not provide for payments for a period longer than three years "unless the court, for cause approves a longer period, but the court may not approve a period that is longer than five years." 11 U.S.C. § 1322(d) (2004). Under BAPCPA, even if no objections to the plan are filed, a below median income debtor must devote all disposable income during the commitment period to the plan unless all allowed unsecured claims are being paid over a shorter period. 11 U.S.C. § 1325(b)(4)(B) (2013). The pre-BAPCPA provision that the term of the plan may be extended to a maximum of five years with court approval remains unaltered. 11 U.S.C. §1322(d)(2)(hanging paragraph) (2013).
In this case, the first issue is whether Debtor has established cause for exceeding the statutorily prescribed three-year plan period. "Cause" for extending a plan beyond three years is not defined in the Code. Courts have found cause to exist when a debtor needs more than three years to pay priority or secured claims. See In re Fries, 68 B.R. 676, 679 (Bankr. E.D. Pa. 1986). Extension of the plan for a period beyond three years to increase the dividend paid to unsecured creditors has also been found to constitute cause if the debtor voluntarily seeks the extension. See Matter of Witkowski, 16 F.3d 739, 747 (7th Cir. 1994). Commenting on pre-BAPCPA law, Collier has stated that courts should adopt a flexible approach to the cause requirement andpermit the extension of a plan beyond three years when the extension is justified by the circumstances and is necessary for the debtor to obtain effective relief under Chapter 13. Collier's view remains unchanged following the relocation of this provision from § 1322(d) to § 1322(d)(2). 5 Collier on Bankruptcy ¶ 1322.18[1][b] (16th ed. 2012).
Accordingly, I need not decide whether Debtor is required to devote all his disposable income during the five-year term of the proposed plan, or only the disposable income that otherwise would be paid over three years, unless I find that Debtor has met his burden to establish cause to extend the term of the Plan. Here, Debtor has failed to offer any supporting reasons for extending the Plan to five years. Debtor suggests that he may "elect" to file a five-year plan with projected disposable income based on three years because three years is defined as the applicable commitment period for below median income debtors. While a below median income debtor may not be compelled to propose a plan longer than three years, a debtor's request for an extension will be granted only if he establishes cause for the extension. A plan proposing payments for a period more than three years requires a showing of cause and approval by the court. The purpose for the extension is to allow a debtor to make additional payments into the plan for purposes such as curing arrearages on secured claims, satisfying large priority claims, or increasing dividends to unsecured creditors. Debtor is not proposing to make additional payments - only to take a longer period of time to make the same payments. Other than Debtor's desire to use some of the income for his own purposes, the reasons for the extension request remain obscure.
Even when a debtor articulates specific reasons for additional time to complete a plan, some courts have found that cause for the extension cannot exist when a debtor is not committingall disposable income for the extended term. See In re Cormier, 478 B.R. 88, 98 (Bankr. D. Mass. 2012) (); In re Richall, 470 B.R. 245, 249 (Bankr. D. N.H. 2012) (). These cases suggest that extending the plan term beyond three years should be the exception. Debtor has failed to establish cause for the extension of his plan beyond the applicable commitment period of three years. Therefore, the Trustee's objection will be sustained.
Debtor's failure to establish cause is sufficient to deny confirmation of the Plan. It is not necessary that I decide at this time whether a below median income debtor may confirm a Chapter 13 plan in which payments are calculated on disposable income available during the three-year commitment period rather than the actual term of the plan. However, Debtor makes several assumptions regarding the Court's position on related issues that require clarification.
Debtor asserts that § 1325(b), which specifies that a debtor must commit all projected disposable income during the applicable commitment period to the payment of unsecured creditors, does not require payments for any particular period of time. In other words, "applicable commitment period" is understood as a multiplier rather than as a temporal requirement. Although this position was adopted by Judge Opel in...
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