In re Armstrong, 06-02476-PCW13.

• Decision Date: 12 June 2007
• Docket Number: No. 06-02476-PCW13.,06-02476-PCW13.
• Citation: 370 B.R. 323
• Parties: In re Nathan D. ARMSTRONG and Georgena A. Armstrong, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Washington

370 B.R. 323

In re Nathan D. ARMSTRONG and Georgena A. Armstrong, Debtors.

No. 06-02476-PCW13.

United States Bankruptcy Court, E.D. Washington.

June 12, 2007.

COPYRIGHT MATERIAL OMITTED

Robert L. Brower, Jones Brower & Callery PLLC, Lewiston, ID, for Debtors.

Joseph D. Harkrader, Spokane, WA, for Chapter 13 Trustee.

MEMORANDUM DECISION RE: CHAPTER 13 CONFIRMATION OF PLAN

PATRICIA C. WILLIAMS, Bankruptcy Judge.

FACTS

Nathan and Georgena Armstrong filed a voluntary petition for relief under Chapter 13 on October 3, 2006. Chapter 13 debtors are required to devote all projected disposable income to repayment of unsecured creditors. The amount of disposable income required to be paid is calculated pursuant to 11 U.S.C. § 1325(b)(1)(B). The implementing form is the Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income (Form B22C). The Form B22C filed in this case on October 3, 2006 and amended December 13, 2006 indicates that debtors have an annualized current monthly income of $63,012.00, which is more than the median family income in this geographic area, based on the debtors' family size. The dispute in this case concerns the expense side of the calculation.

Schedule B — Personal Property indicates the debtors own a 1998 GMC Sierra 3500 Truck. According to Schedules D and G, there is no loan or lease obligation relating to the vehicle. The GMC truck is owned "free and clear" of liens. Debtors completed the Form B22C, including, on line 28, an expense deduction of $471.00 for Transportation Ownership/Lease Expense Allowance, even though they are not actually making a loan or lease payment. The Trustee contends that the debtors are not entitled to the ownership/lease expense because they do not have a loan or lease payment on the, vehicle.

THE MEANS TEST

As the debtors are above-median income debtors, their expenses are determined pursuant to 11 U.S.C. § 1325(b)(3), which in turn instructs above-median income debtors to apply 11 U.S.C. § 707(b). That section is popularly known as the "means test." Section 707(b)(2)(A)(ii)(I) states in part:

The debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor's actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides, as in effect on the date of the order for relief, for the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent. Such expenses shall include reasonably necessary health insurance, disability insurance, and health savings account expenses for the debtor, the spouse of the debtor, or the dependents of the debtor....

The National Standards and Local Standards referenced are the collection guidelines used by the Internal Revenue Service (IRS) to determine a taxpayer's ability to pay past due federal taxes. The National Standards establish presumptively reasonable, necessary amounts for various necessities based upon a debtor's gross income and family size, but with limited exceptions, not based on geographic area. The Local Standards establish presumptively reasonable amounts for the necessary expenses of housing and transportation based on the geographic area in which debtors reside as well as family size and number of vehicles. The Local Standard at issue is the transportation expense item referenced on line 28 of Form B22C.

To assist IRS agents in interpreting and applying the Local Standards, the IRS publishes for its agents an Internal Revenue Manual ("IRM") and Financial Analysis Handbook. The collection agents are instructed in those publications to use the expenses identified in the Local Standards as a "cap" or maximum. The taxpayer is to be allowed either the actual expense or the Local Standard, whichever is less. Eugene R. Wedoff, Means Testing in the New § 707(B), 79 Am. Bankr.L.J. 231, 256 (2005); In re Fowler, 349 B.R. 414 (Bankr. D.Del.2006). Agents are instructed in the IRM that if a taxpayer has no lien or lease payment on a vehicle that only a portion of the Local Standard is to be allowed as an expense. In this case, that portion would be $200.00, and the Trustee argues that this is the appropriate amount to be referenced on line 28 rather than the $471.00, which is the unadjusted Local Standard.

ISSUE

The issue in this case requires the Court to determine the manner in which the Local Standard should be applied under the "means test." Specifically, may the debtors claim the full amount of the Local Standard of the Transportation/Ownership Lease Expense when the vehicle is owned "free and clear" of liens.

ANALYSIS

It is an understatement to say that courts are split on this issue. As of the date of this opinion, there are approximately a dozen reported decisions of various bankruptcy courts determining that if no payment or lease obligation relates to a vehicle, the debtors are not entitled to the full expense deduction under the Local Standard. These cases would "adjust" the Local Standard to $200.00 as argued by the Trustee. There are more than a dozen reported bankruptcy court decisions determining that, regardless of whether a payment or lease obligation exists, debtors are entitled to the full expense deduction under the Local Standard. These cases would utilize the "unadjusted" Local Standard of $471.00 as argued by the debtors. The recent opinion, In re Lynch, 368 B.R. 487 (Bankr.E.D.Va.2007), lists the reported decisions and their holdings. To date, the only appellate level decision is In re Ross-Tousey, 368 B.R. 762 (E.D.Wis.2007), which adjusted the Local Standard.

PLAIN MEANING

The most interesting aspect of these conflicting decisions is that each line of authority relies upon the "plain meaning" of the statute. The line of authority which adjusts the Local Standard when a vehicle is "free and clear" concludes that the plain meaning of the statute requires an adjustment. The line of authority which does not adjust the Local Standard concludes that the plain meaning of the statute so requires.

Both lines of authority reach conflicting results after application of wellrecognized rules of statutory construction. The meaning of a subsection of a statute must be determined in the context of the entire statute and the statutory scheme as a whole. In re Rufener Const., Inc., 53 F.3d 1064 (9th Cir.1995). Application of this principle of statutory construction to this controversy requires that the calculation of a reasonably necessary expense under (A)(ii) must be read in connection with the calculations of expenses under other subparts of the statute.

The debtors' expenses "shall be the debtor's applicable monthly expense amounts" specified by the National and Local Standards and "the debtor's actual monthly expenses" for certain items included in "Other Necessary Expenses." When Congress utilizes one word in a portion of a statute, but uses a different word in another portion of a statute, it is presumed that the two different words have two different meanings. In re Enright, 2007 WL 748432 (Bankr.M.D.N.C.2007); In re Farrar-Johnson, 353 B.R. 224 (Bankr.N.D.III.2006); and In re Fowler, supra. Use of two different words is an indication that two different meanings were intended. Unfortunately, recognition and application of these principles of statutory construction have lead to differing interpretations of the subpart § 707(b)(2)(A)(ii)(I).

The line of authority which adjusts the Local Standard concludes that the term "applicable" requires an examination of the IRM and the IRS Financial Analysis Handbook. As those IRS materials provide direction to IRS agents in applying the Local Standards, those materials determine the "applicable" Local Standard. The line of authority which does not adjust the Local Standard interprets the term "applicable" as a reference to the fact that when applying the Local Standard to a particular debtor, one must consider the geographic area and number of vehicles owned. Those factors, and those factors alone, determine the "Applicable" Local Standard.

One is forced to conclude that the language of (ii), even when read in connection with other subparts of § 707, is subject to different interpretations and that there is no plain meaning. If the words of the statute as written had plain, ordinary and literal meanings, there would not exist two evenly balanced lines of authority reaching contrary results. This Court concludes, as did in In re Sawdy, 362 B.R. 898 (Bankr. E.D.Wis.2007), that § 707(b)(2)(A)(ii)(I) is ambiguous.

LEGISLATIVE HISTORY

When statutory language is ambiguous, courts look to the legislative history to ascertain Congressional intent. In re First T.D. & Inv., Inc., 253 F.3d 520 (9th Cir.2001). Many of the cases concluding that the unadjusted Local Standard is appropriate and many of the cases concluding that the adjusted Local Standard is appropriate, considered the legislative history of the "means test."

Those cases which conclude that the Local Standard should be adjusted, cite the well-known legislative policy statement that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPPA") in general, and the "means test" in particular, were enacted "... to insure that those who can afford to repay some portion of their unsecured debts is required to do so." In re Hardacre, 338 B.R. 718 (Bankr.N.D.Tex.2006); In re Ceasar, 364 B.R. 257 (Bankr.W.D.La.2007); and In re Barraza, 346 B.R. 724 (Bankr. N.D.Tex.2006), quoting 151 Cong. Rec. S2470 (March 10, 2005). The cases which conclude that use of the unadjusted Local Standard is appropriate, recognize that Congressional purpose and policy but also recognize that it provides little guidance in determining which debtors are those who can afford to pay.

The purpose of the "means test" is to...