In re Bailey
| Decision Date | 21 November 2013 |
| Docket Number | CASE NO. 13-60782 |
| Parties | IN RE: TIMOTHY L. BAILEY BRANDI BALEY DEBTORS |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Kentucky |
Debtors' proposed chapter 13 plan pays unsecured creditors in full [Doc. 19] (the "Plan"). The Chapter 13 Trustee objects to confirmation arguing that debtors must comply with the disposable income test of 11 U.S.C. § 1325(b)(1)(B) each time the Trustee objects. Debtors contend the Plan satisfies the payment-in-full clause in § 1325(b)(1)(A), so the disposable income test in § 1325(b)(1)(B) does not apply. Debtors have the better argument.
The Debtors filed a petition under chapter 13 on June 17, 2013. Debtors have allowed unsecured debts of $8,692.39. The Plan requires payment of $113 in the first seventeen months, increasing to $372 thereafter until all claims are paid. The Trustee projects these payments will pay all claims in month 53 or month 54 of the Plan.
Schedule J provides that the Debtors are paying on two 401(k) loans. The first is paid off at $259 per month in month 17 of the Plan and the second is paid off at $327.32 per month in month 32. The Plan increases the payment amount in month 18 to $372 per month. The dispute herein arises because the Debtors do not include a similar step-up in payment in month 33 when the second 401(k) loan is paid. The Trustee calculates the Plan would pay off creditors in approximately month 43 if the payments were increased in month 33.
The Trustee believes it is important to maximize payments to minimize the risk that subsequent changes in the Debtors' income or expenses will prevent full payment. The Chapter 13 Trustee therefore objected to confirmation [Doc. 31], arguing that Debtors' refusal to increase their payments after the second 401(k) loan is paid off violates the disposable income test.
Section 1325(a) begins: "Except as provided in subsection (b), the court shall confirm a plan if-- ... ." 11 U.S.C. § 1325(a). Section 1325(b)(1) provides:
11 U.S.C. § 1325(b)(1).
Section 1325(b)(1) has existed substantially in its current form since 1984. See Pub. L. 98-353, Title II, § 317(3), Jul. 10, 1984, 98 Stat. 356. Congress has amended Section 1325 five times since then; § 1325(b)(1) only once. During the twenty-nine years since § 1325(b)(1) was enacted, courts have held that compliance with part (1)(A) or part (1)(B) can satisfy an objection by the trustee. In re Jones, 374 B.R. 469, 469 (Bankr. D.N.H. 2007); see also In re Winn, 469 B.R. 628, 630 (Bankr. W.D. N.C. 2012) (); In re Eaton, 130 B.R. 74, 78 (Bankr. S.D. Iowa 1991) (). Further, §1325(b)(1)(A) is commonly interpreted to require payment in full of unsecured claims. See Jones, 374 B.R. at 469 (); Winn, 469 B.R. at 630 ().
The Trustee acknowledges the current state of the law and has not provided any contrary authority. Trustee's Mem. at 4. The Trustee also acknowledged a Supreme Court decision that recited this reading of the statute, albeit in dictum. See id. at 4 n.1, citing Hamilton v. Lanning, 560 U.S. 505, 130 S. Ct. 2464 (2010). In Hamilton, the Supreme Court provided: "If an unsecured creditor or the bankruptcy trustee objects to confirmation, § 1325(b)(1) requires the debtor either to pay unsecured creditors in full or to pay all 'projected disposable income' to be received by the debtor over the duration of the plan." 130 S. Ct. at 2469 (emphasis supplied.)
In spite of this unbroken line of authority, the Trustee argues that § 1325(b)(1)(A) does not apply when the trustee objects based on a closer reading of certain statutory language.
Section 1325(b)(1)(A) requires that "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." 11 U.S.C.§ 1325(b)(1)(A). The trustee argues that "such claim" must have an antecedent mentioned previously in the subsection; otherwise, the clause is meaningless. Trustee's Mem. at 6-7.
The only claim mentioned previously in § 1325(b)(1) is "an allowed unsecured claim" of a "holder" found in the language leading to parts (1)(A) and (1)(B). See 11 U.S.C. § 1325(b)(1) ("If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan ... ." (Emphasis supplied.) So "such claim" in part (1)(A) must mean a claim of the objecting creditor. And if no creditor objects, then part (1)(A) has no force or effect because the phrase "such claim" has no antecedent, rendering the clause nonsensical when applied to the trustee. Therefore, the only section that applies when a trustee objects under § 1325(b) is part (1)(B).
The Trustee's argument has several heavy burdens to overcome. First, it must surmount twenty-nine years of settled law to the contrary - law Congress is presumed to know when it amended § 1325 five times without addressing this perceived flaw. See, e.g., U.S. v. Colahan, 635 F.2d 564, 568 (6th Cir. 1980) (). Significantly, Congress amended § 1325(b)(1) as part of the comprehensive BAPCPA bankruptcy reforms in 2005 without limiting or otherwise affecting the applicability of § 1325(1)(A) to objections lodged by unsecured creditors. See Pub. L. 109-8, Title III, § 318(2), Apr. 20, 2005, 119 Stat. 93.
The Trustee must also explain away the recent dictum of the Supreme Court in Hamilton. See supra at Section II.A. Supreme Court dictum is not binding, but it is highly persuasive. See Wright v. Morris, 111 F.3d 414, 419 (6th Cir. 1997) () (internal quotation marks omitted) (alterations omitted) (citationomitted); Grutter v. Bollinger, 288 F.3d 732, 746 n.9 (6th Cir. 2002) ().
Next, the Trustee's reading of § 1325(b)(1) is inconsistent with the structure of the statute. Section 1325(b)(1) provides that if the trustee or an unsecured creditor objects to confirmation, the court may not confirm the plan unless part (1)(A) or (1)(B) are met. The clear inference is that both conditions may satisfy the objections of both objecting parties.
The hardest problem for the Trustee, however, is the presumption that Congress does not enact nonsensical statutes. See Soppet v. Enhanced Recovery Co., LLC, 679 F.3d 637, 642 (7th Cir. 2012) (Easterbrook, J.) (). The trustee's argument requires the Court to find that, even though § 1325(b)(1) indicates either part (1)(A) or part (1)(B) can satisfy a trustee's objection, part (1)(A) is grammatically nonsensical as to the trustee and does not apply to the trustee. Attributing this nonsensical interpretation to this statute when there are other readings that give part (1)(A) meaning is not a reasonable interpretation.
Any single one of these principles is difficult to overcome; in tandem, they rule out the trustee's reading of the statute, given that another, just as plausible reading is available.
A fatal flaw in the Trustee's argument is the conclusion that "such claim" can only refer to the objecting creditor's claim. The Trustee concedes the phrase "such claim" in part (1)(A) may be read in the plural as "such claims." Trustee's Mem. at 7. This concession by the Trustee is required by 11 U.S.C. § 102(7), which recognizes that "the singular includes the plural." In § 1325(b)(1), the singular must include the plural. For example, if a creditor with multipleclaims objects, then "such claim" is easily accepted as "such claims." The trustee concedes as much, but insists that "such claim, if read as "such claims," can only refer to one objecting creditor's multiple claims, or multiple objecting creditors' claims; not all unsecured claims. This reading is too narrow.
Once "such claim" is read to include plural claims, the question becomes which claims "such" refers to. The Trustee's assertion that "such claims" must have an antecedent is correct. But the Trustee's assertion that "such" must therefore refer to some previously specified claim or claims is not. See Trustee's Mem. ...
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