In re Brady

Decision Date13 February 2007
Docket NumberNo. 06-18922/JHW.,06-18922/JHW.
Citation361 B.R. 765
PartiesIn the matter of Martin M. BRADY and Angela A. Brady, Debtors.
CourtU.S. Bankruptcy Court — District of New Jersey

Pamela A. Hulnick, Esq., Hackensack, NJ, Counsel for eCAST Settlement Corporation.

Scott M. Zauber, Esq., Subranni, Ostrove & Zauber, Atlantic City, NJ, Counsel for the Debtors.

Donna L. Wenzel, Esq., Office of the Chapter 13, Standing Trustee, Cherry Hill, NJ, Counsel for the Chapter 13 Trustee.

William Mackin, Esq., Woodbury, NJ, Henry J. Sommer, Esq., National Assoc. of Consumer Bankruptcy Attorneys, Philadelphia, PA, Tara Twomey, Esq., National Assoc. of Consumer Bankruptcy Attorneys Washington, D.C., Counsel for Amicus Curiae NACBA.

OPINION

JUDITH H. WIZMUR, Chief Judge.

The debtors have filed a Chapter 13 plan that proposes to make payments for 36 months, primarily for the benefit of their secured creditors, with a de minimis dividend to unsecured creditors. An unsecured creditor and the Chapter 13 Standing trustee have each objected to the plan's confirmation. They contend: (1) that the debtors' future projected disposable income should be determined by Schedules I and J; (2) that the debtors' applicable commitment period dictates the length of the debtors' plan, and (3) that the debtors must provide for a step up in their plan payment after satisfying one of their secured claims through the plan. In response, debtors contend that they are not required to pay anything to the unsecured creditor body because their disposable income, as calculated on Form B22C, is negative, and that the "applicable commitment period" under section 1325 does not mandate the length of the debtors' Chapter 13 plan if there is no disposable income to distribute to the unsecured creditors. Because I conclude that the statute, as amended, dictates the manner in which disposable income is calculated for above median income debtors, and because the debtors do not have disposable income to apply to unsecured creditors, the objections to confirmation are overruled, and the debtors' Chapter 13 plan may be confirmed.

FACTS

Martin and Angela Brady filed a voluntary joint petition for relief under Chapter 13 of the Bankruptcy Code on September 20, 2006. The debtors scheduled $205,713.89 in secured debt and $87,100.48 in unsecured debt. The debtors' secured claims include a first mortgage and two automobile loans. Their unsecured debt is comprised entirely of credit card debt.

As part of their bankruptcy filing, debtors completed Form B22C, also known as the "Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income".1 The debtors' current monthly income, averaged over the six months preceding the filing, was $8,184.16. The debtors' allowable expenses, calculated by reference to national and local Internal Revenue Service ("IRS") standards, was $8,752.63. Form B22C showed a monthly excess of expenses over income of $568.47.2

In Schedules I and J of their petition, the debtors listed their actual income and expenses as of the filing date, showing a positive monthly surplus income of $590.45. The debtors' income was the same as the income noted on Form B22C, but the debtors' expenses were less than the expenses which they deducted on Form B22C. The debtors offer this monthly surplus income as the basis for the payments they will make under their proposed Chapter 13 plan. Debtors propose to pay administrative expenses (for counsel fees), mortgage arrears and two car payments through their plan, leaving approximately $9 a month to be distributed pro rata to their unsecured creditors.3

eCAST Settlement Corporation filed an objection to the confirmation of the debtors' proposed plan on November 25, 2006. eCAST, as assignee of GE Money Bank JC Penney Consumer, GE Money Bank Lowe's Consumer and HSBS Bank Nevada NA/HSBC Card Services, Inc., and as agent for Bank of America/FIA Card Services, formerly MBNA, holds approximately 47% of the debtors' scheduled unsecured debt. The Chapter 13 trustee joined in the eCAST objection. The National Association of Consumer Bankruptcy Attorneys ("NACBA") appears in this matter as amicus curiae in support of the debtors' proposed plan.

DISCUSSION

This case is governed by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), which became effective on October 17, 2005. The dispute concerns the application of 11 U.S.C. § 1325, as amended by BAPCPA. More specifically, the parties contest the meaning of the phrases "projected disposable income" and "applicable commitment period" in the amended version of section 1325(b), as applied to the factual circumstances of this case. Here, we have debtors with an above median income who have calculated their disposable income for purposes of Form B22C as a negative number, while their surplus income, as calculated on their Schedules I and J, is positive. On these facts, we must determine the required length of the debtors' Chapter 13 plan, and what payment, if any, the debtors are required to dedicate to their unsecured creditors.

Section 1325 of the Bankruptcy Code addresses the requirements for confirmation of a debtor's Chapter 13 plan. Subsection (a) mandates plan confirmation if certain specified requirements are met. Subsection (b) is effected "[i]f the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan." 11 U.S.C. § 1325(b). To place the amendments to section 1325(b) in proper context, we will compare the pre and post amendment versions of the section.

A. Pre-BAPCPA

Prior to the amendment of section 1325(b), if the trustee or an allowed unsecured creditor objected to confirmation of the debtor's plan, then the court could not confirm the plan unless the creditor received full value for its claim or the plan 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)(B) (2005). "Disposable income" was defined as that "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." 11 U.S.C. § 1325(b)(2) (2005).

Thus, where an objection to a plan was filed by the trustee or an unsecured creditor, pre-BAPCPA practice required the debtors to contribute their projected disposable income to the plan for a mandatory period of three years. The court could approve a longer period, but could not approve a period that was longer than five years. 11 U.S.C. § 1322(d) (2005). As explained in one leading treatise, in order to determine the debtor's "projected disposable income" pre-BAPCPA, courts embarked on:

a two step process. First, the court must project the debtor's income over the next three years. To some extent this task is, of course, impossible. The court has no way of knowing whether debtors will continue to work at their current incomes, or whether they will be laid off or become disabled or suffer other diminutions of income. The court does not even know whether the debtor will live for three years.... As a practical matter, unless there are changes which can be clearly foreseen, the court must simply multiply the debtor's current monthly income [as indicated on Schedule I] by 36 and determine whether the amount to be paid under the plan equals or exceeds that amount.

8 LAWRENCE P. KING, COLLIER ON BANKRUPTCY, ¶ 1325.08[4][a] at 1325-50.10 (15th Ed. Rev.2006).

After it has projected the debtor's income for three years, the court must then determine how much, if any, disposable income the debtor will have during that period. "Disposable income" is defined in section 1325(b)(2)(A) for debtors not engaged in business, 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....

The determination of disposable income may be even more difficult than that of projected income. As with projected income, the court, in theory, is required to project what will happen to the debtor's expenses over three years. Such a projection would require the court to guess whether the debtor would have additional children, unexpected marital separations, medical bills, home repairs, or a wide variety of other future expenses. Obviously, this is impossible. As with the income side of the budget, the court must simply use the debtor's current expenses [as indicated on Schedule J], unless a change in them is virtually certain.

Id. at ¶ 1325.08[4][b] at 1325-53.

Under prior practice, the court would simply utilize the debtors' income and reasonable expenses as listed on Schedules I and J to determine the debtors' disposable income. That amount would be projected forward by multiplying it times the number of months in the debtors' plan, with flexibility to accommodate for "virtually certain" changes, and would be dedicated to the debtors' plan.

B. Post-BAPCPA

The BAPCPA amendments to section 1325 made several significant changes to the manner in which the debtor's income and expenses are calculated to determine plan payments. As with the pre-BAPCPA provision, subsection (b) comes into play only if the trustee or an unsecured creditor objects to the confirmation of the debtors' plan. As amended, section 1325(b)(1)(B) specifies that the plan may not be approved unless it "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."4 11 U.S.C § 1325(b)(1)(B) (emphasis added). The meaning of the highlighted terms is the focus of the dispute presented here.

1. Projected Disposable Income

eCAST and the Chapter 13 trustee both contend...

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