In re Briscoe

• Decision Date: 04 September 2007
• Docket Number: No. 06-00458.,06-00458.
• Citation: 374 B.R. 1
• Parties: In re Monica L. BRISCOE, Debtor.
• Court: United States Bankruptcy Courts – District of Columbia Circuit

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374 B.R. 1

In re Monica L. BRISCOE, Debtor.

No. 06-00458.

United States Bankruptcy Court, District of Columbia.

September 4, 2007.

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COPYRIGHT MATERIAL OMITTED

Scott D. Arnopol, Washington, DC, for Debtor.

Cynthia A. Niklas, Washington, DC, for trustee.

MEMORANDUM DECISION REGARDING CHAPTER 13 TRUSTEE'S OBJECTION TO CONFIRMATION OF DEBTOR'S FIRST AMENDED PLAN

S. MARTIN TEEL, JR., Bankruptcy Judge.

This case is governed by the Bankruptcy Code (11 U.S.C.) as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub.L. No. 109-8, 119 Stat. 23 (generally effective Oct. 17, 2005) ("BAPCPA"). The parties are in agreement that 11 U.S.C. § 1325(b)(3) applies to the calculation of the debtor's projected disposable income under 11 U.S.C. § 1325(b)(1)(B), and that under § 1325(b)(3) her housing expense must be determined, as mandated by 11 U.S.C. § 707(b)(2), by first looking to the "Local Standards" that the Internal Revenue Service ("IRS") has issued relating to such housing expenses. The debtor asserts that the Local Standards housing expense applicable to the debtor applies for purposes of § 1325(b)(1)(B) even though her actual housing expense is less. In contrast, the chapter 13 trustee contends that, consistent with the methodology of the Financial Analysis Handbook of the Internal Revenue Manual (the "IRM"), the Local Standards act as only a cap on the amount of the expenditure that the debtor may claim in calculating a disposable income figure, and that the debtor's actual housing expense, when less than the Local Standards figure, should be employed in making the calculation. For the reasons that follow, I conclude that the debtor is entitled to use the Local Standards figure even if her actual housing expense figure is lower.¹ I additionally conclude that the debtor's plan complies with the requirement of 11 U.S.C. § 1325(b) regarding commitment of all of her projected disposable income, and with the requirement of 11 U.S.C. § 1325(a)(3) that the plan be proposed in good faith. Accordingly, I will overrule the chapter 13 trustee's objection to confirmation of the debtor's plan.

I STATUTORY FRAMEWORK

When a debtor seeks relief under chapter 13 of the Bankruptcy Code, 11 U.S.C. § 1301 et seq., the Code requires that the debtor file a repayment plan with the court. 11 U.S.C. § 1321. If the requirements for the plan set forth in §§ 1322 and 1325 of the Bankruptcy Code are met, the plan will be confirmed and the debtor will be eligible to receive an order discharging most if not all of his debts once its terms are effectuated. 11 U.S.C. § 1328(a). If the plan does not comport with the requirements of §§ 1322 and 1325, the debtor will need to file an amended plan of reorganization; otherwise, his case will be converted to chapter 7 of the Bankruptcy Code, 11 U.S.C. § 701 et seq., or dismissed outright. 11 U.S.C. § 1307(c)(5).

One of the requirements set forth in § 1325 is that "the plan provide[] that all of the debtor's projected disposable income ... be applied to make payments to unsecured creditors." 11 U.S.C. § 1325(b)(1)(B). Section 1325(b)(2) defines disposable income as "current monthly income received by the debtor ... less amounts reasonably necessary to be expended." "[A]mounts reasonably necessary to be expended ... shall be determined in accordance with subparagraphs (A) and (B) of section 707(b)(2), if the debtor has [annualized] current monthly income ... greater than ... the median family income of the applicable State." 11 U.S.C. § 1325(b)(3)(A). In turn, § 707(b)(2) (which sets forth a means test for determining whether a debtor's chapter 7 case is presumptively abusive), states that the "debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the National and Local Standards ... issued by the Internal Revenue Service for the area in which the debtor resides." Id. at § 707(b)(2)(A)(ii)(I) (emphasis added).²

The debtor's calculation of disposable income in her statement of current monthly income (Official Form 22C) includes a deduction for rent in the amount of $1,012 — the expense for rent listed in the Local Standards table — even though the debtor's actual monthly rent is only $446.³ The first question for the court is whether Congress intended for debtors to use the Local Standards as fixed deductions in the calculation of disposable income for above median-income debtors or intended for courts to apply the Local Standards in a manner consistent with the Financial Analysis Handbook, which directs that "taxpayers will be allowed the local standard or the amount actually paid, whichever is less." IRM § 5.15.1.7(4). If Congress intended the former course of action, the court must then consider whether the debtor's calculation of current monthly income on Official Form 22C controls the calculation of her "projected disposable income" for purposes of § 1325(b)(1). Finally, if the court finds that the debtor's current monthly income as derived from Official Form 22C dictates the debtor's "projected disposable income" under § 1325(b)(1), it must decide whether a chapter 13 plan of repayment that provides less funding to unsecured creditors than the debtor could actually afford satisfies the requirement of § 1325(a) that the plan "be proposed in good faith." 11 U.S.C. § 1325(a)(3).

II

INTERPRETATION OF 11 U.S.C. § 707(b)(2)

Like so many issues raised by BAPCPA's amendments to the Bankruptcy Code, the question of whether Congress intended for the values contained within the Local Standards of the Financial Analysis Handbook to serve as fixed values or caps in determining a debtor's monthly expenses is a hotly contested one. Most courts have held that the figures set forth in the Local Standards should apply regardless of, the debtor's actual expenses,⁴ but a handful of courts have concluded that because the Financial Analysis Handbook applies the lesser, of the values set forth in the Local Standard or the debtor's actual expenses, courts should do the same in applying § 707(b)(2).⁵ Each side believes that it is following the plain meaning of the statute, and the statutory text must serve as the starting point for this court's analysis as well. See United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) ("The plain meaning of legislation should be conclusive, except in the `rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.'").

Section 707(b)(2)(A)(ii)(I) mandates that the debtor's monthly expenses "shall be," inter alia, the "applicable monthly expense amounts specified under the ... Local Standards." (Emphasis added). The key to understanding the provision is the modifier "applicable." The common meaning of the word is "capable of being applied; having reference" or "fit or suitable for its purpose, appropriate." Oxford English Dictionary vol. I at 575 (2d ed.1989). But to what do the "monthly expense amounts" described in the provision "hav[e] reference?" This question is fraught with difficulty, as Judge Markell of the Bankruptcy Court for the District of Nevada noted in a recent decision addressing the provision at issue. Quoth Judge Markell:

What does the word `applicable' mean in this context? Does it mean, as the debtor suggests, that you cross-match the debtor's location and status against the standards as published, and no more? Or does it mean, as the trustee contends, that this court should interpret the standards as the IRS would, including any direction or discretion given to IRS employees by the IRS internal publications?

In re Slusher, 359 B.R. at 307-08; see also In re Farrar-Johnson, 353 B.R. at 230 ("An expense could be `appropriate' for a debtor to claim because he actually incurs that expense. It could also be `appropriate' to claim because he lives in a certain state and county and has a household of a certain size, putting him in the right box on the Local Standards chart.").

Judge Markell opted to interpret "applicable" as meaning the Local Standard expense as adjusted by the IRM, reasoning that "[i]n referring to such specialized standards, it would be quite odd if Congress intended to preclude courts from examining the context in which the authoring agency ... used and employed those standards." In re Slusher, 359 B.R. at 309. From his perspective, if Congress did not want the complete Local Standards equation to apply, "it would have written [§] 707(b)(2)(A)(ii)(I) to read, `The debtor's monthly expenses shall be the monthly expense amounts specified under the National Standards and Local Standards ... rather than `The debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the National and Local Standards...." Id. at 309 (emphasis in original). The Rezentes court echoed this sentiment. 368 B.R. at 61-62 ("If Congress had intended to adopt the IRS Standards but prevent the courts from looking to the IRS's own interpretations of its standards, it seems reasonable to expect that it would have said so explicitly."). An additional argument supporting this view is that it seems quite odd that, for purposes of calculating the disposable income that must be paid under a chapter 13 plan, a below-median income debtor is limited to actual housing expenses whereas an above-median income debtor can take the Local Standards housing expense even though his actual expense is less.

Most courts disagree with Judge Markell. They focus on language found later in the same sub-part of § 707(b)(2) regarding "categories specified as Other Necessary Expenses" under the Financial Analysis Handbook, for which the debtor may only claim "actual monthly expenses." 11 U.S.C. § 707(b)(2)(A)(ii)(I) (emphasis added). Because Congress used the term "actual" in one context (Other Necessary Expenses) and the term "applica...