In re Frederickson, 4:06-bk-15737.

• Decision Date: 16 May 2007
• Docket Number: No. 4:06-bk-15737.,4:06-bk-15737.
• Citation: 368 B.R. 825
• Parties: In re Craig M. FREDERICKSON, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Arkansas

Page 825

368 B.R. 825

In re Craig M. FREDERICKSON, Debtor.

No. 4:06-bk-15737.

United States Bankruptcy Court, E.D. Arkansas, Western Division.

May 16, 2007.

O.C. Sparks, Clark & Byarlay, Thomas W. Byarlay, Attorney at Law, Little Rock, AR, for Debtor.

MEMORANDUM OPINION AND ORDER

RICHARD D. TAYLOR, Bankruptcy Judge.

Before the Court is the trustee's Objection to Confirmation of Initial Plan filed on January 19, 2007. The debtor, Craig M. Frederickson, filed his chapter 13 voluntary petition and proposed plan on December 13, 2006. In his plan, the debtor proposed to pay $600.00 per month for a period of 48 months, with the unsecured creditors receiving a pro rata distribution. Because the debtor's income is above the median family income for the state of Arkansas, the trustee objected to the 48 month period, arguing instead that the plan must provide for payments over a 60 month time period. The Court heard the trustee's objection on February 21, 2007, and took the matter under advisement to allow the parties additional time to brief the issues. For the reasons stated below, the Court overrules the trustee's objection.

Jurisdiction

The Court has jurisdiction over this matter under 28 U.S.C. § 1334 and 28 U.S.C. § 157, and it is a core proceeding under 28 U.S.C. § 157(b)(2)(L). The following opinion constitutes findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052, made applicable to this proceeding under Federal Rule of Bankruptcy Procedure 9014.

Background

The facts in this case are undisputed and have been stipulated by both parties:

1. This case was filed on December 13, 2006. The plan, schedules and Statement of Current Monthly Income and Disposable Income (Form 22C) were timely filed on that date.

2. Pursuant to the calculations reflected on the Form 22C, the debtor is an "above-median" debtor whose disposable income is determined pursuant to 11 U.S.C. § 1325(b)(3). The disposable income calculation reflected on Form 22C, line 58 is a negative amount, $-95.49.

3. The plan provides that the debtor will pay $600. per month for a period of 48 months, with unsecured creditors to receive a pro rata dividend. As of the date of the first meeting of creditors, it was anticipated that the unsecured creditors would receive a dividend of $3,672.82, or 61% of the scheduled claims. As of Tuesday, February 20, 2007, based upon the claims in the case, the trustee calculates that the unsecured creditors will receive $5,455.11. If the debtors are required to maintain their case for 60 months, it is estimated that the unsecured creditors' dividend would near, if not equal, 100% on their claims.

Additionally, the parties stipulated to the following exhibits:

A. Narrative Statement of Plan, filed December 13, 2006.

B. Official Form 22C, Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income, filed December 13, 2006.

C. Schedules I, J, filed December 13, 2006.

D. Trustee's "payees" print-out reflecting scheduled and filed claims.

The trustee's principle objection is that because the debtor is above the median family income for the state of Arkansas, he must provide for payments over a 60 month period of time in accordance with 11 U.S.C. § 1325(b). The debtor argues that the required 60 month applicable commitment period should not apply in his case because he has no projected disposable income according to Form 22C (sometimes referred to as the chapter 13 means test). According to the debtor, the applicable commitment period is a multiplier that is used to determine the amount of disposable income that must be paid to unsecured creditors over a period of time. Because he has a negative income according to Form 22C, he should not be required to propose a 60 month plan. The debtor also questions the amount of disposable income that must be committed to unsecured creditors under the plan.

Findings of Fact and Conclusions of Law

According to the bankruptcy code, the court shall confirm a plan if the requirements of 11 U.S.C. § 1325,(a) are met. However, if either the trustee or an unsecured creditor objects to confirmation, the court cannot confirm the plan unless the additional requirements under § 1325(b) are also met. According to subsection (b), all of the debtor's projected disposable income that will be received during the applicable commitment period must be applied to make payments to unsecured creditors under the plan. 11 U.S.C. § 1325(b).¹ This subsection includes two specific requirements for a debtor whose income is above the median family income. First, the debtor's disposable income is determined in accordance with § 707(b)(2), the so-called "means test." Second, the applicable commitment period (in other words, the length of the debtor's plan) shall be not less than five years. Unfortunately, the two requirements, both the result of this debtor having above median family income, in this instance present the Court with a statutory dichotomy. The statutory scheme appears to contemplate only occasions where the debtor, using the means test formula, has a positive projected disposable income that must be committed to the plan over the applicable time period. This is not always the case.

Projected Disposable Income

The debtor's "disposable income," an expressly defined term,² is determined by taking his "current monthly income," also a defined term,³ and subtracting amounts reasonably necessary for the debtor's maintenance, and support. According to the debtor's Schedules I and J, the debtor in reality has approximately $600.00 of disposable income each month. However, for an above median family income debtor, the amounts reasonably necessary to be expended for his maintenance and support are to be determined in accordance with the means test set forth in § 707(b)(2), using Form 22C. Form 22C determines expenses in accordance with IRS national and local standards. The parties stipulated that the debtor's disposable income according to Form 22C is a negative amount. Even though the debtor has proposed a plan that will allow the unsecured creditors to receive a substantial distribution in this case, according to Form 22C the debtor is not required to make any payments to the unsecured creditors under the plan.⁴ The trustee concedes this point in his brief.⁵

Although the discrepancy between the disposable income on Schedules I and J and Form 22C appears problematic, the code is clear. Section 1325(b)(3) states that in determining disposable income for a debtor whose current monthly income is greater than the median family income for the state, amounts reasonably necessary to be expended for maintenance and support shall be determined by the means test. 11 U.S.C. § 1325(b)(3). The use of "shall" is "mandatory and leaves no discretion with respect to the expenses and deductions that are to be deducted in arriving at disposable income." In re Barr, 341 B.R. 181, 185 (Bankr.M.D.N.C2006); see also, In re Kolb, 366 B.R. 802 (Bankr.S.D.Ohio 2007) (stating that use of § 707(b)(2) reflects Congress's intent to provide less discretion in determining expenses for above median family income debtor); In re Miller, 361 B.R. 224 (Bankr.N.D.Ala.2007) (discussing cases in general and holding Form 22C dispositive for above median income debtor's projected disposable income); but see In re Ward, 359 B.R. 741 (Bankr.W.D.Mo.2007) (stating Form 22C means test serves as a starting point in determining projected disposable income); In re Gress, 344 B.R. 919 (Bankr.W.D.Mo. 2006) (same). As in the current situation, a debtor whose income is above the median family income may have "excess" income that the debtor is not required to commit to the payment of unsecured creditors. Barr, 341 B.R. at 185. However, the language of the statute is clear and the function of the Court is to enforce the statute according to its terms. Lamie v. United States Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004). There is nothing in the code that suggests any latitude in this interpretation and the Court finds that the debtor has no projected disposable income to commit to the plan for the benefit of unsecured creditors according to Form 22C. Again, the trustee in this instance expressly concedes this point.

Applicable Commitment Period

Temporal Requirement or Monetary Requirement

After determining the monthly amount of disposable income the debtor must commit to the plan, the debtor must satisfy the requirement that his projected disposable income will be applied for the benefit of unsecured creditors during the applicable commitment period. 11 U.S.C. § 1325(b)(1)(B). Here, the trustee objects specifically to the commitment period proposed by the debtor — 48 months. According to the trustee, the commitment period set forth in § 1325(b)(4) is a time or temporal requirement, not a monetary requirement. The debtor argues that because he has no disposable income according to Form 22C, he should not be required to propose a "not less than 5 year" plan as stated in § 1325(b)(4). In effect, the debtor argues that the applicable commitment period of five years is a multiplicand against which his disposable income is multiplied to determine the amount that unsecured creditors shall receive. Because he has no disposable income to be distributed to the unsecured creditors, the debtor believes § 1325(b)(4) is inapplicable in his case.

Much has been written about whether the applicable commitment period is a temporal requirement or a monetary requirement. See generally In re Luton, 363 B.R. 96 (Bankr.W.D.Ark.2007) (listing in detail courts that find both positions). Courts holding that the period is a temporal requirement focus primarily on the statutory language, which states that the applicable commitment period for an above median income debtor "shall be not less than 5 years." 11 U.S.C. § 1325(b)(4)(A). Further support for this...