In re Hardacre

• Decision Date: 06 March 2006
• Docket Number: No. 05-95518-DML-13.,05-95518-DML-13.
• Citation: 338 B.R. 718
• Parties: In re Marindee Kay HARDACRE, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Texas

338 B.R. 718

In re Marindee Kay HARDACRE, Debtor.

No. 05-95518-DML-13.

United States Bankruptcy Court, N.D. Texas, Fort Worth Division.

March 6, 2006.

COPYRIGHT MATERIAL OMITTED

Behrooz P. Vida/Richard L. Venable, Venable & Vida, LLP, Bedford, TX, for Debtor.

Angela D. Allen/John Dee Spicer, North Richland Hills, TX, for Chapter 13 Trustee, Tim Truman.

MEMORANDUM OPINION

RUSSELL F. NELMS, Bankruptcy Judge.

I. Introduction

In a case filed under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the debtor filed a plan that provides no return to her unsecured creditors. The chapter 13 trustee urges the court not to confirm the plan, alleging that the debtor has failed to commit to the plan all of her projected disposable income as required by 11 U.S.C. § 1325(b)(1)(B). The trustee argues that in calculating her disposable income, the debtor has taken an impermissible double deduction of mortgage and car loan expenses. The effect of this "double dip" is to reduce the debtor's projected disposable income by approximately $1,000 per month, which, if committed to the plan, would pay the debtor's creditors in full. The debtor does not deny the effect of the "double dip," but argues that 11 U.S.C. § 707(b)(2)(A)(i) expressly permits her to deduct not only her average monthly mortgage and car loan expenses, but certain standard amounts for these categories of expenses as well.

The court rules herein that Congress did not intend to permit chapter 13 debtors to take a double deduction of mortgage and car loan expenses in order to calculate projected disposable income under section 1325(b)(1)(B). Accordingly, the plan as originally submitted is not confirmed.¹

II. The Means Test and Its Impact Upon Chapter 13 Plans

On April 20, 2005, President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub.L. No. 109-8, 119 Stat. 37 (2005) (the "Act"). As its title suggests, the Act was intended to address what Congress perceived to be certain abuses of the bankruptcy process. Among the abuses identified by Congress was the easy access to chapter 7 liquidation proceedings by consumer debtors who, if required to file under chapter 13, could afford to pay some dividend to their unsecured creditors. 151 CONG. REC. 52459, 2469-70 (March 10, 2005).

In order to curb this perceived abuse, Congress substantially modified section 707(b) of the Bankruptcy Code. Under former section 707(b), a court was authorized to dismiss a case under chapter 7 if it found that granting the debtor relief thereunder "would be a substantial abuse of the provisions of [that] chapter." 11 U.S.C. § 707(b). Former section 707(b) did not define substantial abuse, but left it to the courts to define the parameters of abusive filings. The courts of this district generally weighed substantial abuse under a "totality of the circumstances" test, an important consideration of which was whether a chapter 7 debtor could make substantial payments to her creditors if her case were a case under chapter 13. See In re Logan, 2003 Bankr.LEXIS 600 (Bankr.N.D. Tex. June 17, 2003).

Under new section 707(b) the court's discretion has been replaced with a mathematical formula. New section 707(b)(2)(A) instructs the court to presume that abuse exists if the debtor passes (or, depending upon one's point of view, fails to pass) a means test.

Under the means test, the court is to calculate the debtor's current monthly income, reduce that figure by certain living expenses, and then multiply the difference by 60. 11 U.S.C. § 707(b)(2)(A)(i). For the sake of convenience, the court refers to the product of this calculation as "income available for the debtor's creditors."² If the income available for the debtor's creditors is greater than $10,000, abuse is presumed. Id. If the income available for the debtor's creditors is less than $6,000, abuse is not presumed. Id. If the income available for the debtor's creditors is more than $6,000, but less than $10,000, abuse is presumed only if that income exceeds 25% of the debtor's non-priority unsecured claims in the case.³ Id. If the presumption of abuse arises, the court may dismiss the debtor's case or, with the debtor's consent, convert the case to a case under chapter 11 or 13. 11 U.S.C. § 707(b)(1). The debtor can overcome the presumption of abuse by demonstrating "special circumstances." 11 U.S.C. § 707(b)(2)(B).

In this case, no issue arises as to whether the debtor's filing constitutes an abuse of the bankruptcy process because the debtor, as Congress apparently intended, filed for relief under chapter 13, not chapter 7. Nevertheless, as demonstrated herein, the means test of section 707(b)(2)(A)(i) affects confirmation of the debtor's plan.

Under section 1325(b)(1)(B), if the trustee or an unsecured creditor objects to the debtor's plan, the court may not approve the plan unless the plan provides that all of the debtor's "projected disposable income" during the "applicable commitment period" will be applied to pay unsecured creditors. Section 1325(b)(2) provides that "disposable income" means current monthly income reduced by, among other things, "amounts reasonably necessary to be expended" for the maintenance or support of the debtor or her dependents. In order to determine the "amounts reasonably necessary to be expended" for maintenance or support, section 1325(b)(3) requires the debtor to compare her current monthly income multiplied by 12 (for convenience, referred to herein as "annual income") to the "median family income" for families of a like size who live in the same state as the debtor.

"Median family income" is defined in new section 101(39A). In general, "median family income" is defined as the median family income calculated and reported by the Bureau of Census in the then most recent year. 11 U.S.C. § 101(39A)(A). If the debtor's annual income exceeds the median family income for similarly sized households in her state, then the debtor's expenses must be determined in accordance with the means test in section 707(b)(2). 11 U.S.C. § 1325(b)(3).

The exercise of comparing the debtor's annual income with the Census Bureau's median family income statistics is germane not only to determining whether the debtor must calculate her expenses for plan purposes in accordance with section 707(b)(2), but in determining the "applicable commitment period" for the plan. 11 U.S.C. § 1325(b)(4). The "applicable commitment period" is the term of the debtor's plan. In general, unless the plan provides for payment in full of all unsecured creditors over a shorter period of time, the minimum applicable commitment period is three years. 11 U.S.C. § 1325(b)(4)(A)(i). However, if the debtor's annual income exceeds the applicable median family income for similarly sized households in the same state, then the applicable commitment period is not less than five years unless the debtor can pay her creditors in full in a shorter time. 11 U.S.C. § 1325(b)(4)(A)(ii).

Once the debtor has determined her applicable commitment period and whether she must calculate her expenses in accordance with the means test in section 707(b)(2), she must submit a plan that commits her "projected disposable income" during the applicable commitment period. 11 U.S.C. § 1325(b)(1). Unfortunately, the phrase "projected disposable income" is subject to conflicting interpretations. Section 1325(b)(2) defines "disposable income" as "current monthly income" less various categories of expenses. However, "current monthly income" is defined as the debtor's average income for the six months prior to her petition in bankruptcy. 11 U.S.C. § 101(10A).

Section 1325(b)(1)(B)'s use of the phrase "projected disposable income" raises the question of whether the calculation of disposable income for plan purposes should be based upon the debtor's average income for the six months prior to bankruptcy, or the debtor's projected income based upon her financial circumstances on the "effective date of the plan." In many cases, the answer will yield no difference; the debtor's projected income will be the same as her "current monthly income." However, a strict application of section 101(10A)'s definition of "current monthly income" can have serious consequence in some cases. For example, if "current monthly income" as defined in section 101(10A) applies, a debtor who anticipates a significant enhancement of future income is provided strong incentive to file chapter 13 as soon as possible. The amount of money that she would be required to commit to the plan would be based upon her lower average income prior to filing. On the other hand, a debtor who finds herself in the unfortunate circumstance of having a lower income after filing her petition might find that she is unable to confirm a plan because she cannot devote to the plan a "projected disposable income" predicated upon her prepetition income.

The court believes that the term "projected disposable income" must be based upon the debtor's anticipated income during the term of the plan, not merely an average of her prepetition income. This conclusion is buttressed not only by the anomalous results that could occur by strictly adhering to section 101(10A)'s definition of "current monthly income," but because, taken as a whole, section 1325(b)(1) commands such a construction.

First, section 1325(b)(1)(B)'s use of the phrase "projected disposable income" rather than "disposable income" is instructive. The court is to presume that "Congress acts intentionally and purposely when it includes particular language in one section of a statute but omits it in another...." BFP v. Resolution Trust Corp., 511 U.S. 531, 537, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1993). While Congress could have used the phrase "disposable income" in section 1325(b)(1)(B) and thereby invoked its definition as set forth in section 1325(b)(2), it chose not to do so. Consequently, Congress must have intended ...