In re Harris
| Decision Date | 24 December 2014 |
| Docket Number | CASE NO. 14–04458–5–RDD |
| Citation | 522 B.R. 804 |
| Court | U.S. Bankruptcy Court — Eastern District of North Carolina |
| Parties | In re: Cydric Ranard Harris, Pamela Renee Harris, Debtors. |
OPINION TEXT STARTS HERE
Objection sustained; case conditionally dismissed. Joseph A. Bledsoe, III, New Bern, NC, for Trustee.
John T. Orcutt, Robert Lee Roland, IV, Law Offices of John T. Orcutt, P.C., Raleigh, NC, for Debtors.
Pending before the Court is the Objection to Confirmation of Plan and Motion to Dismiss filed by the Chapter 13 Trustee on September 5, 2014, the Memorandum of Law in Support of Objection to Confirmation filed by the Chapter 13 Trustee on October 22, 2014, the Response in Opposition to Trustee's Objection to Confirmation and Motion to Dismiss filed by Cydric Ranard Harris and Pamela Renee Harris (the “Debtors”) on September 29, 2014, and the Memorandum of Law in Opposition to Trustee's Objection to Confirmation filed by the Debtors on October 28, 2014. The Court conducted a hearing on November 4, 2014 to consider this matter.
The Debtors filed a voluntary petition for relief under Chapter 13 of Title 11 of the United States Code (the “Bankruptcy Code”) on August 4, 2014. Joseph A. Bledsoe, III, was duly appointed as the Chapter 13 Trustee (the “Trustee”). The Debtors filed the required Schedules A through J, a Statement of Financial Affairs, a master Mailing Matrix, and a Chapter 13 Statement of Income and Calculation of Commitment Period and Disposable Income (hereinafter the “B22C”). After completing Parts I and II of the B22C, the Debtors calculated their household income to be above the median family income in North Carolina for comparably sized households. The Debtors listed a monthly disposable income under 11 U.S.C. § 1325(b)(2) of negative $737.57.
To arrive at the monthly disposable income figure of negative $737.57, the Debtors took several deductions including the following expenses:
1. The Debtors completed Line 25B of the B22C 1 by listing the Average Monthly Payment of $1,357.67 for the Debtors' residence and the Internal Revenue Service (the “IRS”) Standard of $885.00. Thus, the Debtors did not deduct anything for net mortgage/rental expense on Line 25B.
2. The Debtors completed Line 28 by listing the Average Monthly Payment of $162.38 for the 2010 Hyundai Elantra and the IRS Standard of $517.00. Thus the Debtors deducted $354.62 for net ownership/lease expense on Line 28.
3. On Line 47 for their Future Payments on Secured Claims, the Debtors deducted $162.38 for the 2010 Hyundai Elantra and $1,357.67 for the Debtors' residence.
4. On Line 48 the Debtors deducted $78.76 for Other Payments on Secured Claims representing 1/60th of the cure amount of their prepetition mortgage arrears.
Schedule F shows the Debtors have approximately $113,931.30 in unsecured nonpriority claims. Schedule I shows a combined monthly income of $3,990.82. Schedule J shows average monthly expenses of $2,137.82 leaving a monthly net income of $1,853.00.
The Debtors filed a proposed Chapter 13 plan on August 4, 2014, pursuant to 11 U.S.C. § 1321 (the “Plan”). The Plan proposes to pay $1,853.00 per month for sixty (60) months. The total amount of Plan payments equals $111,180.00 and consists of $4,064.00 in attorneys' fees. The Plan proposes a zero percent payout to general non-priority unsecured creditors.
The Trustee requests that the Court deny confirmation of the Debtors' proposed Plan, on the basis that the Plan fails to comply with the “projected disposable income” requirement of 11 U.S.C. § 1325(b). Specifically, the Trustee contends that “above median income” debtors, like the Debtors herein, when calculating their Disposable Monthly Income on B22C, are only entitled to deduct the lesser of their actual home and vehicle payments, calculated in accordance with 11 U.S.C. § 707(b)(2)(A)(iii), or the corresponding Local Standards promulgated by the IRS and relevant in the calculation of Disposable Monthly Income under 11 U.S.C. § 707(b)(2)(A)(ii). According to the Trustee, if a debtor's actual home or vehicle payments exceed the IRS Standards, he may deduct additional amounts, over and above the amounts of the IRS Standards, but only upon a showing that such deductions are reasonable and necessary, and as a special circumstance under § 707(b)(2)(B).
The Debtors respond that based on the plain language of 11 U.S.C. § 707(b)(2)(A)(i), a debtor's expense amounts include the IRS standard allowances provided under § 707(b)(2)(A)(ii) and the secured debt payment under § 707(b)(2)(A)(iii), whichever is greater. In addition, the Debtors contend that their deductions are consistent with Form B22C and its instructions which properly implement the statutory “disposable income” formula for above-median debtors.
The issue before the Court is as follows: whether an “above median income” Chapter 13 debtor, when calculating Disposable Monthly Income pursuant to 11 U.S.C. § 1325(b)(3), is only entitled to deduct from his Current Monthly Income the lesser of the actual home and vehicle payments or the corresponding Local Standards promulgated by the IRS. Based on the holdings and analyses set forth in the Supreme Court decisions Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 131 S.Ct. 716, 178 L.Ed.2d 603 (2011) and Hamilton v. Lanning, 560 U.S. 505, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010) and the objectives of Congress in enacting the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), the Court holds the Debtors are only entitled to deduct from their Current Monthly Income the lesser of their actual home and vehicle payments or the corresponding Local Standards promulgated by the IRS, when calculating Disposable Monthly Income on B22C.
In cases where an objection to confirmation has been made by either the trustee or an unsecured creditor the court may not confirm a plan unless:
(A) 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; or
(B) the plan 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.
11 U.S.C. § 1325(b)(1)(A)-(B).
The Bankruptcy Code defines “disposable income” as “current monthly income” 2 received by the debtor [but not including certain child support, foster care, or disability income] less “amounts reasonably necessary to be expended” for “maintenance or support of the debtor or a dependent of the debtor,” business expenditures, and certain charitable contributions. 11 U.S.C. §§ 1325(b)(2)(A)(i) and (ii). If a debtor's “current monthly income,” when multiplied by 12, yields an amount greater than the median state income for the debtor's household size, the amounts “reasonably necessary to be expended” for the debtor's maintenance and support “shall be determined in accordance with subparagraphs (A) and (B) of the [Bankruptcy Code] section 707(b)(2)[.]” 11 U.S.C. § 1325(b)(3).
Section 707(b)(2) sets forth the means test which “supplants the pre-BAPCPA practice of calculating debtors' reasonable expenses on a case-by-case basis, which led to varying and often inconsistent determinations.” Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 131 S.Ct. 716, 722, 178 L.Ed.2d 603 (2011) (citation omitted). Ransom, 131 S.Ct. at 721. (internal quotations and internal citations omitted) (emphasis in original).
“Under the means test, a debtor calculating his ‘reasonably necessary’ expenses is directed to claim allowances for defined living expenses, as well as for secured and priority debt.” Id. at 722. A presumption of abuse arises “if the debtor's current monthly income reduced by amounts determined under clauses (ii), (iii), and (iv)” is greater than a specified level. 11 U.S.C. § 707(b)(2)(A)(i).
Section 707(b)(2)(A)(ii)(I) provides:
The debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor's actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service [IRS] for the area in which the debtor resides....
[n]otwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts ...
11 U.S.C. § 707(b)(2)(A)(ii)(I) (emphasis added).
Section 707(b)(2)(A)(iii) provides for a deduction of the “debtor's average monthly payments on account of secured debts” and is “the total of all amounts scheduled as contractually due to secured creditors in each month of the sixty months following the date of the filing of the petition,” divided by sixty. 11 U.S.C. § 707(b)(2)(A)(iii). This Section also provides for a deduction of other payments on secured claims representing 1/60th of the cure amount of the prepetition arrears. Id.
The National and Local Standards referenced in [Section 707(b)(2)(A)(ii)(I) ] are tables that the IRS prepares listing standardized expense amounts for basic necessities. The IRS uses the Standards to help calculate taxpayers' ability to pay overdue taxes. See 26 U.S.C. § 7122(d)(2). The IRS also prepares supplemental guidelines known as the Collection Financial Standards, which describe how to use the tables and what the amounts listed in them mean.
The National Standards are standardized expense amounts the IRS deems to be reasonable expenditures for food, housekeeping supplies, apparel and...
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