In re Lanning, BAP No. KS-07-067.

• Decision Date: 13 December 2007
• Docket Number: Bankruptcy No. 06-41037.,BAP No. KS-07-067.
• Parties: In re Stephanie Kay LANNING, Debtor. Jan Hamilton, Trustee, Appellant.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Tenth Circuit

380 B.R. 17

In re Stephanie Kay LANNING, Debtor Jan Hamilton, Trustee, Appellant.

BAP No. KS-07-067.

Bankruptcy No. 06-41037.

United States Bankruptcy Appellate Panel of the Tenth Circuit.

December 13, 2007.

COPYRIGHT MATERIAL OMITTED

Submitted on the briefs:^*

Jan Hamilton, pro se, and Teresa L. Rhodd, Chapter 13 Trustee's Office, Topeka, KS, for Appellant.

Joyce Owen, Assistant United States Trustee and Richard A. Wieland, Acting United States Trustee, of the United States Trustee's Office, Wichita, KS (Roberta A. Deangelis, Acting General Counsel, P. Matthew Sutko, and Melissa R. Burgess of the Executive Office for United States Trustees, Washington, D.C., of counsel) for United States Trustee as Amicus Curiae supporting affirmance.

Before BOHANON, McNIFF, and THURMAN, Bankruptcy Judges.

OPINION

THURMAN, Bankruptcy Judge.

In this case, the Chapter 13 Trustee appeals the bankruptcy court's order denying one of his objections to the Debtor's proposed plan. Although the Debtor did not participate in this appeal, the United States Trustee's Office filed an amicus brief in support of the bankruptcy court's decision. For the reasons stated herein, we AFFIRM.

I. APPELLATE JURISDICTION

This Court has jurisdiction to hear timely-filed appeals from final judgments and orders of bankruptcy courts within the Tenth Circuit and, with leave of court, interlocutory orders. 28 U.S.C. § 158; Personette v. Kennedy (In re Midgard Corp.), 204 B.R. 764, 768 (10th Cir. BAP 1997); Fed.R.Bankr.P. 8003. On July 31, 2007, this Court granted the Appellants' Motion for Leave to Appeal Interlocutory Order. Therefore, this Court has jurisdiction over this appeal.

II. BACKGROUND

The facts relevant to this appeal are uncontested, and were presented to the bankruptcy court by stipulation. The Debtor's annual income was $43,147 in 2004, and $56,516 in 2005. She filed a petition for Chapter 13 relief on October 16, 2006, and timely filed her Statement of Financial Affairs and her schedules. During the six months preceding the filing, the Debtor received a buy-out from her employer that resulted in an increase in her monthly income to $11,990 in April 2006, and $15,356 in May 2006. In connection with the buy-out, Debtor's employment was terminated. Therefore, at the time of filing, her actual monthly income (as shown on Schedule I) was $1,922, which is $23,604 when annualized. However, due to the "bump" in income she received in April and May, the Debtor's "current monthly income" (as determined by her Statement of Current Monthly Income, or "Form B22C"¹) was $5,344, or $64,124 annually. Since the median annual income for a family of one in Kansas is $36,631, the Debtor's annualized "current monthly income" is well above-median, which subjects her to the more rigorous standards applicable to above-median debtors.²

The Debtors actual monthly expenses (as shown on Schedule J) total $1,773, while her deductions on Form B22C total $4,228. Thus, under the pre-BAPCPA "I minus J" formula, the Debtor would have excess monthly income (available for plan payments) of $149 ($1,922 actual income minus $1,773 actual expenses). However, the figure resulting from the calculation of Debtor's monthly "disposable income" on Form B22C is $1,114 ($5,344 "current monthly income" minus $4,228 using the standardized deductions).

III. ISSUE AND STANDARD OF REVIEW

We here deal with an issue of interpretation of a statute that has received a great deal of attention in the courts: May an above-median debtor's "projected disposable income," pursuant to 11 U.S.C. § 1325(b)(1)(B),³ deviate from "current disposable income" determined under Form B22C, where the debtor establishes such a significant change in circumstances that "current disposable income" does not accurately or fairly project her future ability to pay creditors?

The interpretation of statutes is an issue of law that is subject to de novo appellate review.⁴ De novo review requires an independent determination of the issues, giving no special weight to the bankruptcy court's decision.⁵

IV. DISCUSSION

Prior to passage of the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA") in 2005, the income available to a Chapter 13 debtor for repayment of debts was typically determined by a relatively straightforward formula. A debtor's monthly income was reported on Schedule I of his or her bankruptcy schedules, and the reasonably necessary expenses were reported on Schedule J. Once these numbers were determined to be allowable and accurate, the amount left over after Schedule J's total was subtracted from Schedule I's total was generally the amount that was designated under the debtor's plan as available for payment to creditors for the plan period. Under BAPCPA, debtors still report their actual monthly income and expenses on Schedules I and J. However, BAPCPA created a new method for determining the amount debtors are required to pay under their plans. Thus, plan payments are no longer determined solely by the "I minus J" calculation.

"Current monthly income" is defined under BAPCPA as "the average monthly income from all sources that the debtor receives ... during the 6-month period" preceding filing of the petition.⁶ That figure can be "annualized" by multiplying it by twelve. Once the debtor's current annual income is determined, it is compared to the "median income" level for the debtor's family size and place of residence (as provided by the U.S. Census Bureau), and a determination is made as to whether the debtor's income is above or below the median for their circumstances. A finding that a debtor is "above-median" is significant because, pursuant to section 1325(b)(3) and (4), above-median debtors are required both to use standardized deductions⁷ and to make plan payments for five years instead of three.⁸ Thus, an above-median debtor's "disposable income" is defined as "current monthly income" minus the standardized deductions.⁹ Form B22C is the vehicle by which a debtor's "disposable income" is determined.

In this appeal, the amount determined by the Form B22C calculations to be the Debtor's monthly "disposable income" is not contested, nor is her designation as "above-median." The only issue before this Court is how the Debtor's "projected disposable income" is determined. The import of this determination is that section 1325(b)(1)(B) only allows court approval of a proposed plan over the trustee's objection if the plan provides for payment of "all of the debtor's projected disposable income to be received" during the plan period (emphasis added). According to the Trustee, an above-median debtor's "projected disposable income" is simply a multiple of their Form B22C "disposable income."¹⁰ Using this analysis, the Debtor's plan could not be approved unless it provided for 60 payments of $1,115 each, for a total payout of $66,900 over five years. Given Debtor's actual monthly income of $1,922, such payments would leave her with only $807 to pay her $1,773 expenses. Thus, the Trustee's interpretation of section 1325(b)(1)(B) requires the Debtor to commit to payments she cannot possibly make in order to obtain the protections afforded by bankruptcy.¹¹

This Court has not had occasion to consider this particular application of BAPPA previously. However, other courts that have addressed the definition of "projected disposable income" generally fall into one of two groups. The first group, which has generated the majority of published decisions on the issue, holds that the term "projected" in section 1325(b)(1)(B) modifies "disposable income" such that the determination of the amount a debtor must propose to pay over the plan commitment period may require consideration of more than just the Form B22C mathematical calculation of "disposable income."¹² In other words, the term "projected disposable income" is not simply a multiple of "disposable income." These cases typically reason that Congress's use of the term "projected" and the phrase "to be received by the debtor" in section 1325(b)(1)(B) indicates an intent that bankruptcy courts consider a debtor's future ability to pay in determining projected disposable income. This result is based, in part, on the well-established principle of statutory construction that, when particular language is used in one part of a statute but not in another, Congress must have intended for that language to add meaning to the defined phrase.¹³ Thus, these cases conclude that "projected disposable income" means something more than simply "disposable income."

A number of other well-reasoned cases disagree with this analysis and insist on a more narrow interpretation of the term "projected disposable income" and the calculations from Form B22C.¹⁴ Thus, these cases reason that the BAPCPA amendments did in fact eliminate bankruptcy court discretion, and that the Form B22C calculations are binding, regardless of changed circumstances.¹⁵ Whereas courts interpreting section 1325(b)(1)(B) to allow consideration of changed circumstances reason that the term "projected" must have some independent meaning, the more narrow interpretation courts consider that determination to be an inflation of the term's importance, and that "projected" quite simply means multiplied.

The Bankruptcy Appellate Panel of the First Circuit ("First Circuit BAP") has adopted the majority view in a below-median debtor's appeal of the rejection of her proposed plan.¹⁶ In Kibbe, because the calculation of the debtor's Form B22C disposable income was negative, she had proposed a plan that provided no payments for the benefit of her unsecured creditors. The trustee objected to confirmation on the ground that the debtor had obtained a higher-paying job shortly before filing her petition, and her actual income was nearly $2,400 more than her expenses.¹⁷ Thus, the trustee in Kibbe took the same position taken by the Debtor in the present case, that bankruptcy courts may still consider...