In re Laplana

• Decision Date: 09 February 2007
• Docket Number: No. 6:05 BK 17635 KSJ.,6:05 BK 17635 KSJ.
• Citation: 363 B.R. 259
• Parties: In re Rogelio A. LAPLANA, Daisy B. Laplana, Debtors.
• Court: U.S. Bankruptcy Court — Middle District of Florida

363 B.R. 259

In re Rogelio A. LAPLANA, Daisy B. Laplana, Debtors.

No. 6:05 BK 17635 KSJ.

United States Bankruptcy Court, M.D. Florida, Orlando Division.

February 9, 2007.

Douglas W. Neway, Bond Botes and Neway Pc, Orlando, FL, for Debtors.

MEMORANDUM OPINION DENYING DEBTORS' MOTION TO RECONSIDER ORDER CONFIRMING CHAPTER 13 PLAN

KAREN S. JENNEMANN, Bankruptcy Judge.

Mr. and Mrs. LaPlana are above median income debtors residing in Florida who have confirmed a Chapter 13 reorganization plan spanning five years. Paragraph 16 of the Order Confirming Debtors' Chapter 13 Plan (the "Confirmation Order") (Doc. No. 44) provides that "All future refunds from the Internal Revenue Service shall be turned over to the Chapter 13 trustee for distribution to the general unsecured creditors who have timely filed unsecured claims." The debtors, in their Motion to Reconsider Order Confirming Debtors' Chapter 13 Plan (the "Motion for Reconsideration") (Doc. No. 46), now object to this provision in the Confirmation Order arguing that it violates the formula set forth in Bankruptcy Code¹ Section 1325(b)(2) for determining the amount of disposable income the debtors must pay into a plan in order to get a discharge.

Because the debtors filed this case on November 28, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), effective on October 17, 2005, applies. BAPCPA substantially modified how a debtor's disposable income is to be calculated, and courts have differed on the acceptable methodology for applying those calculations in connection with Bankruptcy Code Section 1325(b)(1)(B)'s requirement that debtors use all of their "projected disposable income to be received" during the life of the plan to pay their unsecured creditors. The specific issue presented in the debtors' Motion for Reconsideration is whether the debtors' future federal tax refunds are subject, to turnover to the Chapter 13 Trustee for distribution to the debtors' unsecured creditors. In order to resolve this issue, the Court must decide how the debtors' projected disposable income should be calculated under BAPCPA, which will affect these debtors as well as all other above median income Chapter 13 debtors who filed their case after October 17, 2005.

Reconsideration is not merited. As a threshold matter, the Chapter 13 Trustee argues that reconsideration of the Confirmation Order is not appropriate. The Chapter 13 Trustee had circulated the proposed confirmation order to the debtors and to debtors' counsel substantially prior to the confirmation hearing, held on June 20, 2006. Neither the debtors nor debtors' counsel raised any objection to the inclusion of paragraph 16 in the Confirmation Order either to the Chapter 13 Trustee directly or to the Court at the confirmation hearing. Debtors' counsel cannot express any surprise at the inclusion of the provision insofar as identical language has been routinely contained in similar confirmation orders entered by this Court for the last several years. Moreover, the Confirmation Order was not entered until June 29, 2006, several days after the hearing. Again, neither the debtors nor the debtors' counsel raised any objection to the inclusion of paragraph 16 in the Confirmation Order. Therefore, the Chapter 13 Trustee asserts that any objection should have been raised prior to the entry of the Confirmation Order and that the debtors have failed to establish any basis for the Court to reconsider the entry of the Confirmation Order.

In addressing requests to reconsider orders,² courts are cautioned to change their rulings sparingly to encourage finality and to conserve judicial resources. In re Mathis, 312 B.R. 912, 914 (Bankr.S.D.Fla.2004) (citing Sussman v. Salem, Saxon & Nielsen, P.A., 153 F.R.D. 689, 694 (M.D.Fla.1994); accord Taylor Woodrow Construction Corp. v. Sarasota/Manatee Airport Authority, 814 F.Supp. 1072, 1073 (M.D.Fla.1993)). The only grounds for granting a motion for reconsideration "are newly-discovered evidence or manifest errors of law or fact." In re Kellogg, 197 F.3d 1116, 1119 (11th Cir.1999).³ Therefore, reconsideration is appropriate only in limited circumstances to: (1) account for an intervening change in controlling law, (2) consider newly available evidence, or (3) correct clear error or prevent manifest injustice. Mathis, 312 B.R. at 914 (citations omitted).

In this case, the debtors have not (i) identified any meritorious errors of law or fact, (ii) presented any new or previously unavailable evidence, or (iii) demonstrated any intervening change in controlling law. As such, reconsideration is not appropriate.

Future Tax Refunds Constitute Property of the Estate. However, even if the debtors had established a basis for reconsideration, the Court still would have denied the motion holding that the debtors' future tax refunds do constitute projected disposable income subject to administration by the Chapter 13 Trustee. The Court rejects the debtors' argument that paragraph 16 requiring the turnover of the tax refunds violates the historically-based formula set forth in Bankruptcy Code Section 1325(b)(2) for determining their disposable income. Because this holding may affect numerous other pending Chapter 13 cases, an explanation is merited.

When a debtor commences a bankruptcy case, an estate is created consisting of all of the debtor's legal or equitable interests in property as of the petition date. 11 U.S.C. § 541(a). This collection of interests is referred to as "property of the estate." 11 U.S.C. § 541. Unencumbered, non-exempt property of the estate is available to satisfy the claims of a debtor's unsecured creditors.

In Chapter 13 cases, property of the estate is even more broadly defined and includes, in addition to the interests specified in Bankruptcy Code Section 541(a), all post-petition legal or equitable interests acquired by the debtor and earnings from services performed by the debtor, after the commencement of the case but before the case is closed, dismissed, or converted to any other type of case under the Bankruptcy Code. 11 U.S.C. § 1306(a) & (b). A debtor's future federal income tax refund is easily included in the comprehensive definition of "property of the estate" under Bankruptcy Code Sections 541(a) and 1306(a) and (b). In re Lafanette, 208 B.R. 394 (Bankr.W.D.La.1996) (income tax refunds constitute property of the estate pursuant to Bankruptcy Code Sections 541 and 1306) (citing Matter of Doan, 672 F.2d 831, 833 (11th Cir.1982) (the right to a refund is property of the estate, citing Bankruptcy Code legislative history and Segal v. Rochelle, 382 U.S. 375, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966)); In re Beltz, 263 B.R. 525, 527 (Bankr.W.D.Ky.2001) (all of debtors' federal and state tax refunds received during the Chapter 13 case are property of the estate); In re Mack, 46 B.R. 652 (Bankr.E.D.Pa.1985) (In a Chapter 13 case, wages earned by a debtor both before and after the petition date are property of the estate; likewise, tax refunds are property of the estate to the same extent as wages). As such, in this case, the debtors' future tax refunds constitute property of the estate. The issue, then, is whether the debtors must pay these future tax refunds, to the Chapter 13 Trustee for distribution to their unsecured creditors.

In the Eleventh Circuit, property of the estate re-vests in the debtor at confirmation⁴ unless: (i) the plan or the confirmation order provides otherwise, or (ii) the assets are necessary to fund the plan. In re Santangelo, 325 B.R. 874 (Bankr.M.D.Fla.2005) (citing 11 U.S.C. § 1327(b) and Telfair v. First Union Mortg. Corp., 216 F.3d 1333 (11th Cir. 2000)). In other words, a debtor with a confirmed Chapter 13 plan retains all property that was not pledged in the plan or confirmation order and that is otherwise not needed to fund the reorganization, unfettered from interference by the Chapter 13 Trustee or the bankruptcy court. Cf. Matter of Gonzalez, 42 B.R. 401 (Bankr. Ga.1984) ("Sections 1306 and 1327 provide that the debtor retains all property and post-petition income except as provided in the confirmed plan and order to be paid to creditors under the plan. Thus, the debtor is entitled to receive a federal income tax refund where the debtor's confirmed Chapter 13 plan did not submit the income tax refund for funding of the Chapter 13 plan and the debtor has been current in his Chapter 13 payments to the Chapter 13 trustee."). In this case, the confirmation order clearly establishes that the debtors must pay their future tax refunds to the Chapter 13 Trustee.

Projected disposable income includes future tax refunds. The debtors argue, however, that this requirement to turnover future tax refunds is overreaching and unjustified under the statutory changes rendered by BAPCPA. Specifically, the debtors argue they only need to pay their disposable income as calculated on Official Form B22C, which uses income and expenses incurred six months prior to the date they filed this Chapter 13 case. Obviously, the debtors, at that point, did not know the amount of their future tax refund for that particular tax year. They certainly could not predict the amount of any tax refund they may receive five years hence. As such, the debtors contend that their disposable income calculated six months prior to the petition date freezes their payment obligations during the Chapter 13 case and that they need make no additional payments to their creditors, regardless of any later change in circumstances, such as the receipt of future tax refunds.

In order to address the debtors' argument, the Court will start with a short explanation of the Chapter 13 confirmation process. Plan confirmation is governed by Bankruptcy Code Section 1325. As relevant here, Bankruptcy Code Section 1325(b)(1)(B) provides that a court may confirm a plan if, as of the effective date of the plan, "the plan provides that all of the debtor's...