In re McGuire

• Decision Date: 01 June 2006
• Docket Number: No. 06-60054.,06-60054.
• Citation: 342 B.R. 608
• Parties: In re Daniel M. McGUIRE and Priscilla F. McGuire, Debtors.
• Court: U.S. Bankruptcy Court — Western District of Missouri

342 B.R. 608

In re Daniel M. McGUIRE and Priscilla F. McGuire, Debtors.

No. 06-60054.

United States Bankruptcy Court, W.D. Missouri.

June 1, 2006.

Ted L. Tinsman, Springfield, MO, for Debtors.

MEMORANDUM OPINION

ARTHUR B. FEDERMAN, Bankruptcy Judge.

The Chapter 13 Trustee filed a Motion to Deny Confirmation of the Debtors' Chapter 13 Plan, asserting that the Plan could not be confirmed because the Debtors propose a repayment period of less than sixty months and because the Debtors claim a deduction from their monthly income for a vehicle they own free and clear of liens, both in violation of 11 U.S.C. § 1325(b). Subsequently, the Trustee filed a Supplemental Objection to Confirmation of Debtors' Chapter 13 Plan, offering additional argument in support of the issue regarding the deduction for the vehicle. This is a core proceeding under 28 U.S.C. § 157(b)(2)(L) over which the Court has jurisdiction pursuant to 28 U.S.C. § 1334(b), 157(a), and 157(b)(1). The following constitutes my Findings of Fact and Conclusions of Law in accordance with Rule 52 of the Federal Rules of Civil Procedure as made applicable to this proceeding by Rule 7052 of the Federal Rules of Bankruptcy Procedure.

FACTUAL BACKGROUND

Daniel and Priscilla McGuire filed their voluntary Chapter 13 Petition on February 8, 2006. Accordingly, their case is governed by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).¹ According to their Schedule I, Mrs. McGuire has $1,080.95 in net monthly income from her employment. Mr. McGuire receives net pension benefits of $2,176 plus social security benefits of $588, for a combined total net monthly income of $3,844.95. The McGuires' Schedule J shows total monthly expenses of $2,592.58. Thus, Schedules I and J reveal that the McGuires have monthly disposable income of $1,292.37.

According to the McGuires' Form B22C,² in contrast, they have a combined gross monthly income of 83,968.15, which is based on their average gross monthly income for the six calendar months prior to the filing of the bankruptcy case, excluding Mr. McGuire's social security benefits.³ Form B22C shows total monthly expenses of $3,790.05, leaving monthly disposable income of $178.10.

As discussed more fully below, the disposable income numbers differ between the Schedules and Form B22C because the former use actual figures, whereas the latter calculates income on a historical average and calculates expenses based largely on the national and local standards established by the Internal Revenue Service.

The McGuires' Plan proposes plan payments of $600 per month. After payment of attorney fees and an IRS secured tax claim of $9,171.19, the Debtors propose to pay a "pot" in the amount of $10,686 to nonpriority unsecured creditors. The "pot" amount is based on Form B22C's monthly disposable income of $178.10, multiplied by sixty months. However, at $600 per month, the McGuires will have paid in the "pot" amount in significantly less than sixty months. Thus, it appears, the McGuires hope to complete their Chapter 13 case early by paying in a higher monthly payment amount than is calculated as their disposable income on Form B22C.

As mentioned above, the Trustee objects to the Plan on two grounds: first, he asserts the McGuires cannot propose a Plan that runs a period of less than sixty months and thereby leave the case early; and, second, they have improperly claimed an ownership expense deduction on the Form B22C for a vehicle that is free of liens and, therefore, they are not committing all of their disposable income to the Plan.

DISCUSSION

Section 1325(b)(1)(B) provides that, if the trustee or the holder of an allowed unsecured claim objects to confirmation of a plan, then the court may not approve the plan unless, as of the effective date of the plan, "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."⁴ Both of the Trustee's objections turn on the interpretation and application of the phrase "projected disposable income to be received in the applicable commitment period."

Calculation of Projected Disposable Income

An initial step in the plan proposal and confirmation process is the determination of whether the debtor's current income (which is calculated by averaging the debtor's actual income for the previous six months and multiplying that number by twelve to arrive at an annualized number) falls above or below the median income in the area where the debtor resides. The median income in Missouri for a family of two is $44,631.00, and the McGuires have annualized current income of $47,617.80. Consequently, the McGuires appropriately checked the boxes on their Form B22C showing that they are above-median.

This determination is important in the plan confirmation process for at least two reasons: first, it determines how the debtor's "disposable income" is calculated and, second, it determines the length of the "applicable commitment period" under § 1325(b)(1)(B).

For below-median debtors, the term "disposable income" is defined by § 1325(b)(2) to mean "current monthly income received by the debtor ... less amounts reasonably necessary to be expended" for the maintenance or support of the debtor or a dependent of the debtor, for a domestic support obligation, for certain charitable contributions and, if applicable, for expenditures necessary for the operation of the debtor's business.⁵ "Current monthly income" is the average monthly income of the debtor, excluding certain items such as social security benefits, for the six months prior to the filing of the case.⁶ Thus, for below-median debtors, the income side of the equation is now calculated as a historical average rather than being based on actual numbers, but the determination of what constitutes reasonably necessary expenses for purposes of determining "projected disposable income" to be paid into the plan is the same post-BAPCPA as it was pre-BAPCPA: it is based on the actual expenses identified in Schedule J and is subject to the court's discretion as to the reasonableness of the claimed expenses.

For above-median debtors such as the McGuires, on the other hand, "disposable income" now means "current monthly income" (the historical average calculation), less amounts reasonably necessary to be expended as determined in accordance with § 707(b)(2)(A) and (B).⁷ This calculation is performed in Parts IV and VI on Form B22C.

Section 707(b)(2)(A)(ii)(I) provides, in part:

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 for the area in which the debtor resides, as in effect on the date of the order for relief, for the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent. Such expenses shall include reasonably necessary health insurance, disability insurance, and health savings account expenses for the debtor, the spouse of the debtor, or the dependents of the debtor. Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.⁸

The statute also permits a debtor to deduct expenses for certain other enumerated items, such as expenses for the care of elderly or disabled family members, childrens' tuition up to $1,500, and Chapter 13 administrative expenses,⁹ none of which are relevant here. The Code also permits monthly expense deductions for payments on secured debt and priority claims, averaged over sixty months.

In other words, for above-median debtors, the statute breaks down allowable expenses into five general categories: (1) those that fit into the IRS' National Standards, which include food, clothing, household supplies, personal care, and miscellaneous expenses; (2) those that fit into the IRS' Local Standards, which include housing and transportation; (3) actual expenses for items categorized by the IRS as "Other Necessary Expenses," including such items as taxes, mandatory payroll deductions, health care, and telecommunication services; (4) actual expenses, with limitations, for certain other expenses specified by the Bankruptcy Code, such as care for disabled family members and tuition; and (5) payments on secured and priority debts. Because § 707(b)(2)(A)(ii)(I) provides that monthly expenses pursuant to the IRS Standards "shall not include any payments for debts," and debtors are permitted to deduct actual mortgage and car payment amounts separately, debtors must deduct from the IRS Standard expenses their monthly mortgage and car payments to avoid double-dipping.'¹⁰

Here, the Trustee objects to the McGuires' claimed expenses for transportation. The IRS Local Standards apply to transportation costs, which are divided into two components: ownership costs and operating costs. The McGuires' schedules show that they own a 1996 Buick free and clear of liens. On their Form B22C, they claim a $251 deduction for the operation of one vehicle, in accordance with the IRS Local Standards. They also claim a $475 ownership expense for one vehicle pursuant to IRS Local Standards. The Trustee has no dispute with the claimed operating costs,¹¹ but asserts that the McGuires have improperly claimed the ownership expense for a vehicle they own free and clear of liens. Therefore, he asserts, they are not committing all of their disposable income to the Plan in violation of § 1325(b)(1)(B).¹²

Thus, the issue is whether a debtor who does not own or lease a vehicle, or owns a vehicle free of liens, is permitted to claim a vehicle ownership expense under the IRS...