In re Miller, 06-81889-JAC-13.

• Decision Date: 18 January 2007
• Docket Number: No. 06-81889-JAC-13.,06-81889-JAC-13.
• Citation: 361 B.R. 224
• Parties: In the Matter of Tavarus Deaunta MILLER, Latonya Dionne Miller, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Alabama

361 B.R. 224

In the Matter of Tavarus Deaunta MILLER, Latonya Dionne Miller, Debtors.

No. 06-81889-JAC-13.

United States Bankruptcy Court, N.D. Alabama, Northern Division.

January 18, 2007.

G. John Dezenberg, Huntsville, AL, for debtors.

Phillip Geddes, for trustee.

MEMORANDUM OPINION

JACK CADDELL, Bankruptcy Judge.

The dispute before the Court concerns the proper application of the disposable income test to above median income debtors under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). This case came before the Court on trustee's objection to confirmation of the debtors' proposed Chapter 13 plan on the grounds that the debtors are not committing all of their projected disposable income to make payments to unsecured creditors as required by 11 U.S.C. § 1325(b)(1)(B). The debtors' proposed plan payment exceeds the amount calculated on Form B22C as the debtors' monthly disposable income under § 1325(b)(2), but the proposed payment is less than the amount reflected on Schedules I and J as the debtors' monthly net income. The debtors argue that BAPCPA changed the method for determining "disposable income" for above median income debtors under 11 U.S.C. § 1325(b)(2) and (3) and that their proposed plan payment satisfies the new disposable income test for above median income debtors even though Schedules I and J reflect excess actual disposable income that is not being committed to the plan.

The trustee has not filed an objection to a specific expense listed by the debtors on Form B22C and takes no independent position with respect to the issues before the Court. The trustee simply questions how Schedules .I and J and Form B22C should be reconciled in determining disposable income for above median income debtors.

FINDINGS OF FACT

The debtors' Chapter 13 plan provides for monthly plan payments of $908.00 for 60 months. From that amount, $803.14 will be paid as fixed payments on secured claims and general unsecured creditors will receive a distribution of approximately 5%. Unsecured creditors have filed claims in the case totaling $147,506.24.¹ Filed secured claims total $283,071.90.

Pursuant to FED.R.BANKR.P. 1007, the debtors filed Form B22C, Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income, with their petition and schedules.² Form B22C is used by all Chapter 13 debtors to calculate current monthly income and the applicable Chapter 13 commitment period. Above median income debtors also use the form to calculate disposable income under § 1325(b)(2). Debtors' Form B22C reflects annualized current monthly income of $101,622.36, placing the debtors over the $50,617.00 median income for a family of three in the State of Alabama. Pursuant to the calculations called for under § 1325(b)(2) and (3), the debtors report on Form B22C total current monthly income of $8,468.53, total allowable deductions of $11,519.29, and monthly disposable income of negative $3,050.76. According to Schedules I and J, the debtors have total monthly income of $5,450.83, total monthly expenses of $4,113.89, leaving monthly net income of $1,336.94. Based on the negative monthly disposable income figure reflected on Form B22C, debtors argue that their plan is due to be confirmed despite the fact that their Chapter 13 payments would have been more under the pre-BAPCPA disposable income test using Schedules I and J.

CONCLUSIONS OF LAW

The trustee's objection to confirmation is based upon § 1325(b)(1)(B) which provides in pertinent part as follows:

(b)(1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan —

(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.

(emphasis added)

Under § 1325(b)(1), the court may not confirm a Chapter 13 plan if an interested party files an objection unless the plan either pays all creditors in full, or provides that all of the debtor's "projected disposable income" will be applied to make payments to unsecured creditors under the plan. Because the debtors' plan will not pay creditors in full, the Court cannot confirm the plan unless it determines that the debtors are submitting all of their "projected disposable income" to unsecured creditors under the plan in conformity with § 1325(b)(1)(B).

Prior to the bankruptcy amendments, Schedules I and J were the primary source of evidence used to satisfy the disposable income test under § 1325(b). Upon objection to confirmation under § 1325(b), courts examined a debtor's current monthly income and expenses reported on Schedules I and J. Determining whether the debtor's reported Schedule J expenses were reasonably necessary for the support of the debtor or a dependant of the debtor was a fact-bound undertaking that required the court to make judgments about a debtor's lifestyle.

Under BAPCPA, the disposable income test now turns upon whether a debtor's current monthly income is above or below the applicable median family income.³ Section 1325(b)(2) defines the term disposable income for purposes of § 1325(b)(1)(B) as current monthly income "less amounts reasonably necessary to be expended" generally for the debtor's support or that of a dependent. Section 1325(b)(3), then explains how the phrase "amounts reasonably necessary to be expended" is to be determined for above median income debtors. Sections 1325(b)(2) and (3) provide in part as follows:

(2) For the purposes of this subsection, the term "disposable income" means current monthly income received by the debtor (other than child support payments, foster care payments, or disability payments for a dependent child made in accordance with applicable nonbankruptcy law to the extent reasonably necessary to be expended for such child) less amounts reasonably necessary to be expended-

(A) (i) for the maintenance or support of the debtor or a dependent of the debtor, or for a domestic support obligation,

that first becomes payable after the date the petition is filed; and

(ii), for charitable contributions ...; and

(B) if the debtor is engaged in business, for [allowed business expenses].

(3) Amounts reasonably necessary to be expended under paragraph (2) shall be determined in accordance with subparagraphs (A) and (B) of section 707(b)(2), if the debtor has current monthly income, when multiplied by 12, greater than [the applicable median income for a household the size of the debtors].

(emphasis added)

Now, as to above median income debtors, § 1325(b)(3) directs debtors to calculate expenses based on the means test formula found in § 707(b)(2)(A) and (B). Section 707(b)(2)(A)(ii)(I) of the means test provides in part that 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."⁴ The National and Local standard expense allowances are taken from IRS guidelines that are used to determine a taxpayer's ability to pay delinquent taxes. The National standards for living expenses is a fixed expense allowance for food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous expenses. The debtor is entitled to deduct the full amount of the allowance without regard to actual expenditures. Local standards include standard expense allowances for housing, utilities, and transportation. Housing and transportation costs are each divided into separate categories for ownership costs and other non-mortgage expenses and transportation operating costs. The non-mortgage expense and transportation operating expense categories are taken without regard to a debtor's actual expenditures. Subsequent subparts of § 707(b)(2)(A) describe additional allowed expense deductions that are based on a debtor's actual expenses. Above median income debtors calculate these means test deductions using Form B22C.

Section 1325(b)(3) provides that the "amounts reasonably necessary to be expended" for above median income debtors shall also be determined in accordance with § 707(b)(2)(B). Section 707(b)(2)(B) provides that "the presumption of abuse may only be rebutted by demonstrating special circumstances, such as a serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative." By tying the disposable income definition under § 1325(b)(2) and (3) to subparagraphs (A) and (B) of § 707(b)(2), one court has held that Congress provided "courts with a very limited ability to adjust both income and expenses under § 707(b)(2)(B)(i) based on a showing of `special circumstances.'"⁵

Debtors argue § 1325(b)(2) and (3) unambiguously requires an above median income debtor to calculate disposable income using the means test deductions under § 707(b)(2) as reported on Form B22C without regard to the debtor's actual expenses listed on Schedule J. By the clear language of the statute, the disposable income test is no longer determined using an above median debtor's Schedules I and J actual income and expense figures. Instead, Congress has mandated that disposable income be determined under Form B22C using the calculations set forth in § 707(b)(2)(A) and (B).

To calculate disposable income for below median income debtors, reported decisions have held that the...