In re Musselman

• Citation: 379 B.R. 583
• Decision Date: 30 November 2007
• Docket Number: No. 07-00701-8-RDD.,07-00701-8-RDD.
• Court: U.S. Bankruptcy Court — Eastern District of North Carolina
• Parties: In re Brooks Lewis MUSSELMAN, Debtor.

379 B.R. 583

In re Brooks Lewis MUSSELMAN, Debtor.

No. 07-00701-8-RDD.

United States Bankruptcy Court, E.D. North Carolina, Fayetteville Division.

November 30, 2007.

COPYRIGHT MATERIAL OMITTED

John T. Orcutt, Offices of John T. Orcutt, P.C., Raleigh, NC, for Debtor.

ORDER REGARDING OBJECTION TO CONFIRMATION OF PLAN

RANDY D. DOUB, Bankruptcy Judge.

This matter is before the court on the objection to the trustee's motion for confirmation of the debtor's chapter 13 plan by eCast Settlement Corporation ("eCast"). A hearing was held in Fayetteville, North Carolina on September 6, 2007. The parties were given twenty days within which to file a legal memorandum or brief regarding the issues presented. After hearing the arguments of counsel, the court continued the matter to November 1, 2007 for further hearing, which was then continued by consent of the parties to December 6, 2007. However, after considering the arguments together with the briefs submitted by both parties in this case, the court has determined that no further hearing is necessary.

The debtor filed a petition for relief pursuant to chapter 13 of the Bankruptcy Code on February 27, 2007. Form B22C, filed with the debtors petition, indicates that the debtor has above-median income, with monthly disposable income under 11 U.S.C. § 1325(b)(2) of negative $255.80. The debtor's proposed plan, filed simultaneously with his petition, proposes plan payments of $459.00 per month for 55 months.¹ The proposed plan states payments will be used to pay the administrative, priority, cosign protect, and secured claims in full.² Pursuant to In re Alexander, 344 B.R. 742 (Bankr.E.D.N.C.2006), the debtor's proposed plan proposes no payments to unsecured creditors because he has negative monthly projected disposable income. The trustee's motion for confirmation reflects the terms of the proposed plan submitted by the debtor.³

eCast is the holder of two unsecured claims against the debtor with balances, at the time of filing, of $27,286.97 and $709.11, or approximately 48% of the debtor's scheduled unsecured nonpriority debt. eCast filed an objection to the trustee's motion for confirmation on several grounds.

First, eCast objects to the term of the debtor's plan of 55 months. eCast believes the debtors plan should be for 5 years.

Second, eCast argues that all of the debtor's projected disposable income is not being used to make payments to unsecured creditors pursuant to 11 U.S.C. § 1325(b)(1)(B). eCast argues several changes should be made to the computation of the debtors projected disposable income, one of which is to use the debtor's actual expenses rather than the national standard.

Third, eCast argues that, based upon the previous bases for objection, the debtor's plan should not be confirmed pursuant to 11 U.S.C. § 1325(a)(1). The court will review each of eCast's grounds for objection within the context of 11 U.S.C. § 1325.

11 U.S.C. § 1325(b)(1)

11 U.S.C. § 1325(b)(1) states:

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.

Based upon the plain language of the statute, Section 1325(b) applies only when an objection to confirmation of the plan has been raised by either the trustee or the holder of an allowed unsecured claim. See In re Jackson, 353 B.R. 849 (Bankr. E.D.N.C.2006). In this case, Section 1325(b) applies because eCast, holder of an allowed unsecured claim, has objected to the confirmation of the plan. Because the debtor has not provided that eCast be paid in full, Section 1325(b)(1)(B) applies.

11 U.S.C. § 1325(b)(2)

eCast encourages the court to consider the meaning of projected disposable income as a forward-looking concept, as opposed to an historical concept of the debtor's current monthly income as calculated pursuant to 11 U.S.C. § 101(10A) and set forth in Form B22C. eCast argues that the term "projected" is a modifier, allowing the court to treat the disposable income figure determined pursuant to 11 U.S.C. § 1325(b)(2) as merely a starting point for determining the debtor's projected disposable income.

As previously discussed, 11 U.S.C. § 1325(b)(1) provides for either full payment of the objecting unsecured creditor's claim or a showing that all "projected disposable income to be received" during the "applicable commitment period" be applied to make payments to unsecured creditors under the plan. Congress then went on to define disposable income in 11 U.S.C. Section 1325(b)(2).

There has been much debate among courts throughout the country regarding the meaning of the term "projected disposable income." Compare In re Hardacre, 338 H.R. 718 (Bankr.N.D.Texas 2006); In re Jass, 340 B.R. 411 (Bankr.D.Utah 2006); In re Kibbe, 342 B.R. 411 (Bankr.D.N.H. 2006) (all holding that projected disposable income is different from disposable income) with In re Alexander, 344 B.R. 742 (Bankr.E.D.N.C.2006) (holding that projected disposable income for above-median debtors is disposable income as defined by § 1325(b)). While the use of the word "projected" as an adjective before the term "disposable income," appears to modify the meaning of "disposable income," if Congress had intended different meanings, then why did Congress choose to redefine "disposable income"?

In 11 U.S.C. § 1325(b)(2), Congress defines "disposable income" and states that it is doing so "[f]or purposes of this subsection," referring to subsection (b). The term "disposable income" is not used in this subsection in any other capacity than with the term "projected disposable income." Therefore, the only reasonable explanation is that Congress intended to change the definition of disposable income from its pre-BAPCPA computation, i.e. subtracting Schedule J expenses from Schedule I income, to the computation as specifically stated within the definition provided by Section 1325(b)(2).

First, to judicially modify the definition of "disposable income" as given in § 1325(b)(2). would require the court to create a formula for determining payments to unsecured creditors, rather than following the clear statutory definition. Several courts have concluded that use of the word "projected" distinguishes projected disposable income from disposable income, as defined in Section 1325(b)(2) and requires that the court use the "old" method of computing disposable income to yield projected disposable income, i.e. subtract the current monthly expenses on Schedule J from the current monthly income on Schedule I. See, e.g., In re Fuller, 346 B.R. 472 (Bankr.S.D.Ill. June 21, 2006) (projected disposable income to be determined by subtracting expenses from Schedule I); In re Demonica, 345 B.R. 895 (Bankr.N.D.Ill. July 31, 2006) (Schedule I should be used to determine projected disposable income since it reflects current income at the time of filing).

Still others have treated the disposable income figure reached by Form B22C to be merely a "starting point" for determining the debtor's projected disposable income which may be adjusted according to the debtor's current financial situation. See, e.g., In re Jass, 340 B.R. 411 (Bankr. D.Utah 2006) (holding that the Statement of Current Monthly Income was the presumptive amount of projected disposable income, but presumption could be rebutted by the debtor upon a showing of substantial change of circumstances); In re Risher, 344 B.R. 833 (Bankr.W.D.Ky.2006) (holding that the disposable income arrived at with Form B22C is a beginning point for evaluating the debtor's past and current financial status). While these may sound like reasonable means of reaching projected disposable income, the "starting point" and "presumption" language are judicially written statutes, which is not the job of the judiciary, but the job of the legislative branch. Although the debtor's current financial situation may be significantly different from the situation illustrated by the projected disposable income figure derived at by Form B22C. Congress gave the court some flexibility in determining the debtor's current monthly income in unusual circumstances. Specifically, 11 U.S.C. § 101(10A)(ii) allows the court to determine another date on which current monthly income will be determined if the debtor does not file Schedule I, and 11 U.S.C. Section 521(a)(1)(B)(ii) requires the filing of Schedule I unless the court orders otherwise. See In re Ingram Case No. 06-02714-8-RDD (Bankr.E.D.N.C. Nov. 20, 2006).

If Congress had intended for "projected disposable income" to continue to be a figure derived by subtracting Schedule J expenses from Schedule I income, Congress would not have changed the definition of disposable income in § 1325(b)(2) and (3) which employs current monthly income as defined in § 101(10A), which in turn specifically excludes benefits received under the Social Security Act, et al., and differentiates expenses for above-median and below-median income debtors. And, if Congress had intended that the definition of "disposable income" be merely a starting point or a presumptive figure for determining "projected disposable income," allowing courts the flexibility to make that determination, it could have so stated within the confines of § 1325(b). Instead, Congress chose to impose a rigid definition with little room for flexibility by the court.

Second, this interpretation is further supported by the legislative history of the statute. H.R. Rep. 109-31(I) states that § 1325(b)(1) specifies that courts must find that a debtor's...