In re Neclerio

• Decision Date: 20 August 2008
• Docket Number: No. 07-18991-BKC-JKO.,07-18991-BKC-JKO.
• Citation: 393 B.R. 784
• Parties: In re Christine Mary NECLERIO, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Florida

393 B.R. 784

In re Christine Mary NECLERIO, Debtor.

No. 07-18991-BKC-JKO.

United States Bankruptcy Court, S.D. Florida, Fort Lauderdale Division.

August 20, 2008.

COPYRIGHT MATERIAL OMITTED

Alan R. Crane, Esq., Boca Raton, FL, for Debtor.

ORDER DENYING CONFIRMATION OF FIRST AMENDED PLAN [DE 40]

JOHN K. OLSON, Bankruptcy Judge.

THIS CASE came before the Court on April 14, 2008, for confirmation of Christine Mary Neclerio's (the "Debtor") First Amended Chapter 13 Plan (the "Plan") [DE 40]. The issue squarely presented here is the meaning of the phrase "projected disposable income" in 11 U.S.C. § 1325(b)(1)(B). I conclude as a matter of statutory interpretation that "projected disposable income" means the same thing as "disposable income" as defined in § 1325(b)(2). I reach this conclusion reluctantly, both because it causes me to differ from the conclusions reached by other Florida bankruptcy judges and because it may result in chapter 13 plan payment requirements which are curiously divorced from the debtor's actual financial condition. At the extremes, the result which flows from this statutory construction can be grossly unfair. Nonetheless, the language enacted by Congress in the ill-named Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") expressly withdrew from the bankruptcy courts the ability to apply reasonable discretion in favor of a mechanical test. In applying that test here, I conclude that the Debtor's Plan does not provide that all of the Debtor's "projected disposable income" be paid into the Plan during the applicable commitment period and that the Plan is accordingly not confirmable pursuant to 11 U.S.C. § 1325. Confirmation must therefore be denied.

I. FACTS

The Debtor filed her voluntary bankruptcy petition [DE 1] under Chapter 13 of the Bankruptcy Code on October 23, 2007. According to Debtor's Bankruptcy Form B22C [DE 3], her monthly "Disposable Income" is $4,103.30. See Line 58 at [DE 3]. Further, the Debtor is well above the applicable median income for families her size.¹

The Plan provides for the Debtor to pay $477.40 over the first four months and $594.00 over the remaining 56 months. Thus the Debtor proposes to pay a total of $35,173.60 over the 60 month commitment period. The Debtor lists in her Amended Summary Schedules $49,725.46 of unsecured non-priority claims. See [DE 39].

II. DISCUSSION AND ANALYSIS

Section 1325 of the Bankruptcy Code, which sets forth the requirements for the confirmation of a chapter 13 plan, was substantively changed in BAPCPA. This change has lead to a difference of opinion among many courts around the country.

Prior to the enactment of BAPCPA, when the trustee or an unsecured creditor objected to a chapter 13 plan, the Bankruptcy Code under section 1325 permitted approval of that plan if:

(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 three-year period beginning on the date that the first payment is due under the plan will be applied to make payments under the plan.

11 U.S.C. § 1325(b)(1) (2005). "Disposable income" was defined as "income which is received by the debtor and which is not reasonably necessary to be expended." 11 U.S.C. § 1325(b)(2) (2005). The case law interpreted this computation as "income not reasonably necessary for maintaining or supporting the debtor or a dependent, with that determination being made on an estimated basis at plan confirmation." In re Slusher, 359 B.R. 290, 294 (Bankr. D.Nev.2007) (internal citations omitted). It was common practice for bankruptcy courts to look to the difference between Schedule I (current income at the time of filing) and Schedule J (current expenses at the time of filing) when calculating the debtor's projected disposable income for a 11 U.S.C. § 1325(b)(1)(B) analysis. Pak v. eCast Settlement Corp. (In re Pak), 378 B.R. 257, 262 (9th Cir. BAP 2007); Kibbe v. Sumski (In re Kibbe), 361 B.R. 302, 307 (1st Cir. BAP 2007).

However, BAPCPA made a significant change to section 1325(b). Now, when the trustee or an unsecured creditor objects to a plan, the Bankruptcy Code permits approval of that plan if "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.

11 U.S.C. § 1325(b)(1). "Disposable income" is now defined as "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 ..." 11 U.S.C. § 1325(b)(2). The term "current monthly income" is itself defined in the Code and represents a historic six-month average, prior to the date of filing of the petition, of debtor's income from all sources during that period excluding certain limited exceptions, such as Social Security payments. See 11 U.S.C. § 101(10A). Section 1325(b)(3) provides for above median income debtors (like the Debtor here) reasonable and necessary expenses to encompass a 11 U.S.C. § 707(b)(2) analysis. For those debtors who fall below the median income, there is no statutory guidance as to how expenses are derived for "disposable income." However, courts have interpreted this exclusion in the drafting to mean that the old practices apply, i.e. courts should primarily use Schedule J in computing the statutory requirements. See, e.g., In re Fuller, 346 B.R. 472, 483 (Bankr.S.D.Ill.2006); In re Schanuth, 342 B.R. 601, 604 (Bankr.W.D.Mo.2006).

With this change in section 1325, many courts have struggled to determine what Congress meant by "projected disposable income" and have reached radically different conclusions. Two basic lines of reasoning have emerged.

One line of authority holds that there is a distinction or ambiguity in the term "projected disposable income." This view was first expressed in In re Hardacre, 338 B.R. 718 (Bankr.N.D.Tex.2006). Hardacre and its progeny focus less on the historical income analysis as defined in § 1325(b)(2), in favor of the ability of the Court to utilize a more forward looking approach when calculating "projected disposable income." In Hardacre the perceived statutory ambiguity or distinction requiring judicial exploration stems from the word "projected," which appears directly before "disposable income," and is otherwise absent in the Bankruptcy Code. This approach, holding "projected disposable income" to be wholly separate term, requires a court to consider not just the debtor's prior financial history but current and anticipated changes in the debtor's financial situation.² To support this conclusion, the Hardacre court looks to the "as of the effective date of the plan" language in § 1325(b)(1), finding that "[t]his language suggests that the debtor's income `as of the effective date of the plan' is the one relevant to the calculation of `projected disposable income,'" not income prior to the filing of the bankruptcy case. 338 B.R. at 723.

Some courts take a slightly different position and hold that there exists no ambiguity in the statute and that the word "projected" "has independent significance," as it means "to calculate, estimate, or predict (something in the future), based on present data or trends." In re Jass, 340 B.R. 411, 415 (Bankr.D.Utah 2006) (internal citations and quotations omitted). Thus the term "projected" necessarily means a future oriented prescription, while "disposable income" is necessarily a calculation of tangible financial numbers rooted in the debtor's historic income and reasonable expenses. Id. at 416. Jass stands for the proposition that Form B22C is assumed to provide sufficient construction for "disposable income", but may be rebutted in the final analysis when formulating "projected disposable income" for confirmation.

A minority of courts have taken the position that in calculating "projected disposable income," the figure derived from Form B22C, without adjustments for considerations arising from pre-petition fluctuations in income or post-petition circumstances, is solely conclusive.³ This line of cases holds that under the statute as written there is a mechanical test devoid of discretion and courts are bound, regardless of the practicality of the result, by the calculations derived from Form B22C. In Maney v. Kagenveama (In re Kagenveama),⁴ the 9th Circuit states that, "... the plain language of § 1325(b) links "disposable income" to "projected disposable income," and we are bound by the definition of "disposable income" provided in § 1325(b)(2) ..." 527 F.3d 990, 996 (9th Cir.2008).

When interpreting a statute, a court must begin by examining the language of the statute itself and its analysis "... should always turn first to one, cardinal canon before all others courts must presume that a legislature says in a statute what it means and means in a statute what it says there." Connecticut Nat'l Bank v. Germain, 503 U.S. 249, 253-54, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992); See also United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241-242, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989); United States v. Goldenberg, 168 U.S. 95, 102-103, 18 S.Ct. 3, 42 L.Ed. 394 (1897); Oneale v. Thornton, 6 Cranch 53, 10 U.S. 53, 3 L.Ed. 150 (1810). "When the words of a statute are unambiguous, then, this first canon is also the last: `judicial inquiry is complete.'" Germain, 503 U.S. at 254, 112 S.Ct. 1146 (citing...