In re Nowlin

Decision Date17 July 2009
Docket NumberNo. 08-20066.,08-20066.
Citation576 F.3d 258
PartiesIn the Matter of: Pamela Page NOWLIN, Debtor. Pamela Page Nowlin, Appellant, v. David G. Peake, Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

Reese Walker Baker (argued), Baker & Associates, Houston, TX, for Nowlin.

David Ronald Jones (argued), Joshua W. Wolfshohl, Porter Hedges, Houston, TX, for Peake.

Edward Himmelfarb (argued), William Kanter, U.S. Dept. of Justice, Civ. Div., P. Matthew Sutko, Robert Joseph Schneider, Jr., U.S. Dept. of Justice, Executive Office of U.S. Trustee, Washington, DC, for U.S. Trustee, Amicus Curiae.

Appeal from the United States District Court for the Southern District of Texas.

Before KING, DENNIS and ELROD, Circuit Judges.

JENNIFER W. ELROD, Circuit Judge:

This bankruptcy case requires us to interpret the phrase "projected disposable income" in 11 U.S.C. § 1325(b)(1) for above-median debtors seeking plan confirmation under Chapter 13. We interpret the phrase to allow consideration of reasonably certain future events by bankruptcy courts. Under this approach, an above-median Chapter 13 debtor's "projected disposable income" presumptively consists of his statutorily defined "disposable income" mechanically projected into the future for the duration of the plan. This presumption may be rebutted during the confirmation hearing with evidence of present or reasonably certain future events that will affect the debtor's income or expenses. In so holding, we join the majority of circuits to have considered the issue.


The facts relevant to this appeal are undisputed. Pamela Page Nowlin filed for Chapter 13 bankruptcy on September 14, 2006, simultaneously filing the required schedules and her proposed payment plan. She listed on Schedule I monthly income of $7,145.86, and monthly deductions of, among other items, $1,062.51 for her 401(k) plan, and $1,134.79 to repay a 401(k) loan. She listed on Schedule J a monthly net income of $195.64. Nowlin also filed Form B22C, listing a six-month averaged monthly income of $7,420.53. Because Nowlin's annualized income of $89,046.36 is more than the median family income for a single person household in Texas ($34,408.00), she is an "above-median debtor." That designation requires a minimum applicable commitment period of five years under 11 U.S.C. § 1325(b)(4) and the use of standard IRS expense deductions1 on her form B22C. After taking allowed deductions, the B22C form listed a monthly disposable income of $38.67.2 Over sixty months, this would result in payments to unsecured creditors of $2,320.20.

Nowlin's proposed plan allocated $195.00 per month for creditors over the sixty-month term, resulting in total payments to general unsecured creditors of $1,814.19, or about six percent of the total general unsecured claims of $32,889.87.3 Nowlin filed an amended plan on December 7, 2006, which modified the amount of the IRS's priority claim,4 resulting in total payments to general unsecured creditors of $980.45, or about three percent of the total claims.

The Chapter 13 Trustee opposed confirmation of Nowlin's amended plan. At a hearing on the matter, Nowlin testified that the loan from her 401(k) plan would be repaid within two years, which would free up an additional $1,134.79 a month. She also testified that her 401(k) contributions were capped at $15,000 a year, or $1,250.00 a month. Nowlin argued to the bankruptcy court that the additional money in her budget after the loan is repaid should not be considered for confirmation purposes because the calculation of "projected disposable income" under § 1325(b)(1) should be mechanical, involving nothing more than (1) determining her current disposable income under § 1325(b)(2), and (2) multiplying that amount by the plan's term. The Trustee argued that projecting income should allow for the consideration of known future events, and thus the additional money should be diverted to repay creditors.

The bankruptcy court denied confirmation of Nowlin's proposed plan. The court rejected Nowlin's mechanical interpretation of "projected disposable income," and instead held "that `projected disposable income' ... requires the Debtor to account for any events which will definitely occur during the term of the Plan that would alter either the income or expense side of the disposable income calculation." Thus, the bankruptcy court reasoned that after Nowlin had paid off her 401(k) loan, she could contribute an additional $187.49 to her 401(k) plan, which would bring her monthly 401(k) contributions to the maximum of $1,250.00 per month. The remaining funds ($947.30) could then be paid to the Trustee for distribution to creditors. Because Nowlin's proposed plan did not allocate all of her projected disposable income to pay her creditors, the bankruptcy court denied confirmation of the plan under § 1325(b)(1). Nowlin appealed and the district court affirmed, adopting the bankruptcy court's reasoning. Nowlin timely appealed to this court.


Our circuit has yet to interpret § 1325(b) in light of the changes made by Congress with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub.L. No. 109-8, 119 Stat. 23 (BAPCPA), and our sister circuits are split on the matter. The debate centers on the BAPCPA's new definition of "disposable income" in § 1325(b)(2) and its effect on the meaning of "projected disposable income" in § 1325(b)(1)(B). We review issues of statutory interpretation de novo. United States v. Valle, 538 F.3d 341, 344 (5th Cir.2008).

A. The Statute

When interpreting a statute, we begin by examining its language. See, e.g., Lamie v. U.S. Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004). When the language is plain, we must enforce the statute's plain meaning, unless absurd. Id. "[S]tatutory language must be read in context [since] a phrase gathers meaning from the words around it." Hibbs v. Winn, 542 U.S. 88, 101, 124 S.Ct. 2276, 159 L.Ed.2d 172 (2004) (alteration in original) (quotation marks omitted). "The plainness or ambiguity of statutory language is determined by reference to the language itself, the specific context in which the that language is used, and the broader context of the statute as a whole." Robinson v. Shell Oil Co., 519 U.S. 337, 341, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997).

As amended by the BAPCPA, section 1325(b) provides in pertinent part:

(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


(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.

(2) For purposes of this subsection, the term "disposable income" means current monthly income received by the debtor ... 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 the payment of expenditures necessary for the continuation, preservation, and operation of such business.

11 U.S.C. § 1325(b) (emphases added). The phrase "current monthly income" (CMI) is defined as the average monthly income of the debtor from all sources over the six-month period preceding the filing of the schedule of current income required by § 521(a). 11 U.S.C. § 101(10A).

In the BAPCPA, Congress modified § 1325(b)'s definition of "disposable income" by using an average of past monthly income and by adding means-testing for above-median debtors.5 Section 1325(b)(3) incorporates certain rules of 11 U.S.C. § 707(b)(2) to determine allowed expenses for these debtors, substituting IRS standard expense deductions for the debtor's actual expenses as shown on schedule J. The above-median debtor must file Form 22C (previously Form B22C), which uses the standardized calculations, and the debtor's disposable income calculated on this form may well differ from the debtor's actual disposable income reflected on schedules I and J.

The BAPCPA did not materially change § 1325(b)(1)(B),6 and did not change the treatment of projected income. Our task is to interpret the phrase "projected disposable income" in light of the new definition of "disposable income" in § 1325(b)(2).

B. Analysis

Both parties contend the statute's plain language favors their interpretation and courts reaching opposite results have similarly claimed this high ground of statutory interpretation. The competing interpretations are, in brief: (1) a mechanical approach, favored by Nowlin, in which "projected" is simply a mathematical task of multiplying the "disposable income" calculated under § 1325(b)(2) by the term of the applicable commitment period; and (2) a forward-looking approach, favored by the Trustee, in which projection allows the bankruptcy court to consider evidence of substantial changes to the debtor's income or expenses that have occurred before confirmation or will occur within the plan's period. We recognize that both approaches create difficulties, but we are persuaded that the Trustee's approach best comports with the statutory language.

As noted, Congress changed the definition of "disposable income" in § 1325(b)(2), but left unchanged the phrase "projected disposable income" in § 1325(b)(1)(B). We are persuaded that the independent definition of "projected" adds to the phrase's overall meaning. The term "projected," not defined in the statute, means "[t]o calculate, estimate, or predict (something in the future), based on present data or trends." In re Jass, 340 B.R. at 415 (quoting the Am. Heritage College...

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