In re Pak

• Decision Date: 07 November 2007
• Docket Number: Bankruptcy No. 05-49326.,BAP No. NC-07-1201-DCaK.
• Citation: 378 B.R. 257
• Parties: In re John PAK, Debtor. John Pak, Appellant, v. eCast Settlement Corporation; American Express Centurion Bank; Martha Bronitsky, Trustee; United States Trustee, Appellees.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

378 B.R. 257

In re John PAK, Debtor.

John Pak, Appellant, v. eCast Settlement Corporation; American Express Centurion Bank; Martha Bronitsky, Trustee; United States Trustee, Appellees.

BAP No. NC-07-1201-DCaK.

Bankruptcy No. 05-49326.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted on October 26, 2007.

Filed November 7, 2007.

Cathleen Cooper Moran, Moran Law Group, Inc., Mountain View, CA, for John Pak.

Michael H. Meyer, Santa Rosa, CA, for Martha Bronitsky, Trustee.

John M. O'Donnell, Law Offices of John M. O'Donnell, Sacramento, CA, for eCast Settlement Corp.

Before: DUNN, CARROLL,¹ and KLEIN, Bankruptcy Judges.

OPINION

DUNN, Bankruptcy Judge.

In this, appeal, we address one of the most perplexing issues that has arisen in chapter 13 under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") — interpretation of the term "projected disposable income" in § 1325(b)(1)(B).² The debtor, John Pak ("Pak"), whose "disposable income" under the statutory definition was less than one third of his actual net income available to pay creditors, appeals the bankruptcy court's order dismissing his chapter 13 case after denying confirmation of Pak's amended chapter 13 plan. We AFFIRM.

I. FACTS

The factual background is not in dispute. Pak is a software engineer. He was laid off from his employment in April 2002 and did not find new employment until August 2005, approximately 39 months later. During the period that he was unemployed, Pak lived on savings, unemployment benefits and distributions from his 401K plan. He also accumulated substantial unsecured debt.

Since August 2005, Pak has found work in his field as a software engineer, but as a "contract worker through a job shop," with no health insurance or other benefits. His gross compensation is $8,666.67 per month, for a total of $104,004.04 per year.

On October 31, 2005, Pak filed a voluntary chapter 7 petition. His original schedules of income and expenses (Schedules I and J) showed net take home pay of $5,530.20 per month and expenses of $3,718.00, leaving a net monthly income of $1,812.20. Pak listed general unsecured claims totaling $172,931.24 in his Schedule F.

Pak filed an Official Form 22A ("Form 22A"), on which chapter 7 debtors calculate "current monthly income" under § 101(10A) and monthly expenses recognized under § 707(b)(2).³ Since § 101(10A) requires that current monthly income be calculated historically, based on average gross income received during the six-month period ending with the month prior to the month during which his bankruptcy petition was filed, the "current monthly income" on Pak's Form 22A ($2,666.67 monthly, and $32,000.04 annually) was less than one third of his actual income at the time of his bankruptcy filing, because Pak was not employed during four of the six months of the relevant period. All parties agree that Pak's annualized "current monthly income" was below the median income for a California household of one person.

On April 14, 2006, the United States Trustee ("UST") filed a motion to dismiss ("Motion to Dismiss") Pak's chapter 7 case as an abuse under § 707(b)(3). On May 18, 2006, the bankruptcy court granted the Motion to Dismiss in a published decision, In re Pak, 343 B.R. 239 (Bankr.N.D.Cal. 2006). Pak filed a Motion to Convert Case to Chapter 13 on May 26, 2006, which the bankruptcy court granted on May 31, 2006.

Pak filed amended Schedules I and J ("Amended Schedules I and J") and a chapter 13 plan on June 26, 2006. Pak's Amended Schedules I and J reflected net take home pay of $5,411.89 per month and expenses of $4,421.99, with a balance of $989.70 net monthly income. Pak's proposed chapter 13 plan provided for payments of $300.00 a month for 36 months. On August 1, 2006, Pak filed an amended chapter 13 plan ("Amended Plan"), proposing payments of $300.09 a month for 35 months, with a final payment of $322.20 in month 36. Pak's proposed payments under the Amended Plan would total $10,822.20. If Pak made chapter 13 plan payments based on his net monthly income, as reflected on his Amended Schedules I and J, his payments would total $35,629.20 over the life of a 36 month plan.

American Express Centurion Bank and eCast Settlement Corporation (collectively, the "Objecting Creditors"), the Trustee, and the UST each objected to confirmation of the Amended Plan, arguing that the Amended Plan failed to commit all of Pak's "projected disposable income" to payment of unsecured claims. Pak countered that the Amended Plan met "the requirements of § 1325 in that more than his statutory disposable income for 36 months [was] committed to the plan."

After giving the parties opportunities to brief the issues and hearing oral argument, the bankruptcy court issued its memorandum of decision on December 14, 2006, published at 357 B.R. 549 (Bankr. N.D.Ca1.2006), sustaining objections to and denying confirmation of the Amended Plan. The bankruptcy court entered an order denying confirmation of the Amended Plan on December 27, 2006.

Pak filed a Motion for Leave to Appeal the bankruptcy court's order denying confirmation of the Amended Plan with the Panel on January 4, 2007, which motion was denied based on the interlocutory nature of the order.

Pak subsequently waived the right to amend further his chapter 13 plan, at which point the bankruptcy court granted the Trustee's motion to dismiss Pak's bankruptcy case. The dismissal order was entered on May 10, 2007. Pak filed his Notice of Appeal on May 17, 2007.

On Pak's motion, the bankruptcy court entered an Order Staying Dismissal Pending Appeal on August 6, 2007.

II. JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b)(1) and (b)(2)(L). We have jurisdiction pursuant to 28 U.S.C. § 158.

III. ISSUE

Whether the bankruptcy court erred in concluding that Pak's Amended Plan was not confirmable, as not committing all of Pak's "projected disposable income" to pay unsecured creditors, as required pursuant to § 1325(b)(1)(B).

IV. STANDARD OF REVIEW

We review issues of stutory construction and conclusions of law, including interpretation of provisions of the Bankruptcy Code, de novo. Einstein/Noah Bagel Corp. v. Smith (In re BCE W., L.P.), 319 F.3d 1166, 1170 (9th Cir.2003); Mendez v. Salven (In re Mendez), 367 B.R. 109, 113 (9th Cir. BAP 2007).

V. DISCUSSION

This appeal raises thorny issues of statutory construction. Since the Trustee and the Objecting Creditors objected to confirmation of Pak's Amended Plan, the immediate statutory battleground is § 1325(b)(1)(B), which provides:

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.

(Emphasis added.)

Pak argues in effect that the bankruptcy court erred in not applying the term "disposable income" as defined in § 1325(b)(2)⁴ consistent with its "plain meaning." In Pak's view, the addition of the term "projected" to "disposable income" in § 1325(b)(1)(B) adds a mere multiplier, based on the number of months within the applicable commitment period (in this case, 36 months), to determine the minimum amount that a debtor must pay to his unsecured creditors in chapter 13 in order to satisfy the § 1325(b)(1)(B) condition to confirmation.

Statutory interpretation begins with a review of the language used by Congress in the current version of the law.

The starting point in discerning congressional intent is the existing statutory text, see Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438[, 119 S.Ct. 755, 142 L.Ed.2d 881] (1999), and not the predecessor statutes. It is well established that "when the statute's language is plain, the sole function of the courts — at least where the disposition required by the text is not absurd — is to enforce it according to its terms."

Laurie, v. United States Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004) (citations omitted). When the statutory language is ambiguous, however, courts may look beyond the statute itself to its legislative history and common usage of subject terms for guidance as to interpretation, as well as the context in which they are used. "Whether a statute is ambiguous is determined by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole." Hough v. Fry (In re Hough), 239 B.R. 412, 414 (9th Cir. BAP 1999) (quoting Robinson v. Shell Oil Co., 519 U.S. 337, 341, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997)). See In re Slusher, 359 B.R. 290, 295 (Bankr. D.Nev.2007)("In determining the sense of the words Congress chose, it is appropriate to investigate the contexts in which English generally and the Bankruptcy Code specifically employ the same or similar words.").

The term "projected disposable income" is not new with the BAPCPA amendments to the Bankruptcy Code. Before BAPCPA, "projected disposable income `was derived from' 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." Id. at 294. In most cases, disposable income was determined by subtracting the debtor's monthly expenses, as set forth. on Schedule J, from the monthly net income stated on the debtor's Schedule I.

Congress changed the determination of "disposable income" in chapter 13 under BAPCPA by adding extended, if not necessarily precise, definitional terms in §§ 1325(b)(2) and (b)(3)⁵ sand 101(10A). However, Congress did not alter either the term "projected disposable income" in § 1325(b)(1)(B) or the...