In re Perkins
| Decision Date | 06 April 2023 |
| Docket Number | 22-20025 |
| Parties | IN RE: ANTHONY G. PERKINS, et al., Debtors. |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas |
The Chapter 13 Trustee objects to the Perkins' proposed chapter 13 plan. The Trustee alleges that the plan does not pay all the Perkins' disposable income to creditors due to proposed contributions to Mr. Perkins' 401(k) savings account. For the reasons set forth below, the Trustee's objection to the confirmation of the Perkins' plan is overruled. The proposed plan will be confirmed.
On February 11, 2022, Anthony and Pamela Perkins (the Debtors) filed a voluntary petition under chapter 13 and proposed a Plan. (ECF Nos. 1, 2). Mr. Perkins is the family's sole breadwinner and is 58 years old. (ECF Nos. 36, 47 at 5). Ms Perkins is not employed. (ECF No. 36). At filing, the Debtors had $11,757.91 saved in their 401(k) account, and had taken loans against those savings. (ECF No. 47 at 5). They are currently repaying those loans. (ECF No. 47 at 5).
The Trustee moved to dismiss the Debtors' case on April 19 because of the debtors' failure to properly file the means test required by 11 U.S.C. § 1325(b)(3). (ECF No 27). The Debtors filed the First Amended Plan along with schedules and the means test in early May 2022, so their case was not dismissed. (ECF Nos. 29-34). The First Amended Plan did not provide for full payment to the Debtors' unsecured creditors; instead, unsecured creditors were to receive an 18% return. (ECF No. 31 at 21). The First Amended Plan included a proposed downward adjustment to the Debtors' disposable income to allow for $1,553.84 to be contributed monthly to the Debtors' 401(k) account as well as $100.00 monthly to a bankruptcy savings account. (ECF Nos. 29 at 12, 31 at 2). The First Amended Plan also classified the Debtors' student loan debts as special debts and proposed to pay student loan creditors twice as much as other unsecured creditors. (ECF No. 31 at 14-15). The Trustee objected to confirmation of the First Amended Plan, alleging that (i) the 401(k) contributions were not proposed in good faith and (ii) the payments to unsecured student loan creditors unfairly discriminated amongst unsecured creditors. (ECF No. 35).
On May 13, 2022, the Debtors filed the Second Amended Plan with an updated means test. (ECF Nos. 36, 38). The Second Amended Plan also did not provide for full payment of the Debtors' debts, giving unsecured creditors a 24% return. (ECF No. 38 at 18). The Second Amended Plan removed the proposed payments to student loan creditors but increased both the Debtors' proposed voluntary 401(k) contributions to $1,700.00 per month and the Debtor's contributions to the bankruptcy savings account to $150.00 per month. (ECF Nos. 38 at 10, 36 at 12).
The record does not show that the Debtors have actually begun making the proposed contributions. (ECF No. 46 at 3). The Debtors provided proof of one contribution of $606.96 during the pay period of January 24 to February 6 of 2022. (ECF No 47 at 2). The Debtors indicated that they made few, if any, 401(k) contributions in the two years before filing the bankruptcy petition. (ECF No. 47 at 4, 5). The proposed 401(k) contributions also exceed the amount matched by Mr. Perkins' employer. (ECF No. 47 at 5). On September 14, 2022, the Trustee moved to dismiss the case because the Debtors had failed to make the payments to creditors required by the Second Amended Plan. (ECF No. 13). The case was not dismissed, contingent on the Debtors making up the missed payments.
The Trustee filed this objection on the grounds that (i) the Second Amended Plan's proposed voluntary 401(k) contributions prevent the entirety of the Debtors' disposable income from being paid for the benefit of creditors, and (ii) the Second Amended Plan does not meet the good faith standard required by 11 U.S.C. § 1325(a)(3). (ECF No. 46).
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. Plan confirmation is a core proceeding under 28 U.S.C. § 157(b)(2)(L). Venue in this court is proper pursuant to 28 U.S.C. §§ 1408 and 1409.
Courts must enforce a statute as it is written if the statute's language is plain. Demarest v. Manspeaker, 498 U.S. 184, 190 (1991). However, a statute's plain language does not control if following that plain language would produce an absurd result. United States v. Solis-Campozano, 312 F.3d 164, 166 (5th Cir. 2002). Additionally, a statute's interpretation must "fit coherently into the statute's overarching structure," with the court taking into account both the context of the language in question and the context of the entire statute, including the Bankruptcy Code, as a whole. In re Lively, 467 BR 884, 891 (Bankr.S.D.Tex. 2012); In re Sierra, 560 B.R. 296, 302 (Bankr.S.D.Tex. 2016) (). Statutes should be construed so that no clause, sentence, or word becomes superfluous, void, or insignificant. TRW, Inc. v. Andrews, 534 U.S. 19, 31 (2001).
A chapter 13 plan may only be confirmed if it was "proposed in good faith and not by any means forbidden by law." 11 U.S.C. § 1325(a)(3). If the Trustee objects to confirmation of a proposed plan, the plan must provide for all the debtor's projected disposable income be paid to unsecured creditors. § 1325(b)(1)(B). Because the Trustee has objected to the Second Amended Plan, the Court must determine whether the plan pays all the Debtors' projected disposable income to creditors. Good faith must always be shown.
The Court must first determine whether the Bankruptcy Code excludes voluntary post-petition 401(k) contributions from the Debtors' disposable income. If contributions are excluded from disposable income, then the proposed plan does pay the Debtors' projected disposable income to creditors. At that point, the Court must then determine whether the debtors' proposed contributions meet the good faith standard required for plan confirmation.
In a chapter 13 bankruptcy, the debtor must file a plan providing for future payment of the debtors' creditors. 11 U.S.C. § 1322. If the plan is confirmed by the bankruptcy court, it binds the debtor and the debtor's creditors. § 1327. Upon the successful completion of the plan, a debtor may receive a discharge. § 1328. The plan must be "proposed in good faith and by means not forbidden by law." § 1325(a)(3). If the chapter 13 trustee objects to the plan, it cannot be confirmed unless it either provides for full payment of creditors' claims or provides for all the debtor's projected disposable income to be distributed to creditors. § 1325(b)(1). The Second Amended Plan does not provide for full payment to creditors, so it must provide for all the debtors' projected disposable income to be distributed to creditors to overcome the Trustee's objection to confirmation.
The Bankruptcy Code does not provide a definition of projected disposable income. Hamilton v. Lanning, 560 U.S. 505, 509 (2010). The Code does, however, define disposable income to mean "current monthly income received by the debtor . . . less amounts reasonably necessary to be expended." 11 U.S.C. § 1325(b)(2). "Current monthly income," in turn, is defined as the debtor's monthly income in the six months preceding the filing of the bankruptcy petition. § 101(10A)(A). After examining the language in § 1325(b), the Supreme Court held that the Bankruptcy Code's use of the word "projected" with reference to the debtor's disposable income does not strictly limit the plan to encompassing only the debtor's actual income and expenses during the six months immediately preceding the bankruptcy petition. Hamilton, 560 U.S. at 523-24. Instead, when calculating the debtor's projected disposable income, "the court may account for changes in the debtor's income or expenses that are known or virtually certain at the time of confirmation." Id. at 524. Per the Supreme Court's holding in Hamilton, the debtors can make adjustments that lower their disposable income, lowering payments to creditors. Whether 401(k) contributions are a permissible adjustment hinges on further interpretation of the Code.
The commencement of a bankruptcy case creates a bankruptcy estate, and ownership of the debtor's property is automatically transferred to this estate. 11 U.S.C. § 541(a)(1). After commencement, the Code provides several mechanisms for additional property to become part of the estate, including property obtained by the debtor, property obtained by the chapter 13 trustee, and income arising from the debtor's pre-bankruptcy rights and property. E.g., §§ 541(a)(3, 5-7). Outside of chapter 13, the wages an individual earns after commencement of the bankruptcy case do not become part of the bankruptcy estate. § 541(a)(6). However, chapter 13 includes the debtor's wages in its broad definition of the bankruptcy estate: "Property of the estate includes, in addition to the property specified in section 541 of this title, all property of the kind specified in such section that the debtor acquires after the commencement of the case." § 1306(a)(1).
While § 541(a) describes how property enters the bankruptcy estate, § 541(b) excludes some classes of property from the bankruptcy estate. Section 541(b)(7) contains a hanging paragraph that states that property of the estate does not include any amount withheld from an employee's wages as contributions to a qualifying employee benefit plan "except that such amount shall not constitute disposable...
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