In re Phillips

• Decision Date: 07 February 2008
• Docket Number: No. 07-14620-JNF.,07-14620-JNF.
• Citation: 382 B.R. 153
• Parties: In re Elaine PHILLIPS, Debtor.
• Court: U.S. Bankruptcy Court — District of Massachusetts

382 B.R. 153

In re Elaine PHILLIPS, Debtor.

No. 07-14620-JNF.

United States Bankruptcy Court, D. Massachusetts.

February 7, 2008.

Nicholas F. Ortiz, Law Office of Nicholas Ortiz, P.C., Boston, MA, for Debtor.

MEMORANDUM

JOAN N. FEENEY, Bankruptcy Judge.

I. INTRODUCTION

The Chapter 13 Trustee objected to confirmation of Debtor's Chapter 13 Plan on the ground that it failed the "best efforts test" of 11 U.S.C. § 1325(b)(1)(B). The Debtor, Elaine Phillips (the "Debtor"), an "above median income debtor," responded to the Trustee's Objection, asserting that her expenses, for purposes of ascertaining her "projected disposable income" under section 1325(b)(1)(B), should be governed by a strict construction of 11 U.S.C. §§ 1325(b)(3) and 707(b)(2), as well as Official Form 22C. The issue presented is whether the Debtor has sustained her burden of demonstrating that she has committed all her projected disposable income for the applicable commitment period for repayment of her unsecured debt.

The Court scheduled the Trustee's Objection and the Debtor's Opposition for hearing on November 8, 2007. The material facts necessary to decide the issue are not in dispute, and neither party requested an opportunity to submit evidence at the hearing. Both parties filed briefs. Accordingly, the Court makes the following findings of fact and conclusion of law in accordance with Fed. R. Bankr.P. 7052.

II. FACTS

The Debtor filed a Chapter 13 petition on June 26, 2007, together with, inter alia, her Schedules, Statement of Financial Affairs, Form 22C and Chapter 13 plan. The Debtor is an unmarried, veterinary technician employed by the Massachusetts Society for the Prevention of Cruelty to Animals. As disclosed on Schedule J-Current Expenditure of Individual Debtor(s), she pays rent in the sum of $250 per month and leases an automobile through Chase Auto Finance.

On Official Form 22C, the Debtor reported, on line 20, current monthly income of $4,624.83, annualized to $55,497.96. Because her annualized monthly income exceeded the applicable median family income, she properly calculated the applicable commitment period for her Chapter 13 plan as five years pursuant to 11 U.S.C. § 1325(b)(4). On Form 22C, she was then required to determine the amount of her "disposable income" with reference to the deductions allowed under 11 U.S.C. § 707(b)(2) using National and Local Standards of the Internal Revenue Service ("IRS").¹ She utilized the sum of $458.00 for "Local Standards: housing and utilities; non-mortgage expenses" for her applicable county and family size, and the sum of $1,041.00 for the "Local Standards: housing and utilities; mortgage/rent expenses" for her applicable county and family size. Additionally, she deducted $703.00 pursuant to the IRS National Standards for Allowable Living Expenses; and a total of $771.00 pursuant to the Local Standards for transportation ($300) and transportation ownership/lease expense for one vehicle ($441); as well as $1,269.16 for federal, state and local taxes, other than real estate and sales taxes; and $100.00 for telecommunication services, other than telephone service expenses. On Form 22C, her total monthly expenses equaled $4,342.16. After claiming an additional monthly expense of $46.67 on subpart B of Part IV for contribution to the care of a household or family member and accounting for the monthly administrative expense of $23.60 for her Chapter 13 case, she calculated her monthly disposable income under § 1325(b)(2) as $212.40 on line 58.²

On Schedule I-Current Income of Individual Debtors, the Debtor reported average monthly income of $3,107.00. She calculated that amount by adding $216.67 in estimated overtime to her projected monthly income of $4,212.00 for total monthly income of $4,428.67,³ from which she deducted payroll taxes ($1,274.00) and insurance ($47.67).⁴ On Schedule J, the Debtor reported average monthly expenses of $2,246.00.⁵

In contrast to the availability of net income of $212.40 reported on Form 22C the Debtor reported net monthly income of $861.00 on Schedule J. This discrepancy is at the heart of the instant dispute between the Debtor and the Chapter 13 Trustee because the Debtor filed a five-year plan pursuant to which she proposes to make monthly plan payments of $212.40 which would result in an 18.33% dividend to unsecured creditors whose claims total $51,662.00. If the Debtor is required to utilize the net income figure calculated on Schedule J, the dividend to unsecured creditors would be almost 100%.

III. DISCUSSION

A. The Statute

Section 1325(b) of the Bankruptcy Code, as amended by the Bankruptcy Abuse and Consumer Protection Act of 2005 ("BAPCPA"), provides in relevant part the following:

(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 —

(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.

(2) For purposes of this subsection, the term "disposable income" means 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 —

(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.

(3) Amounts reasonably necessary to be expended under paragraph (2) shall be determined in accordance with subparagraphs (A) and (B) of section 707(b)(2), if the debtor has current monthly income, when multiplied by 12, greater than —

(A) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner ...

11 U.S.C. § 1325(b)(1)-(3) (emphasis supplied). Section 1325(b)(2) incorporates section 707(b)(2)(A) and (B), which sets forth the means test for determining whether a Chapter 7 case is presumptively abusive.⁶ In other words, a debtor's current monthly income is reduced by 10 classes of monthly expenses set forth in section 707(b)(2)(A)(ii). These classes include National Standards issued by the IRS; Local Standards issued by the IRS; and actual monthly expenses for the categories specified as Other Necessary Expenses by the IRS. See generally, 5 Keith M. Lundin, Chapter 13 Bankruptcy, § 471.1 at 471-6 (3d ed. 2000 & Supp.2006) (hereinafter, Lundin).

B. The Statute's Problematic Language and Interpretive Difficulties

In a recent article, Bankruptcy Judge Thomas F. Waldron and Neil M. Berman observed:

It is now two years since the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, and as shown by extensive majority and minority positions on a significant number of its provisions, there is little consensus on much of the enacted text of BAPCPA. A review of a growing body of bankruptcy court and appellate decisions on issues as basic as a debtor's eligibility to file bankruptcy, the applicability of the automatic stay, the rights of secured vehicle creditors and the calculation of disposable income in chapter 13, demonstrates that the bankruptcy courts have often reached diametrically opposed legal conclusions. Although it would be unreasonable to expect complete, or nearly complete, uniformity in the interpretation of BAPCPA, the stark differences in how the new law is being interpreted throughout the nation's bankruptcy courts have compromised, if not crippled, any pretense of predictability in the analysis a court might apply in interpreting its many poorly drafted provisions.

Hon. Thomas F. Waldron and Neil M. Berman, Principled Principles of Statutory Interpretation: A Judicial Perspective after Two Years of BAPCPA, 81 Amer. Bankr.L.J. 195-96 2007(footnotes omitted). The present dispute between the Debtor and the Chapter 13 Trustee involves one of the provisions Judge Waldron and his coauthor cited: the calculation of disposable income or, more accurately, the meaning of "projected disposable income" in section 1325(b)(1) with reference to the expense side, rather than the income side, of the definition of "disposable income" contained in section 1325(b)(2) and (b)(3) of the Bankruptcy Code, which, as noted above, incorporates section 707(b)(2)(A) and (B).⁷

Judge Waldron and his co-author also observed that [a]rguably no change in BAPCPA has generated as fundamental a difference in the bankruptcy courts' reported opinions as how to determine projected disposable income for above median family income debtors in chapter 13 and, therefore, what such debtors are required to pay to unsecured creditors in their chapter 13 plans." Id. at 220 (footnote omitted). In the view of Judge Waldron and his coauthor, "[t]hese divergent views will produce, with exactly the same past and present income and expenses, spectacularly different results for debtors, trustees and creditors from district to district, and, even worse, from judge to judge in the same district." Id. (footnote omitted).

Other commentators also have noted interpretive difficulties resulting from BAPCPA's revisions to section 1325(b). Keith M. Lundin, a bankruptcy judge and leading Chapter 13 commentator, stated, "The lobbyists who drafted BAPCPA were...