In re Pliler

• Decision Date: 21 February 2013
• Docket Number: No. 12–05844–8–RDD.,12–05844–8–RDD.
• Court: U.S. Bankruptcy Court — Eastern District of North Carolina
• Parties: In re Joe Henry PLILER, Katherine Marie Pliler, Debtors.

487 B.R. 682

In re Joe Henry PLILER, Katherine Marie Pliler, Debtors.

No. 12–05844–8–RDD.

United States Bankruptcy Court,
E.D. North Carolina,
Wilson Division.

Jan. 15, 2013.
Order Certifying Issue for Direct Appeal Granted Feb. 21, 2013.

[487 B.R. 683]

Robert R. Browning, Greenville, NC, for Trustee.

John T. Orcutt, Robert Lee Roland, IV, Law Offices of John T. Orcutt, P.C., Raleigh, NC, for Debtors.

ORDER
RANDY D. DOUB, Bankruptcy Judge.

Pending before the Court is the Trustee's Objection to Confirmation and Motion to Dismiss filed by the Chapter 13 Trustee (the “Trustee”) on October 29, 2012, the Memorandum of Law in Support of Trustee's Objection to Debtors' Confirmation and Motion to Dismiss filed by the Trustee on November 27, 2012, the Amended Memorandum of Law in Support of Trustee's Objection to Debtors' Confirmation and Motion to Dismiss filed by the Trustee on December 21, 2012, the Response to Trustee's Objection to Confirmation and Motion to Dismiss filed by Joe Henry Pliler and Katherine Marie Pliler (the “Debtors”) on October 31, 2012, and

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the Memorandum in Opposition of Trustee's Objection to Debtors' Confirmation and Motion to Dismiss filed by the Debtor on December 5, 2012. The Court conducted a hearing on this matter on December 10, 2012 in Raleigh, North Carolina.

The Debtors filed a petition for relief under Chapter 13 of the Bankruptcy Code on August 10, 2012. Robert R. Browning was duly appointed as the Trustee, and filed the Trustee's Objection to Confirmation and Motion to Dismiss for failure to file a plan in good faith and failure to pay an amount necessary during the applicable commitment period. The Debtors have filed the required Schedules A through J, a Statement of Financial Affairs, a master Mailing Matrix, and a Chapter 13 Statement of Income and Calculation of Commitment Period and Disposable Income (hereinafter the “B22C”). After completing Parts I and II of the B22C, the Debtors calculated their household income to be above the median family income in North Carolina for comparably sized households and listed disposable income of negative $291.20 on B22C.

The Debtors filed a proposed Chapter 13 plan pursuant to 11 U.S.C. § 1321 (the “Plan”). The Plan proposes to pay $1,784.00 for fifteen (15) months and then $1,547.00 for forty (40) months. The total of plan payments is $88,640.00 and consists of $3,335.00 in attorneys' fees.

Schedule F shows the Debtors have approximately $24,008.31 in unsecured claims. Schedule I shows a combined average monthly income of $4,292.34. Schedule J shows average monthly expenses of $2,759.33 leaving a monthly net income of $1,533.01.¹

The Debtors' Plan contains language commonly referred to as “early termination language,” and states:

This Chapter 13 Plan will be deemed complete and shall cease and a discharge shall be entered, upon payment to the Trustee of a sum sufficient to pay in full: (A) Allowed administrative priority claims, including specifically the Trustee's commissions and attorneys' fees and expenses ordered by the Court to be paid to the Debtor's Attorney, (B) allowed secured claims (including but not limited to arrearage claims), excepting those which are scheduled to be paid directly by the Debtor “outside” the plan, (C) Allowed unsecured priority claims, (D) Cosign protect consumer debt claims (only where the Debtor proposes such treatment), (E) Post-petition claims allowed under 11 U.S.C. § 1305, (F) The dividend, if any, required to be paid to non-priority general unsecured

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creditors (not including priority unsecured creditors) pursuant to 11 U.S.C. § 1325(b)(1)(B), and (G) Any extra amount necessary to satisfy the “liquidation test” as set forth in 11 U.S.C. § 1325(a)(4).

Because of the early termination language, the plan will likely last fifty-five (55) months or less.

DISCUSSION

The issue before the Court is whether these debtors, who have zero or less disposable income, as determined by Form B22C, may obtain confirmation of a Chapter 13 Plan, which in effect will terminate before the respective applicable commitment period when the plan proposes to discharge substantial amounts in unsecured debt and pay only the Trustee commission and the debtor's attorney fees.

The Court shall confirm a Chapter 13 plan if the provisions of 11 U.S.C. § 1325(a) are met. In cases where an objection to confirmation has been made by either the trustee or an unsecured creditor the court may not confirm a plan unless:

(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)(B).

11 U.S.C. § 1325(b)(4) defines “applicable commitment period” as

(A) subject to paragraph (B), shall be—

(i) 3 years; or

(ii) not less than 5 years, if the current monthly income of the debtor and the debtor's spouse combined, when multiplied by 12, is not less than—

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

(II) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or

(III) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable State for a family of 4 or fewer individuals, plus $625 per month for each individual in excess of 4; and

(B) may be less than 3 or 5 years, whichever is applicable under subparagraph (A), but only if the plan provides for payment in full of all allowed unsecured claims over a shorter period.

The phrase “projected disposable income” is not defined in the Bankruptcy Code. The Code defines “disposable income” as “current monthly income to be received by the debtor ² ... less amounts

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reasonably necessary to be expended....” 11 U.S.C. § 1325(b)(2). The phrase “amounts reasonably necessary to be expended” includes the full amount needed for “maintenance or support,” for a debtor whose income is below median for his or her state, but for an above-median-income debtor, only certain expenses are included. Hamilton v. Lanning, ––– U.S. ––––, 130 S.Ct. 2464, 2470, 177 L.Ed.2d 23 (2010).

This Court has previously discussed “projected disposable income” and its interplay with § 1325(b)(2) in In re Musselman, 379 B.R. 583 (Bankr.E.D.N.C.2007)³ and in In re Alexander, 344 B.R. 742, 749 (Bankr.E.D.N.C.2006) (finding that to calculate a Chapter 13 debtor's projected disposable income, “one simply takes the calculation mandated by § 1325(b)(2) and does the math,” while recognizing the debate and split of authority among bankruptcy courts).

Subsequent to the decisions in Musselman v. eCast Settlement Corp., 394 B.R. 801, 814 (E.D.N.C.2008) and In re Alexander, 344 B.R. 742, 749 (Bankr.E.D.N.C.2006) the Supreme Court of the United States has interpreted the phrase “projected disposable income” in Hamilton v. Lanning, ––– U.S. ––––, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010). There, the above-median-income Chapter 13 debtor, in the six months preceding the bankruptcy filing, received a “one-time buyout from her former employer” greatly increasing the debtor's average monthly income for the sixth month period preceding the filing date. Id. at 2470. Post-petition, however, the debtor's income was drastically reduced with her new job. Id. Her monthly expenses calculated pursuant to § 707(b)(2), were $4,228.71 and her “disposable income” as reported on Form B22C was $1,114.98. On her Schedule I, she reported an income below the state median of $1,922.00 per month and on her Schedule J she reported actual monthly expenses of $1,722.97, resulting in a

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monthly disposable income of $149.03. Id. The debtor filed a plan that required a $144.00 monthly payment for thirty-six (36) months. Id. The trustee objected to confirmation on the ground that the debtor was not committing all of her projected disposable income to the repayment of creditors. Id. The trustee advocated for a mechanical approach to calculating projected disposable income, which involves multiplying disposable income, as calculated on Form B22C, by the number of months in the commitment period. Id. The bankruptcy court endorsed the debtor's proposed monthly payment of $144.00 but required a sixty (60) month plan period. Id. at 2471. The trustee appealed the order to the Tenth Circuit Bankruptcy Appellate Panel, which affirmed. Id. The trustee then appealed to the Tenth Circuit Court of Appeals, which affirmed. Id. The Supreme Court granted certiorari. Id.

The Supreme Court held that when a bankruptcy court calculates a Chapter 13 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 2478. In coming to this conclusion the Supreme Court discussed the phrase “projected disposable income.” In its discussion, the Court noted

the term ‘projected’ is not defined, and in ordinary usage future occurrences are not ‘projected’ based on the assumption that the past will necessarily repeat itself. For example, projections concerning a company's future sales or the future cash flow from a license take into account anticipated events that may change past trends.

Id. at 2471. The Court noted “[t]here is no dispute that [the debtor] would in fact receive far less than [the calculated amount] per month in disposable income during the plan period, so [the trustee's] projection does not accurately reflect ‘income to be received’ during that period.” Id. at 2474. The Court recognized that Congress rarely uses the term “projected” to...