In re Purdy

• Citation: 373 B.R. 142
• Decision Date: 06 August 2007
• Docket Number: No. 06-30679-LMK.,06-30679-LMK.
• Parties: In re Gregory E. PURDY & Laura M. Purdy, Debtors.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Florida

373 B.R. 142

In re Gregory E. PURDY & Laura M. Purdy, Debtors.

No. 06-30679-LMK.

United States Bankruptcy Court, N.D. Florida, Pensacola Division.

August 6, 2007.

COPYRIGHT MATERIAL OMITTED

Martin S. Lewis, Esq. & Steven D. Jurnovoy, Esq., Lewis & Jurnovoy, P.A., Pensacola, FL, for Debtor.

Leigh D. Hart, Esq., Tallahassee, FL, for trustee.

ORDER SUSTAINING TRUSTEE'S OBJECTION TO CONFIRMATION

LEWIS M. KILLIAN, JR., Bankruptcy Judge.

THIS MATTER is before the Court on Confirmation of the Debtors' Third Amended Chapter 13 Plan (the "Plan") (Doc. 44). The Trustee has objected to confirmation of the Plan (Doc. 45) on the ground that the Debtors understated their income and failed to commit their entire projected disposable income to be received in the applicable commitment period to their Plan as required by 11 U.S.C. § 1325(b)(1)(B). The Debtors answer that they have complied with the literal requirements of § 1325(b) regarding "projected disposable income," and the Plan should be confirmed. Therefore, I address the meaning of the term "projected disposable income" as used in § 1325(b)(1)(B). This is a core proceeding, and jurisdiction is proper pursuant to 28 U.S.C. §§ 151 and 157(b)(2)(L) (2006).

Findings of Fact

Gregory E. and Laura M. Purdy filed a joint petition for relief under Chapter 13 of the Bankruptcy Code on October 20, 2006. Their Official Form 22C ("Form B22C") shows a joint current monthly income of $5,917.00 (Doc. 8). This amount reflects the Debtors' average income over the six months prior to filing the petition, two months of which Mr. Purdy was unemployed. However, it nevertheless classifies the Purdys as above-median debtors. On Schedule I, the Debtors list their monthly income as $7,116.00. This amount reflects the Debtors' income as of the petition date, including an increase in Mr Purdy's salary and reflecting the fact that Mrs. Purdy is no longer working.

In their Third Amended Chapter 13 Plan (Doc. 44), the Debtors propose to pay $1,584.00 to the Trustee every month for the applicable commitment period. The Trustee objects to the Debtors' calculation of their projected disposable income for purposes of the plan, arguing that the Debtors understated their income by calculating their projected disposable income based on the combined current monthly income (CMI) amount on Form B22C instead of the combined monthly income amount on Schedule I, which more accurately reflects their current financial means.

The parties' disagreement centers on the proper calculation of "projected disposable income" as used in § 1325(b)(1)(B). The Debtors argue that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) requires the calculation of projected disposable income based on a debtor's CMI. The Trustee contends that such method of calculation distorts a debtor's ability to pay into a Chapter 13 Plan, and She cites case law supporting the calculation of projected disposable income based on the debtor's projected income during the applicable commitment period. This is a case of first impression in this District.

Conclusions of Law

Prior to BAPCPA, most bankruptcy courts interpreted § 1325(b) to define "projected disposable income" as "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." In re Slusher, 359 B.R. 290, 294 (Bankr. D.Nev.2007). Thus, "determining what expenses were `reasonably necessary' under this test required judges to make significant value judgments, leading to a wide diversity of rulings on whether particular expenses were justifiable." Id. Section 1325(b)(1) currently provides, in relevant part:

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 ... will be applied to make payments to unsecured creditors under the plan.

11 U.S.C. § 1325(b)(1) (2006) (emphasis added).

Since the enactment of BAPCPA, bankruptcy courts around the country have struggled to define what effect, if any, the amendments' substantial modification of the Bankruptcy Code (the "Code") should have on the phrase "projected disposable income." The Code has never explicitly stated what Congress meant by that specific sequence of terms, but interpretive guidance for the present analysis can be gleaned from examination of the two elements comprising the phrase: "projected" and "disposable income."

A. "Disposable Income"

Section 1325(b)(2) now defines "disposable income" as "current monthly income received by the debtor less amounts reasonably necessary to be expended [for certain things]." 11 U.S.C. § 1325(b)(2) (2005) (emphasis added). This definition has two substantive parts: income and expenses.

"Current monthly income" ("CMI") is defined in § 101(10A) as "the average monthly income from all sources that the debtor receives ... without regard to whether such income is taxable income, derived during the 6-month period [before the date of filing] and includes any amount paid by any entity other than the debtor ... on a regular basis for the household expenses of the debtor and the debtor's dependents ... but excludes [certain benefits and payments]." 11 U.S.C. § 101(10A) (2006). This definition also consists of two substantive parts: sources of income to be used in the calculation and the time period over which it is derived. A chapter 13 debtor's CMI is calculated on Form B22C by averaging the amount of income from those specified sources that the debtor received over the six months preceding the bankruptcy filing. Fed. R. Bankr.P. 1007(b). Thus, CMI "is not necessarily current, but is a snapshot of the debtor's prepetition income." In re Kibbe, 361 B.R. 302, 308 (1st Cir. BAP (N.H.), 2007) (emphasis omitted). See also In re Jass, 340 B.R. 411 (Bankr.D.Utah 2006) (concluding that "[b]y definition under § 1325(b)(2), the term `disposable income' is oriented in historical numbers."). Most significantly, Form B22C instructs the court as to which sources of revenue are appropriately considered "income" when determining a debtor's CMI.

The expenses, or amounts "reasonably necessary to be expended," for an above-median Chapter 13 debtor are determined in accordance with § 707(b)(2)(A) & (B). 11 U.S.C. § 1325(b)(3) (2005). The "means test," as that section is referred to, states that "the debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the National Standards and Local Standards ... issued by the Internal Revenue Service for the area in which the debtor resides." 11 U.S.C. § 707(b)(2)(A)(ii) (2005). These fixed standards limit judges' discretion in deciding what expenses debtors can take.

B. "Projected"

"Section 1325(b)(2) defines `disposable income' but § 1325(b)(1)(B) requires that a debtor propose a plan paying `projected disposable income.' Meaning must be given to the word `projected,' as it obviously has independent significance." Jass, 340 B.R. at 415 (emphasis in original). "Projected" means planned, figured, or estimated for the future.¹ Therefore, most courts consider it to be a forward-looking term, as opposed to the historically-oriented calculation used for "disposable income."² See Jass, 340 B.R. at 415; Kibbe, 361 B.R. at 308; Slusher, 359 B.R. at 297.

However, even after reaching this conclusion, courts interpreting the definition's effect on "disposable income" differ in their analyses of how Congress meant for the two terms to be joined. Judge Vaughn correctly summarized the conflict in In re Kibbe:

"The resolution of this apparent inconsistency within the term `projected disposable income' has generated two competing interpretations by those bankruptcy courts who have confronted the problem-each claiming to adhere to congressional purpose. The first camp holds that the term `projected' simply means that the `currently monthly income' figure from B22C must be multiplied (projected out) by the number of months of the proposed plan. This interpretation construes `projected' simply as a multiplier for the term `disposable income.' The second camp holds that, because the debtor's disposable income must be used to fund the plan, the term `projected' was intended to signal a reexamination of income potential over the life of the plan. The effective consequence of this latter construction is that the terms `disposable income' and `projected disposable income' have very separate meanings."

Kibbe, 361 B.R. at 308 (internal citations omitted). I am persuaded by the second line of cases.

C. "Projected" Modifies the Temporal Aspect of "Disposable Income"

When confronted with an ambiguous provision subject to two distinct interpretations, the court should first look to the language of the statute to determine Congressional intent. See Lamie v. United States Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004) (holding that "[t]he starting point in discerning congressional intent is the existing statutory text and not the predecessor statutes."). In § 1325(b)(2), Congress defined "disposable income" in terms of CMI. The thrust behind the use of CMI within that definition is qualitative, specifying which sources of revenue should be considered income. See Hardacre, 338 B.R. at 723 (stating that CMI, in the context of "projected disposable income," is relevant "inasmuch as it describes the sources of revenue that constitute income, as well as those that do not."). It is true that Form B22C requires income to be calculated by averaging revenue from those sources over the six months prior to filing. However, a...