In re Renicker, 05-71905.

• Decision Date: 11 May 2006
• Docket Number: No. 05-71905.,05-71905.
• Citation: 342 B.R. 304
• Parties: In re Robert M. RENICKER and Shirley A. Renicker, Debtors.
• Court: U.S. Bankruptcy Court — Western District of Missouri

342 B.R. 304

In re Robert M. RENICKER and Shirley A. Renicker, Debtors.

No. 05-71905.

United States Bankruptcy Court, W.D. Missouri.

May 11, 2006.

Karen S. Maxey, Kansas City, MO, for Debtors.

MEMORANDUM OPINION

JERRY W. VENTERS, Bankruptcy Judge.

In a case filed under the Bankruptcy-Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), the Debtors, Robert M. and Shirley A. Renicker, filed a chapter 13 plan proposing to pay what they determined to be all of their disposable income for sixty months.¹ Nothing unusual there except that the Debtors, who have a combined net income of approximately $6,085 a month, calculated their monthly disposable income to be only $20.88.

Not surprisingly, the chapter 13 trustee ("Trustee") objects to confirmation of the Debtors' plan on the grounds that the Debtors' disposable income is significantly higher than $20.88. Specifically, the Trustee argues that the Debtors are not entitled to deduct an expense for a home they no longer own and that they have claimed several expenses that are not reasonably necessary for the health and welfare of the Debtors or their dependents.

The Trustee's objections raise two BAPCPA issues of first impression for this Court. The first issue is whether historical or projected expenses should be used to calculate the amount of disposable income available to fund a plan. As indicated by the inclusion of an expense for a home they no longer own, the Debtors have based their calculation of disposable income, at least in part, on historical expenses. The Trustee maintains that the Debtors' projected expenses should be used to calculate disposable income. The Court agrees with the Trustee.

The second issue pertains to the appropriate standard for evaluating "extraordinary" expenses. Before the enactment of the BAPCPA, disposable income for all debtors was calculated by deducting from income those the expenses that were "reasonably necessary to be expended for the maintenance or support of the debtor." Under BAPCPA practice, this standard is only applicable to debtors whose income is less the median income for the applicable state. For debtors whose income is above the median, like the Debtors in this case, 11 U.S.C. § 1325(b)(3) requires them to calculate their disposable income according to § 707(b)(2), a section now commonly known as the "means test." The means test calculates a debtor's disposable income in large part by reference to uniform standard expenses promulgated by the I.R.S. for use in its debt collection efforts. In calculating their disposable income, the Debtors have included several expenses in excess of the amounts allowed under the means test. They justify those expenses by claiming that they are "reasonably necessary for the welfare and support of the Debtors." The Trustee does not dispute that expenses reasonably necessary for the health and welfare of a debtor might be allowable; he merely disputes that these Debtors have failed to carry their burden of establishing the reasonable necessity of the Debtors' extraordinary expenses. As discussed below, while the Court agrees with the Trustee that the Debtors have failed to justify their extraordinary expenses, the Court reaches that conclusion for different reasons that those advocated by the Trustee.

BACKGROUND

The Debtors filed for protection under chapter 13 of the Bankruptcy Code on October 28, 2005. Shortly before filing, Debtor Robert Renicker accepted a job in Colorado, and as of the date of filing, both Debtors had moved from Grain Valley, Missouri to Colorado Springs, Colorado.

The Debtors have provided two somewhat dissimilar reports of their financial situation, although the dissimilarity is a natural function of the form on which the information is reported and not a product of misrepresentation. On the Debtors' statements of income and expenses (Schedules I and J) required by 11 U.S.C. § 521(a)(1)(B), the Debtors list their current income and expenses. Schedule I shows a gross monthly income of $8,134.67 from Mr. Renicker's new employment in Colorado and Mrs. Renicker's disability insurance. Schedule J shows total monthly expenses of $4,927, with notable expenses of $1,445 for rent, $550 for transportation, and $335 for telecommunication services.² Debtors' counsel stated that the apparently excessive rental expense is reasonable and necessary because a large residence is required to accommodate Mr. Renicker's need to entertain his employees and business clients and to accommodate the needs of Mrs. Renicker, who suffers from multiple sclerosis. The increased transportation and telecommunications expenses are also supposedly necessary for Mr. Renicker's business. Subtracting the Debtors' Schedule J expenses from the net income listed on Schedule I ($6,085) yields an apparent disposable income of $1,158.00, although that is not the figure used to formulate the Debtors' plan. That number — $20.88 — comes from the Debtors' Official Form B22C ("Form B22C").

Form B22C calculates a debtor's income and expenses differently than Schedules I and J.³ Income is based on the debtor's average income for the six months prior to the bankruptcy filing, and allowed expenses are generally determined by reference to the I.R.S. standards. According to the Form B22C filed by the Debtors, their gross monthly income is $7,508 and their expenses are $7,487.12, leaving disposable income of just $20.88. Although calculated differently, the Debtors' Form B22C also includes elevated housing, transportation, and telecommunications expenses. The housing expense exceeds the I.R.S. housing allowance for Colorado by $547, the transportation expense exceeds the I.R.S. local allowance for the operation of two vehicles by $268, and the telecommunication expense is listed as a separate, additional expense of $235.

ANALYSIS

Before the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a period in time many now call "the good old days," calculating a debtor's "projected disposable income" for purposes of § 1325(b)(2) generally entailed little more than a review of Schedules I and J. If a debtor accurately reported his income in Schedule I and his expenses on Schedule J were all "reasonably necessary. . . for the maintenance or support of the debtor or a dependent of the debtor,"⁴ the difference was the debtor's disposable income. Whether an expense was "reasonably necessary" was a determination within the discretion of the bankruptcy judge.

Enter BAPCPA and its revisions to § 1325(b)(2). The calculation of disposable income is no longer a one-size-fits-all analysis; the variables used in the calculation of disposable income are no longer limited to Schedules I and J; and bankruptcy judges' discretion has been significantly curtailed. Under revised § 1325(b)(1), if the trustee objects to the confirmation of a plan, as he has here, then the plan must provide that all of the debtor's "projected disposable income" to be received in the "applicable commitment period" be applied to make payments under the plan. Section 1325(b)(2) provides that disposable income is calculated by deducting the amounts reasonably necessary for the maintenance or support of the debtor or the debtor's dependents from the debtor's projected disposable income.⁵ "Amounts reasonably necessary" is defined in one of two ways. For a debtor whose income is below the median family income for the applicable state, the Court retains the discretion to determine what is reasonably necessary for the maintenance or support of the debtor or the debtor's dependents.⁶ However, for a debtor whose income is above the median family income for the applicable state, which is the case here, "amounts reasonably necessary" to be expended under § 1325(b)(2) is determined "in accordance with subparagraphs (A) and (B) of section 707(b)(2),"⁷ In other words, section 1325(b)(3) replaces the subjective "reasonably necessary" standard with the objective formula used to determine expenses under the means test.

As many readers now know, in chapter 7 the means test is used to determine whether a case should be dismissed as an abusive filing by measuring the debtor's ability to fund a hypothetical chapter 13 plan.⁸ The hypothetical plan is crafted by deducting certain allowed expenses from the debtor's CMI. If the resultant, hypothetical disposable income exceeds the thresholds set forth in § 707(b)(2)(A)(i), then abuse is presumed.⁹ For above-median debtors in chapter 13, section 1325(b)(3) strips away the language and implications dealing with abuse and § 707(b)(2)(A) is simply the means (pun intended) by which actual disposable income is calculated.

Rear View Mirror or Crystal Ball?

The Trustee's first objection to confirmation highlights the flip-side of the issue recently addressed in In re Jass.¹⁰ In Jass, Judge Thurman determined that disposable income should be calculated using a debtor's projected (versus historical) income, and that while CMI, an inherently retrospective concept, is presumed to be representative of the debtor's projected income, that presumption can be rebutted by a showing that the CMI is no longer accurate.¹¹ Here the Court deals with a question on the other side of the equation — that is, whether to use historical or projected expenses to determine the amount of a debtor's disposable income that must be devoted to a chapter 13 plan. The Debtors have calculated their disposable income (on Form B22C) using at least one historical expense — the mortgage expense from their home in Grain Valley. Missouri, which they no longer own — and the Trustee argues that that is improper.¹²

The Court's task here is perhaps easier than Judge Thurman's because the calculation of projected expenses under § 707(b)(2)(A) and (B) does not directly implicate CMI, which, as noted above, is an inherently retrospective concept. Whether to use historical or prospective expenses is free from that tension....