In re Ross

• Decision Date: 13 September 2007
• Docket Number: No. 07 B 05138.,07 B 05138.
• Parties: In re Robert Charles ROSS, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

375 B.R. 437

In re Robert Charles ROSS, Debtor.

No. 07 B 05138.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

September 13, 2007.

Jay R. Tribou, Esq., for Movant.

Christy R. Black, Esq. & Nathan E. Curtis, Esq., for Respondent.

MEMORANDUM OPINION

JOHN H. SQUIRES, Bankruptcy Judge.

This matter comes before the Court on the objection of Marilyn O. Marshall, the Chapter 13 Standing Trustee (the "Trustee"), to confirmation of the Chapter 13 plan proposed by Robert Charles Ross (the "Debtor"). The Trustee objects to confirmation on the basis that the plan does not propose to pay interest to the Debtor's general unsecured creditors. According to the Trustee, the Debtor is required to pay interest to the unsecured creditors because the plan does not commit all of the Debtor's projected disposable income to the unsecured creditors for a period of five years. The Court holds that the Bankruptcy Code does not mandate that the Debtor's plan provide payment of interest on the allowed, unsecured claims. In addition, the Debtor must commit his projected disposable income as prescribed under 11 U.S.C. § 1325(b)(1)(B) based on "current monthly income" as defined in 11 U.S.C. § 101(10A) in order to satisfy the means test of 11 U.S.C. § 707(b)(2) as calculated in Official Form B22C.

For the reasons set forth herein, the Court sustains in part the Trustee's objection to confirmation of the Debtor's proposed plan. Confirmation of the plan at bar is denied without prejudice. Leave is given the Debtor to file an amended plan within thirty days hereof in accordance with the findings and conclusions set forth in this Opinion. A continued confirmation hearing will be held on October 31, 2007, at 10:30 a.m.

I. JURISDICTION AND PROCEDURE

The Court has jurisdiction to decide this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. It is a core proceeding under 28 U.S.C. § 157(b)(2)(L).

II. FACTS AND BACKGROUND

The facts in this matter are undisputed. On March 22, 2007, the Debtor filed a Chapter 13 bankruptcy petition and plan. As part of the petition, the Debtor filed Form B22C — Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income (the "B22C Form"). Line 58 of the B22C Form indicates that the Debtor's monthly disposable income is $2,852.17. The Debtor also filed a Schedule I — Current Income of Individual Debtor. The Debtor's monthly net income, according to Schedule I, is $3,920.76. Schedule J — Current Income of Individual Debtor, which was also filed with the petition, lists the Debtor's monthly expenses at $2,204.00, thereby leaving monthly net income of $1,716.76.

The Debtor's plan proposes to make monthly payments to the Trustee in the sum of $1,715.00 for thirty-seven months and $1,790.00 per month for an additional seventeen months after the Debtor pays his 401K loan. The plan provides a 100% dividend to all allowed general unsecured creditors over a period of fifty-four months.

The Trustee refuses to recommend the plan for confirmation unless the plan includes interest to general unsecured creditors. The Trustee contends that the unsecured creditors are entitled to interest because the Debtor's disposable income according to the B22C Form is $2,852.17, which, when multiplied by sixty months — the applicable commitment period — equals $171,130.20. This amount exceeds the Debtor's total unsecured debt of $75,465.00. According to the Trustee, the Debtor's proposed plan does not satisfy the requirements of 11 U.S.C. § 1325(b)(1)(A) or (B) because the Debtor's projected disposable income, as determined by the B22C Form, is not being paid to the unsecured creditors, nor is it being paid over the requisite sixty-month commitment period. The Trustee argues that in order to comply with the statute, the Debtor must pay the unsecured creditors the value of their claims "as of the effective date of the plan." This language, according to the Trustee, has been routinely interpreted to mean that interest must be paid to compensate for the delay in receiving prompt payments. The Trustee acknowledges that while the 2005 amendments to the Bankruptcy Code change the way disposable income is calculated for above median income debtors, present value payments are still required when a debtor is not devoting all of his disposable income.

III. DISCUSSION

The issues before the Court are of first impression for this judge and involve a determination of (1) whether an above median income debtor who proposes to pay his unsecured creditors in full in less than five years must pay interest to those creditors and (2) how to calculate a debtor's "projected disposable income." The latter issue has generated a plethora of divergent case law and, unsurprisingly, has produced a split among the judges of this and other courts as discussed infra, The problem, in part, is created by the lack of a statutory definition for the term.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") governs because this case was filed after October 17, 2005. Section 1325(b)(1) of the Bankruptcy Code, the relevant statute at issue, speaks to objections to confirmation of a Chapter 13 plan and provides as follows:

(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 under the plan.

11 U.S.C. § 1325(b)(1). Thus, § 1325(b)(1) permits the Trustee to object to confirmation of the Debtor's plan if the value of the property to be distributed under the plan is less than the amount of the claim, or the plan fails to propose that all of the Debtor's "disposable income" to be received in the applicable commitment period will be applied to make payments under the plan.

Section 1325(b)(2) defines "disposable income" for purposes of subsection (b)(1) and states in pertinent part that it "means current monthly income received by the debtor ... less amounts reasonably necessary to be expended ... for the maintenance or support of the debtor...." 11 U.S.C. § 1325(b)(2)(A)(i). The phrase "projected disposable income," however, is not defined by § 1325 nor is it one of the defined terms in 11 U.S.C. § 101. Section 1325(b)(3), in turn, states that disposable income "shall be determined in accordance with subparagraphs (A) and (B) of section 707(b)(2)." 11 U.S.C. § 1325(b)(3). Section 1325(b)(4) defines the term "applicable commitment period" and provides in pertinent part that such period "may be less than 3 or 5 years, ... but only if the plan provides for payment in full of all allowed unsecured claims over a shorter period." 11 U.S.C. § 1325(b)(4)(B).

The Trustee contends that the Debtor's plan does not comply with either § 1325(b)(1)(A) or § 1325(b)(1)(B) because the Debtor is not committing all of his projected disposable income to the plan. Because the Debtor's income is above the median income for Illinois residents, the Code provides that his disposable income is determined by § 1325(b)(2) and (3). Pursuant to the Debtor's. B22C Form, this amount is calculated at $2,852.17 per month. Under § 1325(b)(1)(B), the total disposable income received over the sixty-month commitment period is $171,130.20. The Trustee argues that this amount is not being applied to make payments to unsecured creditors under the plan. The Trustee asserts that § 1325(b)(1)(B) cannot be complied with by proposing full payment to unsecured creditors in less than sixty months. The language of subsection (b)(1)(B), according to the Trustee, clearly requires all of the Debtor's projected disposable income be used to make payments to unsecured creditors. The Trustee maintains that a plan for a fifty-four-month term does not comply with this provision. Consequently, the Trustee contends that § 1325(b)(1)(A) applies, and the Debtor must pay interest to the unsecured creditors in order for the Trustee's objection to be overruled. Thus, according to the Trustee, the Debtor must make present value payments to unsecured creditors in order to satisfy the requirements of § 1325(b)(1).

The Debtor argues that he has complied with § 1325(b)(1)(B). The Debtor maintains that "projected disposable income" is defined by Schedules I and J. Using those Schedules, he asserts under the plan he commits all of his projected disposable income for fifty-four months. Further, the Debtor contends that the plan satisfies § 1325(b)(1)(B) by proposing to pay all unsecured claims in full in less than the sixty-month commitment period.

Although the Court must decide the disputed issue of whether the debtor must pay interest to the unsecured claimants, in addition to the full amounts of their allowed claims, at the heart of this matter is the proper interpretation of the phrase "projected disposable income" as found in § 1325(b)(1)(B). The Trustee argues disposable income is calculated by performing the computations on the B22C Form. The Trustee does not question the manner in which the Debtor completed the B22C Form, nor does she challenge any specific deductions. Rather, the Trustee focuses on the excess income calculated in the B22C Form and how to reconcile that figure with the income reflected on the Debtor's Schedules I and J. The Debtor, on the other hand, contends that disposable income is the net income determined by Schedules I and J. Each party has ample support for their position. Many cases have discussed this very issue with divergent...