In re Suess

• Decision Date: 28 April 2008
• Docket Number: No. 07-21897.,07-21897.
• Citation: 387 B.R. 243
• Parties: In re Steven Matthew SUESS and Sandra Lee Suess, Debtors.
• Court: U.S. Bankruptcy Court — Western District of Missouri

387 B.R. 243

In re Steven Matthew SUESS and Sandra Lee Suess, Debtors.

No. 07-21897.

United States Bankruptcy Court, W.D. Missouri.

April 28, 2008.

Noel Bisges, Jefferson City, MO, for Debtors.

MEMORANDUM OPINION

DENNIS R. DOW, Bankruptcy Judge.

This matter is before the Court on the motion of the Chapter 13 Trustee to deny confirmation of the Debtors' Chapter 13 plan. The trustee has objected to the plan on the ground that it fails to comply with the disposable income commitment requirement of § 1325(b) in that the Debtors, in arriving at their disposable income to be committed to unsecured creditors under the plan, propose to deduct from their income, payments on indebtedness secured by real estate which they propose to surrender. This is a core proceeding, pursuant to 28 U.S.C. § 157(b)(2)(L) over which this Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 157(a) and (b)(1). The following constitutes my Findings of Facts and Conclusions of Law in accordance with Rules 7052 and 9014(c) of the Federal Rules of Bankruptcy Procedure. For the reasons set forth below, the Court sustains the trustee's objections to confirmation. Specifically, the Court holds that, in arriving at disposable income to be committed to unsecured creditors in the plan, debtors who propose to surrender property pursuant to their plan may not deduct payments on debts secured by such property pursuant to § 707(b)(2)(A)(iii), incorporated into Chapter 13 by § 1325(b)(3).

I. FACTUAL AND PROCEDURAL BACKGROUND

Debtors filed a petition for relief under Chapter 13 of the Bankruptcy Code on November 30, 2007, listing an address at 7706 Loesch Road in Jefferson City, Missouri. According to the Statement of Financial Affairs and the Schedules of Assets and Liabilities, at the time of the filing, the Debtors still owned real estate located at 10131 Earnshaw in Lenexa, Kansas ("Kansas Property"), which they, however, had not occupied since sometime in the year 2006. The Debtors filed a Schedule I, Current Income of Individual Debtors, reflecting combined average net monthly income of $6,792.56 and a Schedule J, Current Expenditures of Individual Debtors, reflecting average monthly expenses of $5,635.00 for monthly net income of $1,157.56. Included among the expenses was a rent or home mortgage payment in the amount of $903.00. The Debtors' initial Chapter 13 plan filed on November 30, 2007, and each amended plan filed thereafter, has proposed to surrender the Kansas Property. On January 18, 2008, this Court entered an order granting a motion for relief from automatic stay with respect to the Kansas Property.

On February 12, 2008, Debtors filed Amended Schedules I and J showing combined average monthly income of $7,165.56 and separate Schedules J, acknowledging their separation and separate living arrangements, stating combined average monthly expenses of $6,365.00, for a monthly net income of $800.56. One schedule continued to show the $903.00 rent or home mortgage payment, the other a rent or home mortgage payment of $400.00. Debtors filed an amended Form 22C, Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income, reflecting a current monthly income of $11,385.00. Their annualized current monthly income of $136,620.00 exceeds $63,275.00, the applicable median family income in the state of Missouri for a household of their size. The Form 22C showed expenses of $12,318.57 including a deduction on line 47c for $2,830.00 mortgage payment to Option One Mortgage Company on the Kansas Property. The monthly disposable income calculated on the Form 22C as shown on line 58 was a negative $933.57.

An amended Chapter 13 plan filed on the same date proposes to make payments to the trustee of the sum of $800.00 per month for 36 months. The Debtors propose to surrender the Kansas Property. Unsecured creditors are to receive whatever is left over after the payment of priority and secured claims. The trustee filed a motion to deny confirmation objecting on the grounds that the Debtors have not committed all their projected disposable income to the payment of unsecured creditors under the plan because they have improperly deducted from their current monthly income the $2,830.00 house payment for the Kansas Property which they propose to surrender under the plan and which payment they will not, therefore, make.

II. DISCUSSION AND ANALYSIS

As amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), upon objection, debtors must demonstrate either that they propose to pay their unsecured creditors in full or that they have committed all their projected disposable income to the payment of unsecured creditors under the plan for the applicable commitment period. The trustee's objection invokes this provision. While projected disposable income is not defined, BAPCPA does contain a new definition of the phrase "disposable income." In § 1325(b)(2), the phrase is defined as current, monthly income received by the debtor (excluding certain designated' sources) less amounts reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor. § 1325(b)(2)(A). This case implicates not "current monthly income" which itself is a defined term, but the meaning of "amounts reasonably necessary to be expended" in the context of an above-median debtor. The Code now specifies that for debtors above the applicable state median level of income, those expenses shall be determined in accordance with § 707(b)(2). § 1325(b)(3). That paragraph of § 707(b) contains the core of the newly adopted means test and specifies the deductions that may be taken from current monthly income for the above-median Chapter 13 debtor to arrive at disposable income. Among other things, according to § 707(b)(2)(A)(iii), a debtor may deduct "the total of all amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the petition" divided by 60. Since this provision is part of the means test in Chapter 7 and incorporated into the disposable income calculation for above-median Chapter 13 debtors by § 1325(b)(3), its meaning has been subject to interpretation in both contexts. The purpose of the means test in Chapter 7 is to determine whether the debtors have excess income which might be used to make payments to unsecured creditors under a Chapter 13 plan. One of the available deductions is thus the amount of required payments on secured debt. In determining whether a case constitutes an abuse, courts have considered the question of whether a Chapter 7 debtor who has indicated in the Statement of Intention a plan to surrender particular property, or as to which an order granting a motion for relief has been sustained, may nonetheless deduct payments on debts secured by such property. While the cases are split, the vast majority of the courts to consider the question has concluded that the deduction is nonetheless appropriate.¹ One of the judges of this district, in In re Burden, 380 B.R. 194 (Bankr.W.D.Mo.2007), has recently adopted the minority view and held that a debtor announcing the intention to surrender property may not take the secured debt deduction. For the sake of uniformity within this district and also because it agrees with the analysis in Burden, particularly the Court's analysis and interpretation of the subclauses of § 707(b)(2)(A)(iii), this Court has determined to follow the holding in Burden.

Even were the Court inclined to permit a secured debt deduction on surrender in a Chapter 7 context, separate consideration of the propriety of allowing the deduction in making the disposable income determination in the Chapter 13 context would be warranted. This Court believes that a more compelling case for disallowing the deduction in Chapter 13 can be made, which may explain the fact that the majority of courts to consider the applicability of the secured debt deduction despite surrender of property in this context has held it improper.² Courts have also disallowed the deduction in analogous contexts such as when the debtor proposes to restructure the debt pursuant to the plan or to avoid the lien and to pay the associated debt if at all, as unsecured debt.³

The rationale of those courts permitting the deduction by the Chapter 7 debtor who indicates an intention to surrender the property has been that despite the surrender of the property, the payments to the secured creditor remain contractually due and that the determination of eligibility for Chapter 7 relief should be made as of the date of the filing of the petition without consideration of subsequent events. Finally, some of these courts have also suggested that allowance of the deduction is consistent with a perceived Congressional policy that objective data and mechanical formulas govern the outcome, eliminating the exercise of discretion by bankruptcy courts in determining reasonable and necessary expenses allowed to Chapter 7 debtors.

However, different considerations of policy and statutory construction mandate a different result in Chapter 13 cases. Although in Chapter 7, it may be appropriate to apply the means test as of the date of the filing of the petition, § 1325(b)(1) specifically states that upon objection, the Court is to make the determination whether the debtor is committing all projected disposable income "as of the effective date of the plan." This has been construed to mean as of the date of confirmation of the proposed plan. In In re Crittendon, 2006 WL 2547102 (Bankr.M.D.N.C), the court considered this issue and observed:

The "as of the effective date of the plan" language as used in section 1325(b)(1) is followed by both subparagraph (A) and subparagraph (B) of section 1325(b)(1). Given this arrangement of the statutory language, the plain meaning of the statute is that both subparagraph (A) and subparagraph (B) are...