In re White

• Decision Date: 23 June 2009
• Docket Number: No. 08-26688-JS.,08-26688-JS.
• Parties: In re Brian M. and Marlene A. WHITE.
• Court: U.S. Bankruptcy Court — District of Maryland

409 B.R. 330

In re Brian M. and Marlene A. WHITE.

No. 08-26688-JS.

United States Bankruptcy Court, D. Maryland.

June 23, 2009.

Jeffrey M. Sirody, Esquire, Sirody, Freiman & Feldman, Baltimore, MD, for Debtors.

Jeffrey L. Friedman, Esquire, Friedman and Associates, Reisterstown, MD, for eCAST Settlement Corp.

R. Martin Caskey, Esquire, Office of Ellen W. Cosby, Chapter 13 Trustee, Baltimore, MD, for Chapter 13 Trustee.

Mark A. Neal, Assistant U.S. Trustee, Office of the U.S. Trustee, Baltimore, MD, for U.S. Trustee.

MEMORANDUM OPINION DENYING CONFIRMATION OF DEBTORS' CHAPTER 13 PLAN WITH LEAVE TO AMEND

JAMES F. SCHNEIDER, Bankruptcy Judge.

Before the Court is the confirmation of the Chapter 13 plan proposed by the debtors, Brian and Marlene White, and the objections filed by eCAST Settlement Corporation ("eCAST") and Ellen Cosby, the Chapter 13 trustee ("the trustee"). For the reasons stated, confirmation of the plan will be denied, with leave to amend.

FINDINGS OF FACT

1. On December 16, 2008, Brian and Marlene White (collectively, "the Whites" or "the debtors") filed a Chapter 13 bankruptcy petition in this Court.

2. On February 19, 2009, the Whites filed amended Schedules I and J, that disclosed current gross monthly income of $16,666.55, net monthly income of $11,465.27, and average monthly expenses of $10,692.33.

3. On March 20, 2009, the Whites filed an amended Form B22C, which disclosed gross monthly income of $15,917.40. The form also showed monthly expense deductions under the standards of the Internal Revenue Service that totaled $8,081.50, additional living expense deductions of $899.91, and monthly expense deductions for payment of secured debt of $10,138.32.

4. On the petition date, the Whites owed monthly payments for secured debt on seven different loans. On their principal residence, they were obligated to make two monthly payments to Indymac Bank, a first mortgage payment in the amount of $4,753.11, and a second mortgage payment in the amount of $389.34. As to a property in New Jersey, the Whites paid $3,100 per month to Chevy Chase Bank and $300 per month to Wachovia. As to a property in Tennessee, the Whites owed a monthly payment of $740 to Wells Fargo. They were also obligated to make two monthly car payments that totaled $617.50.

5. The debtors' Chapter 13 plan proposed to surrender the New Jersey and Tennessee properties. The plan also proposed that payments first be applied to a $2,000 attorney fee balance, and then to pay to Indymac Bank $8,459.42 in arrears, simultaneously with payments to unsecured creditors.

6. The debtors calculated the appropriate monthly plan payment to be $740, by subtracting the monthly expenses in Schedule J from the monthly income in Schedule I.

7. Schedule F listed $109,920 of unsecured debt, which appears to be almost exclusively credit card debt. Unsecured creditors have filed proofs of claim totaling $111,340. eCAST, the assignee of Bank of America, is the holder of $40,268.68 of that unsecured debt.

8. On February 2, 2009, the trustee filed an objection to the plan and argued that the debtors should be paying $915 a month. She agrees with the debtors that the proper method of determining the amount of the monthly plan payment is to subtract the monthly expenses in Schedule J from the monthly income in Schedule I. However, she objects to the amounts that the debtors have allocated to cell phone payments, utilities, cable television and similar small expenses.

9. On March 30, 2009, eCAST also objected to the plan because the debtors were not devoting all of their projected disposable income to the plan. eCAST asserted that the debtors should use the $16,666.65 monthly income from their Schedule I, instead of the $15,917.40 from their form B22C, in order to determine the monthly income component of projected monthly income. eCAST also argued that the debtors improperly included the $4,140 in monthly payments owed on the debt secured by the properties they are surrendering and that the amount of the monthly plan payment should be $1,726.92. eCAST arrived at this amount by subtracting the expenses on Form B22C from the income on Schedule I and adding back in the $4,140 in monthly payments for the surrendered properties.

10. On April 8, 2009, a hearing was held on the confirmation of the plan. The Court took the matter under advisement and invited the parties to submit briefs, and all have done so.

CONCLUSIONS OF LAW

1. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L). This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. Venue is appropriate pursuant to 28 U.S.C. § 1409.

2. Section 1325(b)(1) of the Bankruptcy Code requires that, if a trustee or unsecured creditor objects to a plan, the plan must either pay the unsecured creditor in full or provide that all of the "debtor's projected disposable income to be received in the applicable commitment period" be devoted to paying unsecured creditors under the plan. 11 U.S.C. § 1325(b)(1) (emphasis added).

3. Section 1325(b)(2) provides, in pertinent part, that "the term `disposable income' means current monthly income received by the debtor . . . less amounts reasonably necessary to be expended-(A)(i) for the maintenance or support of the debtor or a dependent of the debtor." 11 U.S.C. § 1325(b)(2) (emphasis added).

4. "Current monthly income," as defined by 11 U.S.C. § 101(10A), "means the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor's spouse receive) without regard to whether such income is taxable income, derived during the six-month period ending on . . . the last day of the calendar month immediately preceding the date of the commencement of the case." 11 U.S.C. § 101(10A).

5. The question of how to calculate "projected disposable income" has divided the courts. The word "projected" favors the use of Schedule I, which is a forward-looking projection of the debtors' income. However, the statutory definitions of "disposable income" and "current monthly income" look to the static six-month period immediately before the bankruptcy filing. The use of these terms favors the Court's use of Form B22C, which asks for the debtors' "current monthly income," as it is defined by 11 U.S.C. § 101(10A).

6. In his opinion in the case of In re Watson, 366 B.R. 523 (Bankr.D.Md.2007), Chief Judge Keir of this Court stated:

. . . "[D]isposable income" as calculated on Form B22C is the presumptive "projected disposable income" for application of Section 1325(b)(1)(B). However, by evidence a party may demonstrate "a substantial change in circumstance such that the numbers contained in Form B22C are not commensurate with a fair projection of the debtor's budget in the future" . . .

366 B.R. at 531 (quoting In re Jass, 340 B.R. 411, 419 (Bankr.D.Utah 2006)) (holding "only in rare instances will the Court consider confirming chapter 13 plans where the `projected disposable income' does not conform with the calculations on Form B22C"). Judge Keir went on to hold that "if the presumption is rebutted, a projected budget based upon the evidence, reflecting projected earnings and projected reasonable necessary expenses will govern the determination of `projected disposable income' for purposes of confirmation of the plan." Id.

7. The holdings in Watson and Jass have been concurred with by the majority of appellate courts that have determined this issue. See Hamilton v. Lanning (In re Lanning), 545 F.3d 1269, 1282 (10th Cir.2008) ("the starting point for calculating a Chapter 13 debtor's `projected disposable income' is presumed to be the debtor's `current monthly income' as defined in 11 U.S.C. § 101(10A)(A)(i), subject to a showing of a substantial change in circumstances"); Coop v. Frederickson (In re Frederickson), 545 F.3d 652 (8th Cir. 2008) ("Accordingly, we adopt the view shared by many bankruptcy courts that a debtor's `disposable income' calculation on Form 22C is a starting point for determining the debtor's `projected disposable income,' but that the final calculation can take into consideration changes that have occurred in the debtor's financial circumstances as well as the debtor's actual income and expenses as reported on Schedules I and J"); Kibbe v. Sumski (In re Kibbe), 361 B.R. 302 (BAP 1st Cir.2007) (per curiam) (Form B22C controls when "substantially the same" as actual current income, but actual current income controls when there is a large difference); but see Maney v. Kagenveama (In re Kagenveama), 541 F.3d 868, 874 (9th Cir.2006) (disallowing deviation from Form B22C); Hildebrand v. Petro (In re Petro), 395 B.R. 369, 377-78 (6th Cir. BAP 2008) (calculation should be based exclusively not on Form B22C or Schedules I and J but on ability to pay at time of plan confirmation). Accordingly, the viability of the holding in Watson is unquestioned.

8. The evidence does not justify a deviation from Form B22C. Watson requires that the party proposing a deviation from the form must present evidence that a change in circumstances prevents Form B22C from accurately predicting monthly income. In the instant case, the only evidence presented by eCAST is the debtors' Amended Schedule I, which shows monthly income of $16,670.65, an increase of $789.25, or 4.95%, over the $15,917.40 provided by the debtors in Form B22C.

9. By itself, the debtors' Amended Schedule I does not support a deviation from Form B22C. Because Form B22C and Schedule I use different metrics, the respective calculations of monthly income will almost always differ, sometimes significantly. For instance, when a debtor owns a small business, or when a debtor receives a different number of paychecks each month, Form B22C is inherently unreliable. Cases that support a deviation from Form B22C uniformly require more than a mere difference between the forms. See, e.g., Kibbe (deviation required when debtor obtained higher paying job...