In re Woodman, 02-20273.

• Decision Date: 17 January 2003
• Docket Number: No. 02-20323.,No. 02-20273.,02-20273.,02-20323.
• Citation: 287 B.R. 589
• Parties: In re Clare A. WOODMAN, Debtor. In re Steve A. Moulton and Mary L. Moulton, Debtors.
• Court: U.S. Bankruptcy Court — District of Maine

Page 589

287 B.R. 589

In re Clare A. WOODMAN, Debtor In re Steve A. Moulton and Mary L. Moulton, Debtors.

No. 02-20273.

No. 02-20323.

United States Bankruptcy Court, D. Maine.

January 17, 2003.

Barry E. Schklair, Portland, ME, for Clare A. Woodman.

Peter C. Fessenden, Brunswick, ME, trustee.

MEMORANDUM OF DECISION

JAMES B. HAINES, Jr., Chief Judge.

Before me are two Chapter 13 plans. As to each, no party contends that § 1325's¹ confirmation requirements are unmet, with one exception. Evergreen Credit Union, an undersecured creditor in each case, argues that the debtors have not satisfied § 1325(b)(1)(B)'s mandate that they devote all their projected "disposable income" to their plans for at least three years.

On the stipulated record, Evergreen asserts that the debtors' monthly expenditures are excessive. More pointedly, it contends that the debtors' acknowledged monthly purchases of cigarettes ($136.00 per month for Woodman, $240.00 per month for the Moultons) are not "reasonably necessary" expenses within the meaning of § 1325(b)(2)(A). As a consequence, Evergreen urges that, in each case, those expenses must be removed from the equation, increasing disposable income and, consequently, increasing required monthly plan contributions. Doing so renders each plan unconfirmable in its current edition.²

Evergreen's first contention, that, categorically, no amount of tobacco expense may be subtracted from projected income to reach disposable income, presents a question of law. Its second contention, that, taking into account other discretionary expenditures, the debtors are not devoting all their projected disposable incomes to their plans, presents issues of fact.

As explained below, I conclude that tobacco expenses are not unreasonable per se, and that the debtors' respective plans satisfy § 1325(b)(1)'s disposable income test.

Facts³

Clare Woodman, a single mother with two children, filed her petition for Chapter 13 relief on February 27, 2002. She has monthly income, net of tax, social security, and insurance deductions, of $3,994.00. Her household expenses are $3,474.00, yielding $520.00 in "excess income." She acknowledges that cigarette purchases (approximately one pack a day) totaling $136.00 are included within her monthly expense figure. Her Chapter 13 plan provides for 58 monthly payments of $520.00.

Steve and Mary Moulton filed a joint petition for Chapter 13 relief on March 7, 2002. Steve Moulton takes home $2,717.00 a month after taxes, social security, and insurance deductions. Mary Moulton is disabled, as is the Moultons' 22-year-old son, who lives at home with his parents. The Moultons' monthly expenses are $2,450.00, including $240.00 for cigarettes (about 2 packs a day), leaving "excess income" of $267.00. They propose paying $265.00 a month into their Chapter 13 plan for 36 months.⁴

Discussion

1. The Statute

The starting point is the statute. Section 1325(b) provides:

(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 three-year period beginning on the date that the first payment is due under the plan will be applied to make payments under the plan.

(2) For purposes of this subsection, "disposable income" means income which is received by the debtor and which is not reasonably necessary to be expended —

(A) for the maintenance or support of the debtor or a dependent of the debtor, including charitable contributions (that meet the definition of "charitable contribution" under section 548(d)(3)) to a qualified religious or charitable entity or organization (as that term is defined in section 548(d)(4)) in an amount not to exceed 15 percent of the gross income of the debtor for the year in which the contributions are made; and

(B) if the debtor is engaged in business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business.

11 U.S.C. § 1325(b). Put more simply, that portion of projected income not reasonably necessary for the debtors' and their dependents' maintenance and support constitutes "disposable income" under § 1325(b).

2. The Per Se Argument

Evergreen asserts that "any expenditure by a [Chapter 13] debtor for cigarettes is not `reasonably necessary' for support and maintenance." In other words, Evergreen argues that tobacco expenditures are unreasonable and unnecessary as a matter of law. It contends that such expenditures should not even qualify for scrutiny under an "excessive expense" standard: no level of cigarette expense should be acceptable. "Just as this Court would not tolerate a debtor's claim for allowance of a `hobby' expense of $100.00 [or $240.00] consisting of incinerating a $100.00 bill [or $240.00 in currency] each month for no justifiable reason, the Court should not countenance the equivalent practice of cigarette smoking."

There are fundamental problems with branding one kind of expenditure or another as "never" reasonably necessary, as "always" coming from disposable income. To begin, such an approach can clothe subjective moral judgments with the force of law. If smoking is "bad" and therefore not "reasonably necessary," could not similar arguments be made in favor of ruling that any Chapter 13 debtor's expense, however minimal, for alcohol (even one can of beer), lottery tickets (a single one), cosmetics, sugared breakfast cereal, candy bars, or even, say, scented soap is never reasonably necessary, as well? Could not the same be said as to automobiles that seat more than (or fewer than), say, four adults, or achieve less than twenty-three-point-five miles-per-gallon?

When it comes to categorical declarations, the courts are divided about morally unambiguous conduct. The few cases that declare that certain expenses, for example pension loan repayments and pension contributions, are never "reasonably necessary" within the meaning of § 1325(b)(2) have not been accepted universally. Compare, e.g., Anes v. Dehart (In re Anes), 195 F.3d 177, 180-81 (3d Cir.1999)("The Court of Appeals for the Sixth Circuit has held that repayment of amounts withdrawn from retirement accounts is not reasonably necessary for a debtor's maintenance or support.... We agree.") (citation omitted); and Harshbarger v. Pees (In re Harshbarger), 66 F.3d 775, 777 (6th Cir.1995)("[pension loan repayments] may represent prudent financial planning, but [they are] not necessary for the `maintenance or support' of the debtors."); with New York Employees' Ret. Sys. v. Sapir (In re Taylor), 243 F.3d 124, 129 (2d Cir.2001) (reasonable necessity of debtor's pension contributions and pension loan repayments must be considered case-by-case); and In re Guild, 269 B.R. 470, 474 (Bankr.D.Mass.2001)(collecting cases and rejecting per se rule for pension contributions and pension loan repayments).⁵

If debtors budgeted sums for, say, "stuffing money down a rat hole," a court could readily conclude that the expense should not be deducted from "projected income" to reach "disposable income." Such a pronouncement would hold for all conceivable Chapter 13 cases. Arguably, an unhealthful and seemingly wasteful activity like smoking should be treated the same.⁶ But, for all its negative health effects, smoking remains a lawful activity.⁷ To eliminate cigarette expenses from permissible expenditures in the disposable income equation (as a matter of law) would effectively outlaw smoking for all Chapter 13 debtors. That argument is better directed at Congress than at the court. If Congress chooses to enact such a prohibition, it may. I will not do it by judicial fiat for debtors in this district.

The statute speaks of "reasonably necessary" expenditures. One would be hard-pressed to fashion a more case specific standard. In re Davis, 241 B.R. 704, 709 (Bankr.D.Mont.1999). Better to consult each case's unique facts and circumstances, to consider each Chapter 13 plan on its individual merits, than to attempt a generalized declaration, an iron-clad rule for all cases. The reasonableness and necessity of expenses is a factual matter, to be determined "in the context of individual debtors and their dependents." 2 Keith M. Lundin Chapter 13 Bankruptcy § 165.1, at 165-1 (3d ed.2000)(hereafter "Lundin").

Section 1325(b) loses nothing in case-by-case application. Expenses that are not "reasonably necessary" to support a debtor and his or her family will not be permitted to reduce disposable income. But there will always be room to consider the unusual case. I will, therefore, consider Woodman's and the Moultons' tobacco expenses in the context of their budgets and their plans.

3. Assessing Reasonableness and Necessity

a. Burden of Proof

To determine whether a debtor's smoking expenses should or should not decrease disposable income dedicated to a Chapter 13 plan requires viewing those expenditures in context with other regular expenses. Although Evergreen acknowledges that the debtors' non-smoking expenses are reasonable, it considers that funding smoking habits, taken together with other discretionary spending, renders the debtors' expense "packages" unreasonably high, precluding confirmation.

It stands emphasizing that Evergreen's challenge raises a questions of fact: that is, are the debtors' smoking expenses reasonably necessary in their respective circumstances. 2 id. As such, the burden of proof is important. The authorities are not unanimous, but I agree with the view that:

The reported decisions are unnecessarily divided on the burdens of proof at confirmation of a Chapter 13 plan. A strong majority of courts appropriately allocate to the debtor the burden of proving...