Johnson v. Zimmer

• Decision Date: 11 July 2012
• Docket Number: No. 11–2034.,11–2034.
• Citation: 686 F.3d 224
• Parties: Tanya Rene JOHNSON, f/k/a Tanya Rene Zimmer, Debtor–Appellant, v. William H. ZIMMER, Creditor–Appellee, Robert R. Browning, Trustee–Intervenor.
• Court: U.S. Court of Appeals — Fourth Circuit

686 F.3d 224

Tanya Rene JOHNSON, f/k/a Tanya Rene Zimmer, Debtor–Appellant,

v. William H. ZIMMER, Creditor–Appellee,Robert R. Browning, Trustee–Intervenor.

No. 11–2034.

United States Court of Appeals, Fourth Circuit.

Argued: March 20, 2012.

Decided: July 11, 2012.

ARGUED: Cortney I. Walker, Sasser Law Firm, Cary, North Carolina, for Appellant. Douglas Wickham, Hatch, Little & Bunn, Raleigh, North Carolina, for Appellee. Christopher Scott Kirk, Office of the Bankruptcy Administrator, Wilson, North Carolina, for Intervenor. ON BRIEF:Travis Sasser, Sasser Law Firm, Cary, North Carolina, for Appellant. Trawick H. Stubbs, Jr., Chapter 13 Trustee, Office of the Chapter 13 Trustee, New Bern, North Carolina, for Intervenor.

Before WILKINSON, KING, and AGEE, Circuit Judges.

Affirmed by published opinion. Judge AGEE wrote the opinion, in which Judge KING concurred. Judge WILKINSON wrote a dissenting opinion.

OPINION

AGEE, Circuit Judge:

In this direct appeal from the United States Bankruptcy Court for the Eastern District of North Carolina, we address a question of first impression in the circuit courts of appeal: in light of the 2005 amendments to the Bankruptcy Code, 11 U.S.C. § 101 et seq. (“the Code”), codified by the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”), Pub.L. No. 109–8, 119 Stat. 23 (2005), how is the “household” size of a debtor seeking bankruptcy relief to be calculated under Chapter 13. Finding no error in the bankruptcy court's method of calculating the Debtor's household size based on how many individuals operate as an “economic unit” with the Debtor, we affirm the order of the bankruptcy court denying the Debtor's motion for confirmation with leave to amend the Debtor's “disposable income calculation and plan to reflect the household size [of five].” (J.A. 100.) See In re Johnson, No. 10–07244–8–JRL, 2011 WL 5902883 (Bankr.E.D.N.C. July 21, 2011).

I.

The facts are not in dispute. Tanya Rene Johnson (“the Debtor”) filed a voluntary petition for Chapter 13 bankruptcy in September 2010. Robert R. Browning was appointed as Trustee. Upon receiving notice of the Debtor's motion for confirmation of a plan, the Debtor's ex-husband, William H. Zimmer (“the Creditor”), objected. The basis for the Creditor's objection was that the proposed plan overstated the Debtor's household size, resulting in an inaccurate calculation of her monthly expenses. The Creditor maintained that as a result of this alleged error, the Debtor's proposed Chapter 13 plan improperly showed a “disposable monthly income” insufficient to make payments on two unsecured loans for which the Creditor was jointly liable with the Debtor.

Prior to the bankruptcy court's consideration of the objections, the parties stipulated to the following facts: the Debtor and Creditor share joint custody of their two minor sons. Neither party pays child support; they share “expenses for clothing, school supplies, and other incidental expenses for their sons based on where the sons live when an expense is necessary.” (J.A. 92–93.) Out-of-pocket medical expenses are divided equally. By oral agreement, the Debtor's sons reside with her and are in her care and custody for 204 days each year. The Debtor's current husband has joint custody of three children from his previous marriage: two minor sons and a nineteen-year-old daughter. The Debtor's step-children reside with her and her husband approximately 180 days per year.¹

The Debtor's proposed Chapter 13 plan claimed a household of seven members, counting individually each person who resided in her home for any period of time within the past six months (i.e., the Debtor, her husband, her two children, and her three step-children). The Creditor asserted that the Debtor did not actually have seven members of her household because the five children and step-children did not live at her residence full-time. He contended that rather than simply counting the number of “heads on the bed” to determine household size, the Debtor's plan should use a method that better approximated the actual economic impact of each individual on the Debtor's expenses. He asserted that such an approach would result in a lower calculation of her monthly expenses such that she would have income available with which to pay toward her unsecured debts as part of a proper Chapter 13 plan.

In examining the parties' dispute, the bankruptcy court observed that the Code does not define “household,” there was no binding precedent on point, and that other bankruptcy courts followed three different approaches to define that term. In re Johnson, 2011 WL 5902883, at *1–*2. As described in greater detail below, those three approaches are: the “heads-on-beds” approach that follows the Census Bureau's broad definition of a household as “all the people who occupy a housing unit,” without regard to relationship, financial contributions, or financial dependency; the “income tax dependent” method derived from the Internal Revenue Manual's (“IRM”) definition that examines which individuals either are or could be “included on the debtor's tax return as dependents”; and the “economic unit” approach that “assesses the number of individuals in the household who act as a single economic unit by including those who are financially dependent on the debtor, those who financially support the debtor, and those whose income and expenses are inter-mingled with the debtor's.” (J.A. 96–98.)

The bankruptcy court adopted a variation of the “economic unit” approach, first assessing the number of individuals whose income and expenses are intermingled with the Debtor's, and then calculating how much time any part-time residents were members of the Debtor's household. In adopting the “economic unit” approach, the bankruptcy court noted that the other two definitions were inconsistent with the purpose of the Code and were the least flexible in terms of adapting to an individual debtor's circumstances.

In deciding that part-time residents should count as part-time members of the Debtor's “household,” the bankruptcy court acknowledged that “[d]ividing children into fractions is not ideal,” but concluded that this additional step in applying the economic unit approach best “capture[d] the nuances of familial support and bonds” and enabled the court to “account for dependents who reside with the debtor on a part-time basis ... in calculating variable costs such as food, utilities, and out-of-pocket health care expenses.” (J.A. 98, 99.) In re Johnson, 2011 WL 5902883, at *2–*3. Accordingly, the court relied on the parties' stipulated facts to determine that each of the Debtor's two sons constituted .56 members of the Debtor's household (residing with her 204 days out of a possible 365), and that each of the Debtor's three step-children constituted .49 members of her household (residing with her 180 days out of a possible 365).²Id. at *3.

Implementing this fractional economic unit approach thus resulted in the Debtor having a total of 2.59 children in her household full-time, which the court then rounded up to three children. Thus, the Debtor, her husband, and the deemed three children yielded a “household” of five persons. The bankruptcy court also noted that the Debtor could claim “any particular expenses ... that the debtor must meet given the family's total size of seven” as itemized costs in an amended proposed plan. (J.A. 99–100.) Id. Consequently, it denied the Debtor's motion for confirmation of a plan, but granted leave to amend the plan based on re-calculation of the Debtor's disposable income based on a household size of five.

The bankruptcy court certified the issue of the determination of the “household” size for direct interlocutory appeal. We granted the Debtor's petition for permission to appeal, thus satisfying the requirements for the appeal under 28 U.S.C. § 158(a)(3), (d), and Fed. R. Bankr.P. 8003(d). ³

II.

A. Statutory Framework

We review “the appropriate statutory interpretation of the Bankruptcy Code ... de novo.” Botkin v. DuPont Cmty. Credit Union, 650 F.3d 396, 398 (4th Cir.2011). In undertaking this review, we first set forth the relevant statutory provisions, and then describe the approaches bankruptcy courts have adopted as well as the parties' arguments relating to each. For the reasons then articulated, we conclude that there is no statutorily mandated approach and that the Code's purposes were best served in this case by the “economic unit” approach as applied by the bankruptcy court to calculate the Debtor's “household” size. Accordingly, we affirm the order of the bankruptcy court.

In Hamilton v. Lanning, ––– U.S. ––––, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010), the Supreme Court summarized the key features of a Chapter 13 bankruptcy proceeding:

Chapter 13 ... provides bankruptcy protection to “individual[s] with regular income” whose debts fall within statutory limits. 11 U.S.C. §§ 101(30), 109(e). Unlike debtors who file under Chapter 7 and must liquidate their nonexempt assets in order to pay creditors, see §§ 704(a)(1), 7126, Chapter 13 debtors are permitted to keep their property, but they must agree to a court-approved plan under which they pay creditors out of their future income, see §§ 1306(b), 1321, 1322(a)(1), 1328(a). A bankruptcy trustee oversees the filing and execution of a Chapter 13 debtor's plan. § 1322(a)(1); see also28 U.S.C. § 586(a)(3).

...

[I]f a trustee or an unsecured creditor objects to a Chapter 13 debtor's plan, a bankruptcy court may not approve the plan unless it provides for the full repayment of unsecured claims or “provides that all of the debtor's projected disposable income to be received” over the duration of the plan “will be applied to make payments” in accordance with the terms of the plan. 11 U.S.C. § 1325(b)(1); see also § 1326(b)(1) (2000 ed.).

Id. at 2468–69.

One of the many changes to the Code arising from the BAPCPA was the tightening of how a Chapter 13 debtor's “projected...