Musselman v. Ecast Settlement Corp., 07-00701-8-RDD.

Citation394 B.R. 801
Decision Date30 September 2008
Docket NumberNo. 07-00701-8-RDD.,No. 5:08-CV-14-FL.,07-00701-8-RDD.,5:08-CV-14-FL.
CourtUnited States District Courts. 4th Circuit. Eastern District of North Carolina
PartiesBrooks Lewis MUSSELMAN, Appellant/Cross Appellee, v. eCAST SETTLEMENT CORPORATION, Appellee/Cross Appellant. In re Brooks Lewis Musselman, Debtor.

Joseph A. Bledsoe, III, Law Office of John T. Orcutt, Raleigh, NC, for Appellant.

B. Perry Morrison, Jr., Morrison Law Firm, PLLC, Wilson, NC, for Appellee.

Trawick H. Stubbs, Jr., Stubbs & Perdue, Raleigh, NC, trustee.

ORDER

LOUISE W. FLANAGAN, Chief Judge.

Both the bankruptcy debtor, Brooks Lewis Musselman ("Musselman"), and the unsecured creditor, eCast Settlement Corporation ("eCast"), appeal from the order of the bankruptcy court entered November 30, 2007, confirming Musselman's proposed Chapter 13 plan with requirement that it continue for a 5 year period. Appellate jurisdiction is vested in this court pursuant to 28 U.S.C. § 158(a)(1). The issues presented, fully briefed and the subject of hearing,1 are ripe for decision.

The issue framed on appeal by the debtor is whether the bankruptcy court erred in finding upon objection that "applicable commitment period," as defined in 11 U.S.C. § 1325(b)(4), conclusively determines the required plan length, irrespective of whether or not the Chapter 13 debtor has any "projected disposable income," as calculated under §§ 1325(b)(2) and (b)(3).

The issues framed on appeal by the creditor in this case include whether the court erred in finding that "projected disposable income," as used in 11 U.S.C. § 1325(b)(1)(B), has the same meaning, as applied to a debtor whose current monthly income exceeds the median family income of his state, as "disposable income," as that term is used in 11 U.S.C. § 1325(b)(2). eCast also urges error in finding that a debtor may, in calculating "projected disposable income," expense the full amount indicated by the Local Standards of the Internal Revenue Service ("IRS") for housing, when such amount exceeds his actual housing costs, and transportation expenses, when such amount exceeds the debtor's payment obligations for two motor vehicles. The creditor appeals, too, the bankruptcy court's holding that the debtor need not show, in calculating his "projected disposable income," that the amount to service a debt secured by a travel or camping trailer is necessary for the maintenance or support of the debtor or the debtor's dependents.

For reasons that follow, the decision of the bankruptcy court is affirmed on all the issues raised on appeal, save one. The court finds error only in the length of the plan as confirmed, where "applicable commitment period" time requirements do not apply to above-median debtors like Musselman with zero or negative "projected disposable income."

I.

The debtor filed a petition for relief pursuant to Chapter 13 of the Bankruptcy Code on February 27, 2007. His Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income (Form B22C) indicates that the debtor has above-median income2 with monthly disposable income under 11 U.S.C. § 1325(b)(2) of negative $255.80. Musselman's proposed plan provided for payments of $459.00 per month for 55 months. While providing for full payment of secured claims, the plan did not provide for any payments to unsecured creditors. The trustee's subsequent motion for confirmation reflected the terms of the plan as proposed.

eCast, holder of approximately 48% of the debtor's scheduled unsecured non-priority debt,3 objected to confirmation of the plan on a number of grounds. It objected to the proposed term of the debtor's plan. Underscoring its appeal here, eCast also objected on grounds that the plan failed to apply all of the debtor's "projected disposable income" to payments to unsecured creditors pursuant to 11 U.S.C. § 1325(b)(1)(B). Finally, eCast urged several changes to the calculation of appellant's "projected disposable income." These proposed changes involved: 1) using a forward looking interpretation of "projected disposable income" which would incorporate anticipated or recent changes to the debtor's financial situation; 2) requiring the debtor to use the lesser of his actual expenses or the IRS Local Standards when calculating disposable income; and 3) excluding payments made on a debt secured by a travel or camping trailer from the debtor's disposable income calculation unless he made a showing that it was necessary for the maintenance or support of the debtor or his dependents.

While the bankruptcy court sustained eCast's objection regarding the proposed plan's length, it overruled the others. As noted, Musselman now appeals the bankruptcy court's application and interpretation of "applicable commitment period," and eCast cross appeals several of the bankruptcy court's other conclusions of law. Competing, disparate interpretations of the same statutory language and congressional policy decisions are promoted in furtherance of their respective arguments, reflective of a divergence of national opinion concerning how most of these issues should be decided under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), Pub.L. No. 109-8, 119 Stat 23 (2005).

II.

On appeal from the bankruptcy court, a district court may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings. Fed. R. Bankr.P. 8013. Questions of law are reviewed de novo. Sartin v. Macik, 535 F.3d 284, 287 (4th Cir.2008); Lynch v. Parrish, 382 B.R. 907, 908 (E.D.N.C.2008). The statutory framework within which the issues raised on appeal must be decided is set forth more particularly below.

Where objections were raised by eCast, holder of two allowed unsecured claims, to confirmation of Musselman's Chapter 13 bankruptcy plan, initial reference is made to 11 U.S.C. § 1325(b)(1) which provides:

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 to unsecured creditors under the plan.

11 U.S.C. § 1325(b)(1).

The difficulty here in application of this section of the statute involves discerning the relationship between "projected disposable income" in § 1325(b)(1)(B) and "disposable income" in § 1325(b)(2). "Disposable income" is defined in § 1325(b)(2) as a debtor's current monthly income (defined in § 101(10A)) minus certain "amounts reasonably necessary to be expended." 11 U.S.C. § 1325(b)(2). "Projected disposable income" is not, however, defined in the Bankruptcy Code. As a result, this term has produced "varying interpretations as bankruptcy courts across the country struggle to ascertain what the BAPCPA amendments mean." In re Frederickson, 375 B.R. 829, 833 (8th Cir. BAP 2007).

Another issue to be decided concerns application of the term created by BAPCPA, "applicable commitment period." This term appears twice in Chapter 13 of the Bankruptcy Code, once in § 1325(b)(1)(B) and again in § 1325(b)(4). As already noted, § 1325(b)(1)(B) requires that a plan provide that all "projected disposable income to be received in the applicable commitment period" be paid to unsecured creditors to be confirmed. 11 U.S.C. § 1325(b)(1)(B). Section 1325(b)(4) states that the applicable commitment period "shall be" 3 years in the case of a below-median income debtor or "not less than 5 years" for an above-median debtor. 11 U.S.C. § 1325(b)(4)(A). The court must decide here whether the "applicable commitment period" time requirements apply to above-median debtors with zero or negative "projected disposable income."

Further, eCast's appeal raises questions of how to calculate disposable income expenses under revised § 1325(b). Specifically, how § 1325(b)(3) incorporates and applies 11 U.S.C. § 707(b)(2) to above-median debtors and their calculations of "disposable income" must be decided. Section 1325(b)(3) provides that in determining "disposable income" for above-median debtors:

Amounts reasonably necessary to be expended under paragraph (2), other than subparagraph (A)(ii) of paragraph (2), shall be determined in accordance with subparagraphs (A) and (B) of section 707(b)(2) [11 USCS § 707(b)(2)] ...

11 U.S.C. § 1325(b)(3). The relevant portion of § 707(b)(2)(A) provides that:

The debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor's actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides....

11 U.S.C. § 707(b)(2)(A)(ii). This aspect of the dispute between the creditor and debtor, who each draw on differing decisions representing the split of authority around the country, centers around whether § 707(b)(2)(A) permits an above-median debtor who has housing or transportation expenses to calculate his § 1325(b) disposable income by expensing the full amount provided by the IRS Local Standards or a lesser amount which reflects the debtor's actual monthly expenses.

The other issue bearing on calculation of expenses concentrates on the intersection of §§ 1325(b)(2), 1325(b)(3), and 707(b)(2)(A)(iii). Section 1325(b)(2) defines "disposable income" as current monthly income minus certain "amounts reasonably necessary to be expended." 11 U.S.C. § 1325(b)(2). Section 1325(b)(3) goes on to provide that, in the case of above-median debtors, "[a]mounts reasonably necessary...

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