487 B.R. 657
Bankr. E.D.N.C.2013Background
- Trustee moves to dismiss cases for failure to contribute projected disposable income under 11 U.S.C. § 1325(b)(1)(B).
- Hearing conducted December 10, 2012, with amicus briefs allowed due to district-wide impact on Chapter 13 practice.
- Nineteen plans are before the court; about half propose full-term plans, half propose shorter plans with early termination language.
- Early termination language provides discharge upon paying allowed claims and the dividend to unsecured creditors; duration often 60 months or less.
- Trustee argues that paying off secured debt early creates additional disposable income that must be applied to unsecured creditors; argues for two interpretations of ‘applicable commitment period’.
- Court considers whether above-median debtors with zero or negative projected disposable income may have the applicable commitment period treated as inapplicable or hybrid approaches adopted in Alexander and Musselman.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is projected disposable income fixed at filing when plan ends early? | Trustee: changes must be accounted for per Lanning; keep disposable income consistent. | Debtors: use hybrid approach; no adjustment needed when PDI is zero/negative. | Mechanical calculation suffices; no post-confirmation step-up required. |
| Does 'applicable commitment period' apply to debtors with zero or negative PDI? | Trustee: sixty-month period applies under §1325(b)(4). | Alexander/Musselman: applicable commitment period does not apply when PDI is zero/negative. | Applicable commitment period does not apply to zero/negative PDI. |
| May early termination language affect confirmation where PDI is zero/negative? | Trustee concerns about plan structure and immune effects on PDI. | Debtors argue lawful use of early termination under Alexander/Musselman; no adverse impact on PDI. | Early termination language disapproved only to the extent it presumes a 60-month minimum where C.F. shows zero PDI; otherwise upheld. |
Key Cases Cited
- In re Musselman, 394 B.R. 801 (E.D.N.C. 2008) (hybrid approach; applicable commitment period not for zero PDI)
- Alexander, 344 B.R. 742 (Bankr.E.D.N.C. 2006) (hybrid approach; PDI calculation; applicable commitment period not triggered by zero PDI)
- Lanning, 130 S. Ct. 2464 (Supreme Court 2010) (forward-looking disposable income; changes known or virtually certain may be considered)
- In re Moore, 482 B.R. 248 (Bankr.C.D.Ill. 2012) (PDI not increased by paying secured debt early; no step-up required)
- Flores, 692 F.3d 1021 (9th Cir. 2012) (approval of hybrid approach in context of Lanning; respects Kagenveama)
- Kagenveama, 541 F.3d 868 (9th Cir. 2008) (adopted hybrid approach; PDI applicability to above-median with PDI)
- Re Reed, 454 B.R. 797 (Bankr.D. Or. 2011) (supports hybrid approach after Lanning)