597 B.R. 133
Bankr. D. Colo.2018Background
- Debtors filed Chapter 13; Mr. Gonzalez owns and operates Rocky Mountain Lawn Pros LLC as sole member/manager and takes distributions equal to the LLC's net profit rather than a salary.
- On Form 122C-1 Debtors reported Mr. Gonzalez's business income net of ordinary business expenses, producing a combined CMI of $49,127 (below-median) and proposing a 3-year plan.
- The Chapter 13 Trustee objected, arguing CMI should reflect gross business receipts (not net), which would raise combined CMI to $135,643 (above-median) and require a 5-year plan.
- Central legal question: whether business expenses may be deducted when calculating CMI under 11 U.S.C. § 101(10A) or whether such deductions occur only when computing disposable income under § 1325(b)(2)(B) (and, for above-median debtors, under the means test § 707(b)).
- The court reviews split authority: a minority "Net Income Approach" (deduct business expenses at CMI stage) and a majority "Gross Income Approach" (use gross receipts for CMI; deduct business expenses only in disposable income/means-test stage).
Issues
| Issue | Debtors' Argument | Trustee's Argument | Held |
|---|---|---|---|
| Whether CMI includes business expenses (net) or gross business receipts | CMI should be net of ordinary business expenses (Net Income Approach) | CMI must reflect gross receipts; business expenses are deducted later in disposable income calculation (Gross Income Approach) | Court adopts Gross Income Approach: CMI is measured by gross receipts; business expenses deducted when computing disposable income/means test |
Key Cases Cited
- Drummond v. Wiegand (In re Wiegand), 386 B.R. 238 (9th Cir. BAP 2008) (adopts gross-receipts approach; CMI is what debtor "receives" without expense deductions)
- In re Kuwik, 511 B.R. 696 (Bankr. N.D. Ga. 2014) (supports gross-income approach and harmonizing §1325(b) with means test)
- In re Harkins, 491 B.R. 518 (Bankr. S.D. Ohio 2013) (adopts gross-income approach; business expenses deducted in disposable income)
- In re Sharp, 394 B.R. 207 (Bankr. C.D. Ill. 2008) (supports gross-income interpretation)
- In re Arnold, 376 B.R. 652 (Bankr. M.D. Tenn. 2007) (supports gross-income approach)
- Hamilton v. Lanning, 560 U.S. 505 (2010) (explains "projected disposable income" and courts’ ability to adjust historical income/expenses for known changes)
- Ransom v. FIA Card Servs., N.A., 562 U.S. 61 (2011) (articulates BAPCPA consumer-reform goal of maximizing creditor repayment)