Marilyn Marshall v. Denise Blake
885 F.3d 1065
| 7th Cir. | 2018Background
- Denise Blake, a below‑median income single mother, filed Chapter 13 and proposed a plan that retained her earned income tax credit (EITC) and part of tax overwithholdings while committing monthly payments to the trustee.
- Trustee Marshall objected, arguing Blake must turn over her entire annual tax refund (including EITC) as additional plan payments.
- The bankruptcy court held EITC and other tax credits are income for bankruptcy purposes and required Blake to include a prorated annual EITC in monthly current monthly income (CMI), but allowed Blake to prorate and deduct reasonably necessary annual expenses across months to offset that income.
- Blake amended Schedules I and J to include prorated EITC and overwithholdings and added monthly prorated expenses (furniture, medical, graduation, etc.), leaving modest monthly disposable income; the bankruptcy court confirmed the plan.
- Trustee appealed; after procedural back‑and‑forth the case was certified for direct appeal to the Seventh Circuit, which affirmed the confirmation order.
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (Blake) | Held |
|---|---|---|---|
| Jurisdiction to hear direct appeal | Trustee failed required Appellate Rule 5 petition and bankruptcy court exceeded Rule 8006 time limits for certification | Bankruptcy court certification + appellate authorization suffice; procedural defects were harmless | Court had jurisdiction: certification and authorization were proper; Rule 5 omission was harmless; remand procedure under Rule 8008 cured timing issue |
| Are tax credits (EITC) part of "current monthly income"? | Trustee opposed debtor keeping EITC; argued refunds should be turned over | Blake argued EITC not income for this purpose | Court held tax credits (including EITC) are included in CMI under §101(10A) and must be considered in projecting disposable income |
| May below‑median debtors prorate annual tax refunds and associated expenses when computing projected disposable income? | Trustee: must turn over annual refunds; prorating + offsetting expenses improperly reduces funds available to creditors; Lanning does not permit this here | Blake: Lanning permits forward‑looking adjustments; prorate annual receipts and reasonably necessary expenses across months to reflect actual budget needs | Court held bankruptcy courts may prorate annual tax refunds into monthly CMI and allow prorated, reasonably necessary expenses to offset that income when projecting disposable income under Lanning |
| Good faith and feasibility of plans that prorate refunds/expenses | Trustee: prorating invites manipulation, may render plans infeasible or not in good faith | Blake: amendments and prorations reflect known/virtually certain annual income/expenses; practice is consistent with §1325 and Lanning; court found plan feasible and in good faith | Court found no clear error: plan met good‑faith and feasibility requirements; courts should assess on case‑by‑case basis and may require evidentiary scrutiny when warranted |
Key Cases Cited
- Lanning v. Hamilton, 560 U.S. 505 (Supreme Court 2010) (adopts forward‑looking approach for projecting disposable income)
- Smith v. Zachary, 255 F.3d 446 (7th Cir. 2001) (rule of statutory construction: specific exclusions imply inclusion of non‑excluded items)
- In re Turner, 574 F.3d 349 (7th Cir. 2009) (excusing procedural defect where failure to file petition was harmless)
- In re Brooks, 784 F.3d 380 (7th Cir. 2015) (discusses differences in disposable income calculation for below‑median debtors)
- Germeraad v. Powers, 826 F.3d 962 (7th Cir. 2016) (Chapter 13 purposes and disposable income considerations)
- RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639 (Supreme Court 2012) (statutory text controls over equitable arguments)
- BFP v. Resolution Trust Corp., 511 U.S. 531 (Supreme Court 1994) (presumption that Congress acts intentionally when it includes language in one section but omits in another)