In rе Craig Matthew FREDERICKSON, Debtor. David D. Coop, Trustee-Appellant. v. Craig Matthew Frederickson, Debtor-Appellee.
No. 07-6025EA.
United States Bankruptcy Appellate Panel of the Eighth Circuit.
Sept. 24, 2007.
375 B.R. 829
Submitted: Aug. 15, 2007.
CONCLUSION
For the foregoing reasons, the judgment of the bankruptcy court is affirmed and Holly Sells’ cross-appeal is dismissed.
In re Craig Matthew FREDERICKSON, Debtor.
David D. Coop, Trustee-Appellant.
v.
Craig Matthew Frederickson, Debtor-Appellee.
No. 07-6025EA.
United States Bankruptcy Appellate Panel of the Eighth Circuit.
Submitted: Aug. 15, 2007.
Filed: Sept. 24, 2007.
O.C. Sparks, argued, Little Rock, AR, for appellee.
Befоre KRESSEL, Chief Judge, FEDERMAN, and MAHONEY, Bankruptcy Judges.
MAHONEY, Bankruptcy Judge.
This appeal was filed by the Chapter 13 trustee from an order of the bankruptcy court1 overruling the trustee‘s objection to confirmation of the debtor‘s plan of reorganization. It concerns the interpretation of the phrases “projected disposable income” and “applicable commitment period” in
I. Standard of Review
The findings of fact are uncontested and no review thereof is sought by the parties. The bankruptcy court‘s statutory interpretation is a conclusion of law, which is reviewed de novo. Colsen v. United States (In re Colsen), 446 F.3d 836, 839 (8th Cir. 2006); Banks v. Griffin (In re Griffin), 352 B.R. 475, (8th Cir. BAP 2006).
II. Background and Discussion
The essence of Chapter 13 is a debtor‘s ability to repay, through a confirmed plan, at least some of his or her debts over time. In the pre-BAPCPA world, the “disposable inсome” used for plan payments was initially calculated by subtracting “reasonable” expenses reported on Schedule J from the income reported on Schedule I. If the trustee or a creditor objected, the court would determine the amount that would be allowed as “reasonable” expenses to be used in the calculation.
The debtor in this case filed his Chapter 13 petition, schedules, Form 22C, and proposed plan on December 13, 2006. Form 22C showed that his annualized income was above the applicable median family income for the state of Arkansas, so he is what is known in modern bankruptcy parlance as an “above-median debtor.” The Form 22C also showed that the debtor‘s monthly expenses exceed his current monthly income by $95.49, resulting in negative disposable income. Nevertheless, the debtor proposes to make plan payments of $600 per month. This incongruity arises from the different sources for and function of the figures used in the schedules and on Form 22C. In contrast to the Form 22C numbers, the schedules filed with the petition show a lower average monthly income and much lower average monthly expenses, with the result that the debtor has an actual monthly surplus of $600 with which to make plan payments.
In his plan, thе debtor proposes to pay $600 per month for 48 months. Administrative costs, secured debt, arrearage on long-term debt, and priority tax claims will be paid through the plan, with a pro rata distribution of approximately 75 percent to unsecured creditors. The trustee objected to the duration of the plan, arguing that
After a hearing, the bankruptcy court overruled the objection, finding that under the circumstances of this case—the circumstances being the negative disposаble income—the Bankruptcy Code does not require the debtor to pay into the plan for five years. The bankruptcy court reasoned that the introductory clause of
On that basis, the bankruptcy court ruled that an above-median debtor who has no disposable income according to Form 22C can propose a confirmable plan with a length of less than five years if the other statutory requirements are met. 368 B.R. at 831.
The parties in the present case agree that because the disposable income calcu-
To determine if this 48-month plan is confirmable, we must discuss “projected disposable income” and the “applicable commitment period,” both of which are referred to in
Our analysis commences, as always, with the text of the statute. “The starting point in discerning congressional intent is the existing statutory text and not the predecessor statutes.” Lamie v. U.S. Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004) (citations omitted). “It is well established that ‘when the statute‘s language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms.‘” Id. (quoting Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000)).
Thе framework for determining whether a plan may be confirmed is set out in
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.
The “applicable commitment period” for payment of projected disposable income to unsecured creditors referred to above is defined as five years for an above-median debtor.
The phrase “projected disposable income” is not a new term. It was in
However, the lack of a statutory definition of “projected disposable income” has led to varying interpretations as bankruptcy courts across the country struggle to ascertain what the BAPCPA amendments mean. Some courts continue to calculate projected disposable income from Sched-
The plain-meaning approach was found “to be the most persuasive on the question of how to calculate ‘projected disposable income‘” by the court in the Southern District of Illinois. In re Nance, 371 B.R. 358, 364-65 (Bankr.S.D.Ill.2007). The Illinois bankruptcy court explained:
This Court, like Alexander, finds the placement of the definition of “disposable income” in
§ 1325(b)(2) indicative of Congress’ intent that “current monthly income” be used in calculating “projеcted disposable income” in§ 1325(b)(1)(B) . This conclusion is further buttressed by the fact that Congress made no attempt to define “projected disposable income” anywhere in the statute, much less within the same subsection. Had Congress intended for “projected disposable income” to mean something different than “disposable income,” it certainly could have provided a separate definition of the term.Furthermore, this Court‘s interpretation does not render the word “projected” meaningless. Rather the Court finds that “projected” merely explains the treаtment of “disposable income.” The definition of “projected” is “to plan, figure, or estimate for the future expenditures for the coming year.” Webster‘s Collegiate Dictionary 932 (10th ed.1996). Thus, under
§ 1325(b)(1)(B) , a debtor‘sdisposable income is calculated, according to the statutory definition, and then projected or extrapolated over the plan‘s term of years.
371 B.R. at 364-65. See also In re Austin, 372 B.R. 668 (Bankr.D.Vt.2007) (
The Berger case refers to the analogous confirmation requirements for a Chapter 11 individual case and the cross-reference in the statutory language to
(a) The court shall confirm a plan only if all the following requirements are met:
. . . .
(15) In a case in which the debtor is an individual and in which the holder of an allowed unsecured claim objects to the confirmation of the plan—
(A) the value, as of the effective date of the plan, 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 value of the property to be distributed under the plan is not less than thе projected disposable income of the debtor (as defined in section 1325(b)(2)) to be received during the 5-year period beginning on the date that the first payment is due under the plan, or during the period for which the plan provides payments, whichever is longer.
The Berger court found persuasive Congress‘s express link of the definition of “projected disposable income” in
Recognizing the symmetry between the confirmation standards for a Chapter 13 plan and an individual Chapter 11 plan, one commentator has considered the Chapter 13 terms “projected disposable income” and “applicable commitment period” in light of the similar Chapter 11 language at
The comparative analysis by Judge Haines is consistent with the bankruptcy judge‘s analysis in this case and consistent with those cited cases using the “plain meaning approach” to statutory interpretation.
Contrary to the position taken by the Trustee, we find that the definition of “applicable commitment period” in
After reviewing the statutory language of
The applicable commitment period is that period of time an above-median debtor must pay disposable income to the Trustee for payment to the unsecured creditors. If there is no disposable income, there is no applicable commitment period, and a debtor may obtain confirmation of a plan that is shorter than five years.
III. Conclusion
The order confirming the 48 month Chaptеr 13 plan is AFFIRMED.
FEDERMAN, Bankruptcy Judge, dissenting.
The bankruptcy court discussed and attempted to reconcile two parts of
The Debtor here proposes a monthly payment of $600 to the Trustee, to be distributed pursuant to the provisions of the confirmed plan. The majority oрinion analyzes the split in the bankruptcy courts on the question of whether a debtor‘s projected disposable income is simply based on a mathematical calculation taken from documents filed at the outset of a case, or is subject to some adjustment within the discretion of the bankruptcy court. While an important question, it is not determinative here, since the Trustee does not contend that the Debtor‘s proposed payment is less than his disposable income. The issue, instead, is how many months the Debtor needs to propose that he make suсh payment to the Trustee.
In a typical pre-BAPCPA case, little or none of a debtor‘s monthly payment to the trustee would end up being paid out to unsecured creditors. That is because the Bankruptcy Code gives first call on that payment to secured creditors, and to creditors whose claims are given priority status. In figuring out what his monthly payment needs to be under a plan, a debtor therefore would begin with the monthly payments needed to be made to those secured and priority creditors. Many of those payments would extend throughout the life of the plan. But оthers, either because of legal requirements or the debtor‘s own wishes, might be paid off sooner. For example, if another person has co-signed a debtor‘s obligation, the debtor is allowed to direct the trustee to make payments to that creditor so as to get the co-signer off the hook.3 If the debtor proposes that that creditor be paid off prior to the conclusion of the case, then the portion of the monthly payment which had been going to that creditor thereafter becomes available to unsecured creditors withоut priority. Or, in a more common example, the Bankruptcy Code provides for payment in full of priority claims such as attorneys’ fees,4 but does not provide that those payments be spread out over the entire length of the plan. Thus, many courts allow the debtor‘s attorney‘s fees to be paid on a monthly basis out of plan payments, over a shorter period than the plan length. Again, once those payments are completed, there should be additional funds available to drop down to unsecured creditors from each monthly payment. Other еxamples of periodic payments by a trustee which
BAPCPA was intended by Congress to require that higher income debtors either pay 100% of unsecured claims, or make payments for a period of 5 years. While there is scant legislative history for most of the BAPCPA provisions, the House Report on
Sec. 318. Chapter 13 Plans to Have a 5-Year Duration in Certain Cases.
Paragraph (1) of section 318 of the Act amends Bankruptcy Codе sections 1322(d) and 1325(b) to specify that a chapter 13 plan may not provide payments over a period that is not less than five years if the current monthly income of the debtor and the debtor‘s spouse combined exceeds certain monetary thresholds. If the current monthly income of the debtor and the debtor‘s spouse fall below those thresholds, then the duration of the plan may not be longer than three years, unless the court, for cause approves a longer period of up to five years. The applicable commitment period may be less if the plan provides for payment in full of all allowed unsecured claims over a shorter period . . . .8
The majority concludes, however, that even though the Debtor proposes not to pay his unsecured claims in full, he is free to obtain a discharge of such debts after just 48 months of payments. In so ruling, the majority ignores the portion of the statute which provides that the applicable commitment period may only be reduced “if the plan provides for payment in full of all allowed unsecured claims over a shorter period.”9
In addition, prior to BAPCPA,
The Trustee argues that the projected disposable income requirement sets a minimum amount which a debtor must propose to pay to unsecured creditors, but that a debtor is not free to walk away from those obligations as soon as that minimum has been reached. Such an interpretation is consistent with the structure of Chapter 13. Even before BAPCPA was enacted, a debtor was required to propose payments to unsecured creditors at least equal to what those creditors would have received from the debtor‘s assets in a Chapter 7 liquidation.11 But proposing to pay that amount has never meant that a debtor has fulfillеd all his obligations to those unsecured creditors. Instead, it is simply one of the requirements that must be met in order to confirm a plan. I agree with the Trustee that the projected disposable income test, as revised by BAPCPA, was intended to impose another minimum requirement for confirmation. However, in addition to that minimum, Congress was careful to require that additional protections be given to unsecured creditors. One such protection is that debtors are required to stay in the case and make payments for the applicable commitment period so that, once payments are used by the trustee to satisfy priority and secured claims, payments for the rest of the five years can be paid by the trustee to unsecured creditors. In other words, if a debtor, such as this one, needs to pay, and is able to pay, $600 to secured and priority creditors at the beginning of the case, for whatever reason, he should be obligated to propose that payments in that amount continue throughout the applicable commitment period, unless he proposes to pay 100% of his unsecured claims in a shorter period. Since the bankruptcy court‘s interpretation allows debtors to ignore both the language of the statute, and its purpose as demonstrated by the legislative history, I would reverse.