In Re Demonica
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- Before:
- Barbosa
MEMORANDUM OPINION SUSTAINING THE CHAPTER 13 TRUSTEE’S OBJECTION TO CONFIRMATION
MANUEL BARBOSA, Bankruptcy Judge.This matter is before the Court on the objection to confirmation brought by Glenn Stearns, the standing chapter 13 trustee (the “Trustee”). The Trustee is represented by Attorney Carolyn A. Suzzi. Richard C. Demonica, the debtor (the “Debtor”), is represented by Attorney Kerrie Neal of Zalutsky & Pinsky. For the reasons set forth below, the Trustee’s objection to confirmation is sustained.
JURISDICTION
This Court has jurisdiction to decide this matter pursuant to
INTRODUCTION
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) became effective on October 17, 2005. One of the most significant modifications is the new § 707(b), commonly referred to as the “means test.” The means test is akin to a formula that incorporates figures used by the IRS. In order to implement the use of the means test, BAPCPA requires the debtor to file a statement of current monthly income.
In the context of a Chapter 7 petition, the means test is used to determine whether the filing creates a presumption of abuse. Form B22 is used in every Chapter 13 case to determine whether a debtor earns below or above median family income. Median family income is defined as the median family income both calculated and reported by the Bureau of the Census.
This matter involves the application of Form B22C in the context of confirmation of a Chapter 13 plan proposed by a debtor who earns above the median family income.
FACTS
On January 5, 2006, the Debtor filed a Chapter 13 petition. The Debtor is married, but his wife is not a debtor in this case. Schedule A lists a time share but no real estate. Schedule B does not list any vehicles. Schedule F lists unsecured debt totaling $116,450.14. The Debtor’s Amended Schedule I indicates that the Debtor has three dependents, two minor children and his 74 year-old mother. It also indicates his gross monthly income totals $6,250.00 plus commissions of $4,385.00 and that his spouse is unemployed. Schedule I lists a rent or home mortgage expense of $1,652.00, real estate taxes of $560.00 and automobile installment payments of $487.00 and $352.81.
The Debtor filed an Amended Plan (the “Plan”) and Amended Statement of Current Monthly Income (“CMI”) on March 6, 2006. The CMI is calculated on Form B22C. Part I of Form B22C indicates that the Debtor’s income totals $17,336.17 per month. That number multiplied by 12 (pursuant to § 1325(b)(3)) is otherwise known as the annualized income and totals $208,034.04. This amount exceeds the applicable median family income for a family of five in the State of Illinois.
4
Therefore, the amounts reasonably necessary to be expended under § 1325(b)(2) must be determined pursuant to § 707(b)(2)(A) and (B).
Part IV of Form B22C itemizes the deductions. The Debtor lists deductions totaling $14,818.81. The total expenses deducted from the total income, as calculated on the Debtor’s CMI, results in $2,517.36 of disposable income. However, Part VI contains additional expense claims. The Debtor lists an additional $1,317.81 of monthly expenses. Thus, the Plan pro *899 vides for plan payments of $1,202.00 5 for 60 months. The Plan also indicates under the Special Terms provision that the time share payments mil be made outside the Plan by his spouse and her grandmother.
The CMI lists the deductions allowed under § 707(b)(2) using the following amounts:
line 25A: non-mortgage expense $ 496.00
Line 25B: mortgage rent expense $1373.00
line 26: housing adjustment;
“To pay mortgage and T & I on residence but title to property in grandmother’s name” $ 937.00
line 27: operation of 2 vehicles $ 422.00
line 59: Other Expenses
a. “Addtnl travel and ear repair for job” $ 478.00
B. “Car payments in W’s name” $ 839.81
After deducting all expenses claimed by the Debtor, the monthly income totals $1,199.55. However, the amount listed on line 58 titled: Monthly Disposable Income Under
The Trustee objects to expenses claimed for housing and transportation that exceed the amounts specified in the Local Standards. The Trustee asserts that the amount listed on line 58 equals a debtor’s “projected disposable income.” The Debt- or asserts that the Other Expense amounts for transportation should be included in the calculation of “projected disposable income.” In addition, the Debtor claims that additional housing expenses should be allowed in addition to the Local Standard amount.
DISCUSSION
Numerous issues have arisen since BAPCPA became effective. This Court must determine how to calculate projected disposable income pursuant to
In order to construe what Congress has enacted, “we begin, as always, with the language of the statute.” Duncan v. Walker, 533 U.S. 167, 172, 121 S.Ct. 2120, 150 L.Ed.2d 251 (2001). “It is our duty to give effect, if possible, to every clause and word of a statute.” Id. at 174, 121 S.Ct. 2120 (quoting United States v. Menasche, 348 U.S. 528, 538-39, 75 S.Ct. 513, 99 L.Ed. 615 (1955)) (internal quotations omitted). Moreover, “where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acted intentionally and purposely in the disparate inclusion or exclusion.” Id. at 173, 121 S.Ct. 2120 (quoting Bates v. United States, 522 U.S. 23, 29-30, 118 S.Ct. 285, 139 L.Ed.2d 215 (1997) (internal quotations omitted)); see also Gildon v. Bowen, 384 F.3d 883, 886 (7th Cir.2004).
I. Disposable Income
A plan cannot be confirmed when the trustee objects unless 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 under the plan.
In
re
Hardacre,
338 B.R. 718 (Bankr.N.D.Tex.2006), is one of the first opinions that addressed this issue. The court held that “projected disposable income” “must be based upon the debtor’s anticipated income during the term of the plan, not merely an average of [the debtor’s] prepet-ition income.”
Id.
at 722. This Court concurs with the reasoning set forth in support of such an interpretation.
Id.
at 722-23;
see also In re Kibbe,
342 B.R. 411, 414-15 (Bankr.D.N.H.2006). Specifically,
Further, as the
Hardacre
court discussed,
Therefore, this Court finds that the term “projected disposable income” must mean something other than the income as computed on Form B22C. Accord Hardacre, 338 B.R. at 723; Kibbe, 342 B.R. at 414; Contra In re Jass, 340 B.R. 411, 416 (Bankr.D.Utah 2006). CMI, as calculated on Form B22C, is defined as the average monthly income earned during the six months prior to the filing of the petition. In contrast, Schedule I sets forth a debt- or’s income at the time of filing and should be amended when a debtor’s income either increases or decreases. Therefore, a debt- or’s Schedule I, which reflects current income as opposed to a historical average, should be used to determine “projected disposable income.”
II. Amounts Reasonably Necessary to be Expended
The IRS National Standards designate amounts that are reasonable expenditures for five categories: food, clothing, household supplies, personal care, and miscellaneous expenses. The IRS Local Standards designate amounts that are reasonable for housing and transportation. The housing expense includes housing and utilities; the transportation expense includes ownership and operating costs. The standard amounts vary for different areas of the country and *901 are dependent upon a debtor’s family-size and the number of vehicles.
The Other Necessary Expenses, however, are treated differently. The IRS does not set standard allowances for these expenses. Instead, the IRS “sets out a number of categories for such expenses, and describes the nature of the expenses that may be deducted in each of these categories.” (Form B22 committee note para. Cl.) Form B22C includes line items for those categories that do not involve debt repayment and those that are not dealt with more specifically by the Code. The categories specified as Other Necessary Expenses included on Form B22C are: taxes, mandatory payroll deductions, life insurance, court-ordered payments, education for employment or for a physically or mentally challenged child, childcare, health care and telecommunication services. Subpart B of Form B22C lists the six additional specific categories set out in § 707(b). Those categories are: continued contributions to the care of household or family members, protection against family violence, home energy costs in excess of the allowance specified by the IRS Local Standards, education expenses for dependent children less than eighteen years-old, additional food and clothing expense and continued charitable contributions.
Because the Debtor’s income exceeds the median family income, the Debtor is required to determine the “amounts reasonably necessary to be expended” pursuant to § 707(b)(2)(A) and (B).
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, as in effect on the date of the order for relief ....
In order to give effect to every word in the statute, the term “actual monthly expenses” cannot be interpreted to mean the same as “applicable monthly expenses.” The term “actual monthly expenses” refers to the “categories specified as Other Necessary Expenses issued by the Internal Revenue Service.” Therefore, the Debtor’s actual monthly expenses are relevant only for those categories specified as Other Necessary Expenses. Conversely, the term “applicable monthly expenses” under the National and Local Standards means something other than a debtor’s “actual monthly expenses.” Again, the committee notes to the official forms provide some guidance. “Each of the amounts specified by the IRS in the Local Standards are treated by the IRS as a cap on actual expenses, but because
The unique situation in this case is that the Debtor is not liable on the mortgage for the home or the note for the vehicles.
*903 A. Housing Expense
The Debtor listed the full Local Standard deduction for mortgage/rent expense and for the non-mortgage expense. In addition, for “housing and utilities; adjustment” on line 26, the Debtor includes an additional $937.00 and notes: “to pay mortgage and taxes and insurance on residence but title to property in grandmother’s name.” The Trustee objects to any additional housing expense to reflect the Debtor’s actual expenses.
The Local Standard deduction for housing categorizes the expense as mortgage/rent and specifies only one amount. Therefore, whether or not a debtor is liable on the mortgage is not relevant to determining the proper deduction for the housing expense. As discussed above, a debtor may claim the full Local Standard expense for housing, but may not claim additional expenses based upon actual amounts paid. This is not to say that additional expenses may never be allowed. Additional housing expenses can be deducted when they are provided for by the IRS standards or the Code. The only IRS category relevant here allows additional deductions for taxes, which includes federal, state and local taxes, but specifically excludes real estate taxes. (Form B22 committee note para Cl.) None of the Debtor’s additional expenses fall within this category. Similarly,
[T]he debtor’s monthly expenses may include an allowance for housing and utilities, in excess of the allowance specified by the Local Standards for housing and utilities issued by the Internal Revenue Service, based on the actual expenses for home energy costs if the debtor provides documentation of such actual expenses and demonstrates that such actual expenses are reasonable and necessary.
However, the Code allows a debtor to deduct additional expenses irrespective of the category.
The Debtor has not provided any such documentation or explanation. This alone justifies sustaining the Trustee’s objection.
Accord In re Renicker,
342 B.R. 304, 310 (Bankr.W.D.Mo.2006). However, the Court will not at this time foreclose the Debtor’s opportunity to demonstrate special circumstances in the future. Because the Debtor may not claim additional expenses for housing above and beyond the amounts specified in the Local Standards
*904
or otherwise explicitly authorized by
B. Transportation
The Debtor includes additional “travel and car repair for job” at $478.00 per month and “car payments in wife’s name” for $839.81 per month as “Other Expenses” on line 59. The Debtor included the Local Standard deduction for the operation of two vehicles on line 27 in the amount of $422.00. The Trustee objects to deducting both expenses claimed by the Debtor as “Other Expenses.”
First, as explained above, expenses for transportation should be limited to those categories specifically related to transportation. Otherwise, any additional expenses must fall within the
First, this Court must look to the language of the statute. “A court’s first obligation when construing the meaning of a law enacted by Congress is to consider the statutory language itself.” Newsom v. Friedman, 76 F.3d 813, 816 (7th Cir.1996) (citing cases). “A court may examine legislative history when it encounters language in a statute that is undeniably ambiguous, but it should be the final option.” Id. Additionally, “the plain meaning of a statute should be conclusive except in those cases where the literal application of a statute will produce a result demonstrably at odds with the intention of its drafters.” In re Hardacre, 338 B.R. at 725 (quoting United States v. Ron Pair Enters., Inc., 489 U.S. 235, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989)) (internal quotations omitted).
This Court finds the reasoning in McGuire persuasive. Unlike the debtor in that case, however, the Debtor incurs a monthly expense for ownership. While the Debtor is not obligated under the note, he does incur the expense to use the vehicle. 12 Therefore, the Debtor can claim the Local Standard for transportation owner-shipAease expense in addition to the transportation operation expense. Because those expenses were improperly included as Other Necessary Expenses, however, the Trustee’s objection will be sustained.
CONCLUSION
This Court finds that in order to given meaning to the term “projected” a historical average of income, as contained on Form B22C cannot be used to determine “projected disposable income” pursuant to
The foregoing constitutes findings of fact and conclusions of law as required by
Notes
. The Interim Rules and Official Forms Implementing the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 and committee notes can found on the Court’s website at www.ilnb.uscourts.gov.
.
(A) the median family income both calculated and reported by the Bureau of the Census in the then most recent year; and
(B) if not so calculated and reported in the then current year, adjusted annually after such most recent year until the next year in which median family income is both calculated and reported by the Bureau of the Census, to reflect the percentage change in the Consumer Price Index for All Urban Consumers during the period of years occurring after such most recent year and before such current year.
. That section provides:
For purposes of this subsection, the ‘applicable commitment period‘—
(A) subject to subparagraph (B), shall be—
(i) 3 years; or
(ii) not less than 5 years, if the current monthly income of the debtor and the debtor’s spouse combined, when multiplied by 12, is not less than—
(I) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner;
(II) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or
(III)in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable State for a family of 4 or fewer individuals, plus $525 per month for each individual in excess of 4; and
(B) may be less than 3 or 5 years, whichever is applicable under subparagraph (A), but only if the plan provides for payment in full of all allowed unsecured claims over a shorter period.
. The median family income, as defined in
. The Court notes that the figures set forth on Form B22C do not add up to the proposed plan payment. ($2,517.36 — $1,317.81 = $1,199.55)
.
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, as in effect on the date of the order for relief, for the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent. Such expenses shall include reasonably necessary health insurance, disability insurance, and health savings account expenses for the debtor, the spouse of the debtor, or the dependents of the debtor. Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for.debts..... In addition, if it is demonstrated that it is reasonable and necessary, the debtor’s monthly expenses may also include an additional allowance for food and clothing of up to 5 percent of the food and clothing categories as specified by the National Standards issued by the Internal Revenue Service.
. The House Report explained “that the standards referred to in
. While some courts have referred to the Internal Revenue Manual for guidance (see e.g. Hardacre, 338 B.R. at 726 and McGuire, 342 B.R. 608, 612 (Bankr.W.D.Mo.2006)), this Court will look to the statute. If additional guidance is necessary, the relevant sources to aid in determining legislative intent are the legislative history and comments to the official forms. The comment quoted above supports the principle that the Code must be interpreted independent of the Internal Revenue Manual.
.
.
. The Trustee does not raise an objection based upon good faith pursuant to
. The creditor in this case has not raised an objection to confirmation of the Debtor’s Plan. See In re Flores, 345 B.R. 615, 2006 WL 2037357 decided on July 20, 2006 by Judge Jacqueline P. Cox for a discussion of the treatment of a mortgage when the wife did not execute the note and the creditor objected to confirmation of the plan.