Creditor American Express Centurion Bank and American Express Bank, FSB (“American Express”) objected to confirmation of Debtors’ plan on the grounds of failure to comply with the disposable income test of 11 U.S.C. § 1325(b)(1)(B) and lack of good faith pursuant to 11 U.S.C. § 1325(a)(3) based on Debtors’ expenses on a timeshare ownership.
The court heard argument on the objection on November 15, 2012. Patrick Calhoun appeared for Debtors and Cheryl Rouse appeared for American Express. For the reasons noted below, the court will sustain American Express’s objection to confirmation, without prejudice to the filing of a revised chapter 13 plan and the submission of appropriate evidence to support that plan.
I. FACTUAL BACKGROUND
Steven Enabnit and Carol Enabnit (“Debtors”) commenced this case by filing a voluntary petition under chapter 13 of the Bankruptcy Code on June 29, 2012. In Schedule B, under the category “other personal property,” Debtors listed a timeshare lease with a value of $30,000. In Schedule G, Debtors identified the lessor as Diamond Resorts, located in Las Vegas, Nevada, and the timeshare as Kaanapali Beach Club located in Maui, Hawaii. The contract was signed in 2004, and рayments are $1,084 per month, plus maintenance
Schedule I shows Steven Enabnit works as a project manager, earning $7,593 per month after taxes and deductions, and Carol Enabnit works as a medical assistant earning net income of $2,274 per month. Debtors’ income is above the median for a household of the same size as Debtors’ household. They do not own a home.
On October 2, 2012, Debtors filed their Amended Chapter 13 Statement of Current Monthly and Disposable Income (Form 22C) (the “Form 22C”). It shows Debtors’ current monthly income in the amount of $15,375.08 and monthly disposable income of $2,238.60. If they contribute that sum to their plаn, they could pay as much as $134,316 to unsecured creditors over sixty months.
A summary of Debtors’ Form 22 follows:
$15,375.08 Part I Monthly Income
5 years Part II Commitment Period
Part IV Deductions from Income
Subpart A IRS Allowed Expenses
$1,029.00 Food, Apparel
120.00 Health Care
503.00 Non-Mortgage Expenses
2,761.00 Mortgage/Rent
812.00 Transportation
341.12 Automobile Ownership Costs
4,204.01 Other Expenses: Taxes
418.85 Other Expenses: Life Ins.
30.00 Other Expenses: Health Care
70.75 Other Expenses: Telecom
Subpart B Other Additions
Health Insurance 00 03 oi 1-H CO
Additional Food & Clothing o o io CO
Total Subpart B
Subpart C Future payments — Secured Debts
Honda
Diamond Resorts
Payments on Priority Debts 1> LO CO
Ch. 13 Admin. Expenses 00 O rH
$1,705.47 Total Subpart C
Disposable Income Calculation
$15,375.08 Current Monthly Income
-787.00 Qualified Retirement Deductions
-12,349.48 Total of Deductions (subparts A-C)
$2,238.60 --1 Monthly Disposable Income Part VI Additional Expense Claims
$840.66 Timeshare Maintenance
Total Costs of Timeshare (Boxed Above) $1,924.66
American Express filed an objection to the original plan on August 10, 2012, and a supplemental objection to confirmation of the amended Plan on November 1, 2012 (collectively “Objection”). The essence of American Express’s Objection is that Debtors are not paying enough to unsecured creditors under their Plan. American Express asserts that Debtors are paying only 17% on unsecured claims if they pay the amount proposed in their Plan, despite the fact that they make $15,375.08 per month. American Express complains that Debtors intend to spend $1,924.66 per month on a Hawaiian timeshare, which American Express asserts is neither reasonable nor necessary. American Express calculates that if that money was plowed back into the Plan, Debtors would pay $115,479.60 ($1,924.66 x 60 months) more to unsecured creditors.
The timeshare creditor, Diamond Resorts, did not file a proof of claim. Debtors did not submit a declaration or any evidence in response to the Objection. The gist of Debtors’ argument in rеsponse to American Express’s complaints is that chapter 13 trustee does not object to the deductions for the timeshare.
At the hearing on the Objection, Debtors’ counsel stated that he was not sure if the timeshare was a shared fee ownership, but asserted the claim of Diamond Resоrts is secured by the real property.
II. DISCUSSION
A. Burden of Proof
The burden of proof on confirmation of a plan lies with the debtor. In re Davis,
B. Chapter 13 Confirmation Standards
1. Disposable Income Test
A chapter 13 plan that does not pay unsecured creditors in full cannot be confirmed if a creditor objects and the debtor is not paying “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.” 11 U.S.C. § 1325(b)(1)(B). For the purposes of § 1325(b), “disposable income” means current mоnthly income “less amounts reasonably necessary to be expended — (A)(i) for the maintenance and support of the debtor or a dependent of the debtor ...” § 1325(b)(2) (emphasis added). Amounts that are “reasonably necessary” are determined with reference to 11 U.S.C. § 707(b)(2)(A) and (B) if the debtor’s income is above the median for thе state, as they are here. In re Ransom,
2. Payments on Secured Debts are Allowed Generally
Debtors are permitted to deduct secured debt payments to arrive at their projected disposable income. Section 707(b)(2)(A)(iii) provides, “The debtor’s average monthly payments on account of secured debts shall be calculated as the sum of — (I) the total of all amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the filing of the petition; ... divided by 60.” 11 U.S.C. § 707(b)(2)(A)(iii). “Read together, § 707(b)(2)(A)(ii) and (iii) have been understood to allow a debtor to deduct from current monthly income those expenses set out in the IRS standards, and also any payments on secured debt that will come due in the sixty months after the petition date.” In re Welsh,
American Express argued that the timeshare is a luxury item and not reasonable or necessary under the disposable income test. This issue was addressed in Welsh,
C. The $1.081 Monthly Payment for the Timeshare
Debtors contend the $1,084 payment to Diamond Resorts is permissible because it is a secured debt. The record in this case does not adequately support this assertion. Diamond Resorts did not file a proof of claim. The Debtor’s schedules are internally inconsistent, offering no assistance in the determination. Debtors listed the claim of Diamond Resorts аs secured in Schedule D but did not describe the property subject to the lien, as required in Schedule D. Adding to the confusion, Debtors listed the timeshare interest as personal property in Schedule B and not real property on Schedule A. It is difficult to conclude on the record presented thаt Debtors’ proposed payments to Diamond Resorts for the timeshare are on account of a secured claim.
Property interests are defined by state law. Butner v. U.S.,
For purposes of discussion, under California law, a timeshare interest may include interest in real property or it may not. See Bus. & Prof.Code § 11210 et seq.; see, e.g., Berrien v. New Rаintree Resorts Int’l, LLC,
If the claim of Diаmond Resorts is not secured under applicable state law, Debtors cannot take the deduction under § 707(b)(2)(A)(iii). Moreover, because Debtors propose to pay Diamond Resorts in full, it is possible the Plan discriminates against other unsecured creditors without any supporting reason. See 11 U.S.C. § 1322(b)(1); In re Wolff,
D. The $811 Per Month Timeshare Maintenance Fees
In addition to the monthly payment on the secured debt for the timeshare, Debtors also deducted $840.66 under Other Expenses in Form 22C. This category provides: “List and describe any monthly expenses, not otherwise stated in this form, that are required for the health and welfare of you and your family and that you contend should be an additional deduction from your current monthly income under § 707(b)(2)(A)(ii)(I).” That section states that a debtor may deduct “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 ...” 11 U.S.C. § 707(b)(2)(A)(ii)(I). In other words, unlike the secured payments on the timeshare, Debtors must show that expenses in this category are required for the health and welfare of Dеbtors.
The Internal Revenue Manual (“IRM”) lists sixteen categories of expenses which may be considered necessary under certain circumstances. See IRM § 5.15.1.10, It also provides that other expenses may be considered if they meet the necessary expense test, i.e. they provide for the hеalth and welfare of the taxpayer or provide for the production of income. IRM § 5.15.1.7 and 5.15.1.10; In re Egebjerg,
The maintenance fees for Debtors timeshare do not appear to fit within any of the IRM’s listed categories. Additionally, because Debtors did not offer any arguments or evidence that the maintenance fees for the timeshare, or the timeshare itself, is necessary for Debtors’ health and welfare, Debtors did not carry their burden to show that these fees are permissible deductions under Other Expenses.
E. The Good Faith Requirement
American Express argues in the alternative that Debtors’ Plan was not proposed in good faith. A Chapter 13 plan shall be confirmed if, among other factors, the plan has been proposed in good faith
The court does not accept that conclusion. Judge Pappas’ dissent in Welsh, notes that “it is the long-standing law in the Ninth Circuit that, when there is a contest about a chapter 13 debtors’ good faith, thе bankruptcy court must focus upon whether the debtor’s plan treats their creditors ‘equitably.’ ” Welsh,
This court, and at least one other court in the Ninth Circuit, agrees with Judgе Pappas’ dissent on this point.
As indicated above, for the good faith requirement, the court applies a “totality of the circumstances” test. To find a lack of good faith, “a bankruptcy court need not decide that the debtor is acting with fraudulent intent, ill will directed to creditors, or that the debtor is affirmatively attempting to violate the law.” Id. at 858 n. 13, citing In re Leavitt,
The record here is not sufficient to make a finding that Debtors have prоposed their Plan in good faith. The Diamond Resorts claim is either secured or it is not secured. The record does not support a finding on that point. Even if the claim is secured, the court cannot determine if paying the expense constitutes bad faith. The record does not show why Debtors neеd the property, why it makes sense for them to retain it, or other options they might consider that do not cost almost $2,000 per month. On this record, Debtors have not carried their burden to show that the Plan was proposed in good faith.
III. CONCLUSION
, For the foregoing reasons, the Objection of American Express to the confirmation
IT IS SO ORDERED.
Notes
. At the hearing on this matter, the court sustained American Express’s objection that Debtors plan needed to take account of a car payment that would no longer be necessary once the note was paid in full, and directed Debtors to modify the plan accordingly.
. See http://www.justice.gov/ust/eo/bapcpa/ meanstesting.htm
. Although the IRM appears to allow other expenses so long as they meet the necessary expense test, the plain language of § 707(b)(2)(A)(ii)(I) expressly limits deductions for other expenses to "the categories specified as Other Necessary Expenses issued by the Internal Revenuе Service.” See Egeb-jerg,
. "The decisions of the Bankruрtcy Appellate Panel of the Ninth Circuit (‘BAP’) do not carry the weight of stare decisis. Bank of Maui v. Estate Analysis, Inc.,