OPINION
Whеther an above-median chapter 13 debtor with negative monthly disposable
FACTUAL AND PROCEDURAL BACKGROUND
The Debtor, Denise E. Martin (DEBTOR), works as an accounting assistant for a sizeable acсounting firm. She has been employed there for nineteen years and earns a gross monthly salary of $3,301.40 (per Schedule I), which annualizes to a sum of $39,616.80. She is single with no dependents, having been divorced from her ex-husband, Brian Martin (BRIAN), for several years. They have no children together.
With her petition, the DEBTOR completed the Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income (Official Form 22C). Part II of Form 22C calculates the section 1325(b)(4) commitmеnt period by comparing a debt- or’s annualized current monthly income with the median family income, based upon recent government-compiled statistics, for the debtor’s state of residence and household size. As calculated on her Form 22C, the DEBTOR’S annualized current monthly income of $48,685.56 is over the applicable Illinois median for a household size of one which is $46,355.00. As a result, line 17 of Form 22C provides that for purposes of section 1325(b)(4), the DEBTOR’S “applicable commitment period is 5 years.”
Part IV of Form 22C calculates deductions from income and includes deductions for expense amounts, both actual and standardized. Part IV concludes by subtracting all allowed deductions and adjustments from a debtor’s total current monthly income to determine an amount on line 59 for monthly disposable income under section 1325(b)(2). The amount shown on line 59 on the DEBTOR’S Form 22C is a negative number, -$146.03.
Schedules I and J filed by the DEBTOR, which incorporate only current, actual amounts for income and expеnses, reflect that her average monthly income exceeds her average monthly expenses by $150.01, so that her actual monthly net income is a positive figure equal to that amount. The amended chapter 13 plan filed by the DEBTOR proposes payments to the Trustee in the amount of $150.00 per month for 36 months.
On her schedule of unsecured creditors (Schedule F), the DEBTOR listed BRIAN as holding an unliquidated claim for “refund of maintenance” in the estimated amount of $40,000. BRIAN filed an objection to the amеnded plan, contending that all above-median debtors must propose a 5-year plan duration, so that the DEBTOR’S 3-year plan is not confirmable. BRIAN also contends that the amended plan fails to commit all of the DEBTOR’S projected disposable income since it omits a pension distribution that she will begin receiving in December, 2012. BRIAN also filed an adversary complaint to except his claim from discharge as one for fraud under section 523(a)(2)(A), alleging that the DEBTOR was overpaid maintеnance when she failed to advise BRIAN or the divorce court that she was cohabiting with a third party. In his memorandum of law, BRIAN suggests the Court should follow Baud v. Carroll,
The DEBTOR, in her memorandum, maintains that her applicable commitment period should be determined to bе three years, not five, solely because line 59 on her Form 22C is a negative number. The DEBTOR alternatively contends that she should not be treated as a true above-median filer since her above-median status determined on Form 22C is based upon certain non-wage income received prepetition that she is now no longer receiving. She had been receiving maintenance payments from BRIAN until just before filing. Although those payments were terminated by prebankruptcy divorce court order, she was nonetheless required to include them on Form 22C, which captures all income received during the six-month period before bankruptcy. See §§ 1325(b), 707(b)(2) and 101(10A). Since it is certain that she will no longer receive maintenance from BRIAN, the DEBTOR contends that the prepetition maintenance income should be excluded from the determination of whether she is an above-median or below-median filer. She argues that this result is supported by Hamilton v. Lanning, — U.S. -,
ANALYSIS
The term “applicable commitment period” is not defined in the definitions section of the Bankruptcy Code (§ 101) and appears in only two places: sections 1325 and 1329. The term is new as of 2005, having been introduced in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). In order to ascertain what Congress intended when it used the term “applicable commitment period,” it is helpful to understand how a durational minimum was applied to chapter 13 plans pre-BAPCPA.
The starting point is to recognize that the pre-BAPCPA Bankruptcy Code did not set down an absolute minimum duration for chapter 13 plans. A debtor was permitted to propose a plan that might last, for example, only for two years or one year or one month that could be confirmed if no one objected and if all applicable conditions of confirmation were satisfied. See In re Torres,
In pre-BAPCPA practice, however, absent earlier full payment of all allowed claims, three years was the effective minimum, since any objection to confirmatiоn by the trustee or an unsecured creditor triggered that temporal condition, as follows:
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 рrojected disposable income to be received in the three-year period beginning on the date that the first payment is due under the plan will be applied to make payments under the plan.
11 U.S.C. § 1325(b)(1) (2004).
In this Court’s experience, chapter 13 trustees have routinely and without exception objected to a plan of less than three years unless unsecured claims will be paid
In 2005, BAPCPA amended section 1325(b)(1)(B) as part of the implementation of the broader concept that above-median debtors are to be treated differently than below-median debtors in chapter 13 cases. The phrаse “three-year period” was replaced with “applicable commitment period” and the phrase “to unsecured creditors” was added, as follows:
(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.
Again for the purpose of implementing the new dichotomy between above and below-median filers, BAPCPA added a new paragraph to section 1325(b) that defines “applicable commitment period” as follows:
(4) 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 debtor is above-median] ...; and
(B) may be less than 3 or 5 years, whichever is applicable under subpar-agraph (A), but only if the plan provides for payment in full of all allowed unsecured clаims over a shorter period.
11 U.S.C. § 1325(b)(4). Thus, under BAPCPA, the applicable commitment period is 3 years for a below-median debtor and 5 years for an above-median debtor. Those periods may be shortened only to the extent that unsecured claims may be paid in full more quickly. In this Court’s view, since the new term “applicable commitment period” replaced “three-year period” which was a durational term, it seems readily apparent that the purpose of the amendment wаs to carry forward the concept of a durational minimum for all chapter 13 filers, leaving the 3 years in place for lower income debtors, but imposing a longer 5-year term for higher earners.
All four courts of appeal that have considered the issue agree that section 1325(b) is a temporal requirement that sets a minimum plan duration, if a plan objection is filed, of five years for above-median debtors who have positive disposable income on line 59 of Form 22C. Baud, supra; In re Tennyson,
A variety of arguments are addressed in the many cases that have interpreted the phrase “applicable commitment period.” In this Court’s view, none is stronger than that the temporal interpretation is consistent with pre-BAPCPA practice and there is nothing in the new statutory language or the legislative history to indicate that Congress intended a dramatic conceptual change such as the multiplier interpretation would effect.
In contrast to the 5-year maximum du-rational limit for a chapter 13 plan set forth in section 1322(d), which protects debtors, section 1325(b)(l)’s durational minimum benefits creditors by requiring a debtor’s “best efforts” at creditor repayment for at least three years as the quid pro quo for the broad discharge provided in chapter 13. Nance,
From the time the means test concept was first proposed in 1997 by certain dissenters to the Report of the National Bankruptcy Review Commission, it has been understood as a mechanism to shift higher earning, can-pay debtors from chapter 7 to chapter 13 and, once there, to compel them to repay as much as rеasonably possible to their creditors. Susan Jensen, A Legislative History of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 Am. Bankr.LJ. 485 (2005); Ransom v. FIA Card Services, N.A., — U.S.-,
The next issue is whether there is an exception to the temporal minimum set forth in section 1325(b) for debtors with zero or negative projected disposable income. Here the circuits have split. The Sixth Circuit in Baud and the Eleventh Circuit in Tennyson have held that the five-year term applies equally to those above-median debtors who have zero or negative prоjected disposable income. The Eighth Circuit in Frederickson declined to decide the issue. The Ninth Circuit in Kagenveama held that the requirement does not apply if the debtor has zero or negative projected disposable income.
As recognized by the Sixth and Eleventh Circuits, the 3 or 5-year commitment period is a separate and independent calculation from the amount of the monthly plan payment. Official Form 22C embodies that distinction by dealing with each calculation in a separate part or section of the form. As defined in section 101(10A), the applicable commitment period is determined on the basis of historical data—the income received during the six-month pre-filing period.
The DEBTOR argues that despite what Part II of Form 22C shows, she is not a “true” above-median filer because as of the petition date, she had permanently lost the maintenance income that vaulted her into the above-median category. This argument fails to appreciate that, unlike the forward-looking plan payment determination, the above/below median determination is unambiguously based on the backward-looking approach that focuses on the historical income received prepetition. See 11 U.S.C. § 101(10A). Hamilton v. Lanning is of no help to the DEBTOR as it applied the forward-looking approach to the plan payment issue only, not to the above/below-median determination.
The DEBTOR also relies upon In re Davis,
The final argument advanced by the DEBTOR seems to be that regardless of the stated duration of a plan, a negative line 59 permits her to propose and confirm a plan that allows her to stop paying the monthly plan payments and declare the plan completed after priority and secured claims are fully paid even if the plan period has not fully elapsed. Chapter 13 plans are confirmed on the premise of regular monthly plan payments for the full term of the plan, unless 100% payment occurs earlier. A step-down in pаyments to $0 once secured and priority claims are paid based solely on a negative number on line 59 is a novel proposition that would run afoul of other applicable confirmation standards. This Court has never seen such a plan, but at least two courts have rejected similar proposals. In re Timothy,
The DEBTOR’S actual ability to make plan payments is a critical element of the confirmation process. Hamilton v. Lanning instructs that the monthly disposable income amount calculated on line 59 of Form 22C is only a starting point and that adjustments are to be made for changes that are known or virtually certain as of
Moreover, chapter 13 has always been intended as an option for those dеbtors who have a good faith desire to pay their creditors to the fullest extent possible over a period of years from future income. The good faith inquiry asks of the debtor: “Is he really trying to pay the creditors to the reasonable limit of his ability or is he trying to thwart them?” In re Smith,
All above-median debtors are required to propose a 5-year plan as a condition of confirmation, a requirement that is dependent upon the facts existing on the petition date.
CONCLUSION
In agreement with Baud, Tennyson, Frederickson and Kagenveama, this Court holds that the “applicable commitment period” as that phrase is used in section 1325(b) establishes a temporal or durational standard for plan confirmation purposes,
The rule laid down by Hamilton v. Lanning, that adjustments may be made for changes to a debtor’s income and expenses that are known or virtually certain as of confirmation, applicable to the projected disposable income determination, does not apply to the “applicable commitment period” determination, which is determined by the historical information referred to in section 101(10A). A loss of income is properly taken into account in determining projected disposable income, but must be ignored for purposes of determining a debtor’s above/below-median status and the “applicable commitment period.”
The objection to confirmation filed by BRIAN will be allowed and confirmation of the Amended Plan will be denied. The DEBTOR will be given twenty-one (21) days to file a Second Amended Plan providing a term of 60 months which may address any anticipated change in her income due to pension payments or otherwise.
This Opinion constitutes this Court’s findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. A separate Order will be entered.
Notes
. Chapter 13 plans now routinely provide that the debtor will pay to the trustee a set monthly amount for a set duration between 36 months and 60 months. If the multiplier interpretation was correct, debtors would presumably begin to propose plans with no statеd durational term, since duration would no longer be a condition of confirmation. Nothing indicates Congress intended this result.
. This result is consistent with the use of the same term in section 1329(c) under which a plan modification "may not provide for payments over a period that expires after the applicable commitment period under section 1325(b)(1)(B)....” See In re Dew,
. As noted by the Sixth and Eleventh Circuits, the applicable commitment period "shall be” 3 or 5 years, based solely on the "current monthly income” of the debtor and his spouse, under §§ 1325(b)(4) and 101(10A), not on the debtor having positive projected disposable income. Tennyson,
. Rejecting the mechanical approach to determining a chapter 13 debtor's projected disposable income, the court noted that where the debtor's income increases postpetition the mechanical approach would "deny creditors payments that the debtor could easily make," characterizing that as a "senseless result” that Congress could not have intended. Hamilton v. Lanning,
. Construing the statute to provide for an exception to the 5-year term required of above-median filers for those with zero or negative disposable income on line 59 would impermissibly create an unwritten exception to the broadly stated rule chosen by Congress. Freytag v. C.I.R.,