In Re Orawsky
OPINION
I. INTRODUCTION
Carol A. Orawsky (“the Debtor”) filed a chapter 13 bankruptcy petition on April 17, 2007. Her proposed Amended Chapter 13 Plan (“the Plan”) provides for her to maintain contract payments on her only secured debt and to make plan payments for distribution to the holders of allowed unsecured claims. The Plan places the Debt- or’s unsecured claims into two categories: (1) student loan claims that are presumptively nondischargeable under 11 U.S.C. § 1328(a)(2) and (2) all other allowed unsecured claims. Proportionately speaking, the Plan proposes to make a greater distribution to the Debtor’s student loan creditor than to the remaining unsecured creditors, because it requires the Debtor to maintain her monthly student loan payments during the life of the Plan.
This case is before the court on two matters. First, the Trustee has filed a Motion to Dismiss the bankruptcy case (“the Motion”). Second, the Debtor seeks confirmation of her Plan over the objection of the Chapter 13 Trustee, William C. Miller (“the Trustee”).
In the Motion, the Trustee contends that the Debtor’s Plan fails to commit all of the Debtor’s disposable income for payment of unsecured debts,
see
11 U.S.C. § 1325(b). In his Objection to Confirmation (“the Ob
On October 30, 2007, a consolidated hearing on the Motion and on confirmation of the Plan was held and concluded. The Debtor was the only witness. After the hearing, the Debtor and Trustee submitted written memoranda in support of their respective positions and the Debtor submitted a reply memorandum. The last submission was filed on December 4, 2007.
For the reasons set forth below, I will:
1. deny the Motion because I find that the Plan does not violate § 1325(b)’s requirement that all of the Debtor’s projected disposable income that is received during the applicable commitment period be applied to make payments to her unsecured creditors; see id. § 1325(b); and
2. overrule the Trustee’s Objection and confirm the Plan because I find that the Plan’s separate classification of the student loan obligation and proposal to make a greater distribution to the student loan creditor does not “discriminate unfairly” against the other unsecured creditors in violation of 11 U.S.C. § 1322(b)(1).
This Opinion constitutes my findings of fact and conclusions of law pursuant to Fed R. Bankr.P. 7052.
II. FINDINGS OF FACT
The relevant facts are largely undisputed.
1. The Debtor is a 26 year old, single woman. She lives in Newtown, Pennsylvania with a roommate and has no dependents. (N.T. 24, 27, 42).
2. Since December 2005, the Debtor has been employed as a social worker for the state of New Jersey. (N.T. 25, 37).
3. In March 2007, prior to the filing of her bankruptcy petition, the Debtor was injured on the job. She was on disability leave from approximately late March or early April 2007 through late July 2007. (N.T. 25).
4. During her disability leave, the Debtor’s income was greatly reduced as compared to her typical monthly salary. (N.T. 25; Schedule I, Docket Entry No. I). 1
5. According to her Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income (Docket Entry No. 3) (hereinafter “Form 22C”), the Debtor has an annualized “current monthly income” 2 of $45,588.00 and is an “above-median” 3 chapter 13 debt- or.
6. The Debtor’s current annual salary is $50,000.00. (N.T. 25).
7. The Debtor’s Form 22C reflects disposable monthly income of negative $580.97.
8. Together with her bankruptcy petition, the Debtor filed schedules. In those schedules, the Debtor disclosed:
a. Net take home pay of $2,493.00 per month (Schedule I, Docket Entry No. 1);
b. Total average monthly expenses of $2,273.00, which includes a monthly expense of $217.00 for student loan payments (Schedule J, Docket Entry No. 1); and
c. Total monthly net income of $220.00. (Schedule J, Docket Entry No. 1).
9. On July 12, 2007, to reflect an increase in her monthly rent (N.T. 28), the Debtor filed an Amended Schedule J that reflected total average monthly expenses of $2,388.17 (after deducting $217.00 for student loan payments) and monthly net income of $104.83. (Amended Schedule J, Docket Entry No. 20).
10. The Debtor owns no real estate (Schedule A, Docket Entry No. 1) and has $23,653.00 in personal property (Schedule B, Docket Entry No. 1), the bulk of which is comprised of a 2006 Volkswagen Jetta.
11. The Debtor has no non-exempt property. (Schedule C, Docket Entry No. 1) 4
12. On July 25, 2007, the Debtor amended her original chapter 13 plan and filed the Plan. (Docket Entry No. 21).
13. The Plan provides for disparate treatment of her unsecured creditors. Specifically, the Debtor’s Plan proposes, in relevant part:
a. that the Debtor pay $100.00/ month for 60 months to the Trustee;
b. that the Trastee use these payments to pay:
i. all administrative expenses; and
ii. pro rata distribution to unsecured creditors except that, “Pursuant to 11 U.S.C. § 1322(b)(5), Debtor shall make all postpetition payments on her non-dischargeable student loan obligations directly to Sallie Mae in accordance with the contract terms.”
(Plan ¶¶ 2(e), 5) (emphasis added) (Docket Entry No. 21). 5
14. Two proofs of claim have been filed in this bankruptcy relating to the Debtor’s outstanding student loans:
a. Proof of Claim No. 2, filed by Sallie Mae, Inc. on behalf of United Student Aid Funds, Inc. in the amount of $29,398.34 (“the Larger Student Loan”) and;
b. Proof of Claim No. 9, filed by Sallie Mae Ed Trust/Wilmington Trust in the amount of $4,200.79 (“the Smaller Student Loan”). 6
15. The Debtor incurred the student loan debts to finance her undergraduate or graduate studies in social work. (N.T. 37-40).
16. According to the Debtor, the combined, scheduled monthly payment for these student loans is $217.00. (N.T. 27-28). 7
17. The Larger Student Loan has a 2.625% interest rate and a 240-month term. (N.T. 30, 31). This loan is a consolidation of a number of smaller educational loans. (N.T. 30).
18. The Smaller Student Loan has an interest rate between 10-11%. (N.T. 29). The Debtor does not know the term of this loan. (N.T. 31).
19. The Debtor is eligible to take one more voluntary forbearance on the Larger Student Loan. (N.T. 44-45).
20. The Smaller Student Loan is subject to a form of phased-in debt forgiveness. After the Debtor has spent 5 years doing social work, the Smaller Student Loan will be “expelled.” (N.T. 30-31).
21. By December 28, 2007, the Debtor had been working for 3 years as a social worker. (N.T. 37). Accordingly, assuming the absence of any intervening disqualifying factors, on December 28, 2009, the Debtor’s Smaller Student Loan will be eligible to be forgiven.
22. Up to the time of her bankruptcy filing, the Debtor was current in making payments on the Smaller Student Loan, while the Larger Student Loan was either deferred or in forbearance. 8
23. As a result of back-to-back periods of deferment and voluntary forbearance, the Debtor has never been required to make a payment on the Larger Student Loan. (N.T. 41).
24. One impetus for the Debtor’s decision to file for bankruptcy relief in April 2007 was that the Larger Student Loan was about to enter repayment and she did not believe she could afford the payments in light of the debt service required by her other debts. (N.T. 41, 42). The Debtor also felt overwhelmed by the combination of her consolidation loans, credit card debt, student loans, car loan and rent. (N.T. 42).
25. The Debtor concedes that her student loan debt obligations are nondis-chargeable in her bankruptcy. (Plan ¶ 5); see 11 U.S.C. § 1328(a)(2); id. § 523(a)(8).
26. The Claims Register reflects:
a. $25,168.16 in secured claims; 9
b. $61,423.91 in unsecured claims, $27,824.78 of which is comprised of non-student loan-related debt obligations; and
c. $2,054.00 in administrative expenses. 10
27. By the October 30, 2007 confirmation hearing, the Debtor had not yet made any of the direct monthly payments to Sallie Mae that her Plan required because she was not financially capable of doing so. (N.T. 33). 11 Her bank statement was “very negative” each week. Id.
III. THE TRUSTEE’S MOTION TO DISMISS WILL BE DENIED
A. The Trustee’s Motion Will Be Treated as a Motion Under 11 U.S.C. § 1307(c)
In the Motion, the Trustee requests dismissal of the case because the Debtor’s Plan fails to commit all of the Debtor’s disposable income for the benefit of her unsecured creditors. In support of the Motion, the Trustee relies upon 11 U.S.C. § 1325(b). 12 That section provides, in pertinent part:
(1) 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—
(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.
At the outset, I observe a “disconnect” between the statutory text and the Motion. In seeking dismissal, the Trustee does not cite the Code provision governing dismissal of chapter 13 cases, but instead refers to a Code provision addressing legal standards pertaining to plan confirmation.
Involuntary dismissal of chapter 13 cases is governed by 11 U.S.C. § 1307(c), which provides,
inter alia,
that a case may be dismissed “for cause, including” any one of eleven (11) grounds that are set forth in separate subsections. Nowhere in § 1307(c)(1) through (11) has Congress provided that a chapter 13 debtor’s failure
I recognize that the statutory examples of cause for dismissal set forth in § 1307(c)(l)-(ll) are not exclusive and, therefore, the failure to comply with other Code provisions may provide “cause” for dismissal of a chapter 13 case. 13 Also, I am aware that the Trustee regularly files motions to dismiss chapter 13 cases based on § 1325(b). In fairness to the Trustee, I suspect that, in citing that section in such motions, he has simply left out a step in articulating his reason for requesting dismissal. It is likely that the more precise basis for the Motion is § 1307(c)(1), which authorizes dismissal for “unreasonable delay by the debtor that is prejudicial to creditors.” Therefore, I flesh out the Trustee’s implicit argument to be that by proposing a plan that is inconsistent with § 1325(b) and which will not be confirmed (because the Trustee will object under § 1325(b)), the Debtor has unduly delayed the administration of the case to the prejudice of creditors, thus providing “cause” for dismissal.
Undoubtedly, there are cases in which a debtor’s failure to propose a con-firmable plan and the attendant delay justify dismissal of the case.
14
At the same time, however, the bankruptcy court is accorded considerable discretion in evaluating whether “cause” exists and whether dismissal is the appropriate remedy.
15
Thus, that a debtor has proposed a plan that the Trustee considers unconfirmable, standing alone, does not necessarily establish cause for dismissal.
See In re Javarone,
In any event, the issue whether the Trustee’s Motion should be granted under § 1307(c) arises only if confirmation of the Plan is denied. As explained below, the Plan will be confirmed. Thus, no grounds exist for dismissal under § 1307(c)(1).
B. The Motion Will Be Treated As An Objection to Confirmation, But Will Be Denied
While the Trustee styled his papers in opposition to the Plan as a motion to dismiss, the Motion, for all intents and purposes, is an objection to confirmation of the Plan, based on the Plan’s alleged failure to satisfy the requirements of 11
To paraphrase 11 U.S.C. § 1325(b), upon objection, the court may not confirm a plan if the plan fails to provide that all of the debtor’s projected disposable income (“PDF’) shall be used to pay the allowed claims of unsecured creditors. As the party raising an objection under 11 U.S.C. § 1325(b), the Trustee bears the initial burden of presenting evidence that the Debtor’s Plan does not satisfy § 1325(b). 16 The Trustee has failed to meet that initial burden.
The Trustee’s § 1325(b) argument is based on the false premise that the Debt- or’s Plan proposes to pay only $100.00 per month to unsecured creditors. In fact, the Plan commits $317.00 each month for 60 months for the payment of unsecured claims. The Plan provides for the Debtor to make two (2) distinct monthly payments to unsecured creditors. First, the Debtor must pay $100.00 directly to the Trustee to be used for a distribution to the holders of allowed administrative expenses, to the Trustee for his commission and to the holders of allowed unsecured claims
other than Sallie Mae.
Second, the Plan obligates the Debtor to pay $217.00 each month directly to Sallie Mae, the Debtor’s student loan creditor. That the Debtor, rather than the Trustee, is serving as the disbursing agent for the amount being paid to Sallie Mae on account of its allowed unsecured claims does not alter the fact that the payments are being made “pursuant to”, “in,” or “under” the Debtor’s Plan.
See In re Trusty,
The Trustee has neither suggested nor presented any evidence to establish that the Debtor has the means and legal obligation to commit more than $317.00 a month to her Plan. Schedules I and J, which contain what the Trustee refers to as the Debtor’s “actual income and expenses” (see Trustee’s Mem. of Law at 5), do not suggest that the Debtor has any ability to pay more than the $317.00 per month that she proposes to commit for repayment of her unsecured debt. Indeed, I infer from Schedules I and J and the Debtor’s testimony, which I credit, that the Debtor is making personal sacrifices to be able to carve out funds each month to devote to the Plan. This is not a Debtor who has substantial wiggle room in her budget. 17
To the extent that the Trustee complains that the plan payment is insufficient,
For these reasons, I conclude that the Plan does commit all of the Debtor’s PDI for payment of unsecured creditors and I will overrule the Trustee’s objection to confirmation under § 1325(b). 18 The § 1322(b)(1) objection to confirmation is addressed separately below.
IV. THE TRUSTEE’S OBJECTION TO CONFIRMATION WILL BE OVERRULED
A. Introduction
The Trustee objects to confirmation of the Debtor’s Plan on the ground that the Plan “unfairly discriminates” in violation of 11 U.S.C. § 1322(b)(1) because the Plan provides Sallie Mae with a distribution greater than the pro rata distribution to be paid to the Debtor’s other unsecured creditors. Section 1322(b)(1) provides that a:
plan may ... designate a class or classes of unsecured claims, as provided in section 1122 of this title, but may not discriminate unfairly against any class so designated....
Id. (emphasis added). 19
According to its plain language, § 1322(b)(1) permits a plan to divide unsecured claims into different classes and even tolerates discrimination (in a nonpejo-rative sense of the word) amongst classes of unsecured claims, provided that the plan does not discriminate “unfairly.”
20
That brings me to the broader issue the Trustee
B. The Statutory Concept of “Unfair Discrimination”
The issue whether it is fair to separately classify and monetarily favor student loan creditors in a chapter 13 plan has been litigated to a well-worn path in the case law generally, albeit one courts have traversed consulting varied guideposts. 22 One of the chief difficulties that has troubled courts in their efforts to resolve the fairness question is that the Bankruptcy Code does not provide any standard for determining when a Chapter 13 plan discriminates “unfairly.”
In the absence of explicit Congressional directive, several courts and legal commentators have gone in quest of the origins of the concept of unfair discrimination in the Bankruptcy Code and of the legislative history animating its inclusion in § 1322(b)(1).
See, e.g.,
Stephen L. Sepinuck,
Rethinking Unfair Discrimination in Chapter 13,
74 Am. Bankr.L.J. 341,
Hence, courts have been left to struggle to formulate a feasible, practical, reasoned approach in applying the “unfair” discrimination restriction of § 1322(b)(1). As a result of these efforts, an array of different tests have been articulated, critiqued, rejected and re-formulated over the years. One early court, after observing that decisions on the issue of what constituted “unfair” discrimination ran the “gamut from everything goes to nothing is allowed,” was led to conclude that “somewhere between total whim and an Act of God lies the answer to what justification is needed to hew out a particular class of unsecured creditors and distinguish it from other unsecured creditors.”
In re Hill,
The majority of courts faced with answering the question of when discrimination is “unfair” apply some form of mul-ti-factored test. The Eighth Circuit Court of Appeals articulated the most widely-applied test in a case involving preferential treatment of child support payments.
In re Leser,
1. the discrimination has a reasonable basis;
2. the debtor can carry out a plan without the discrimination;
3. the discrimination is proposed in good faith; and
4. the degree of discrimination is directly related to the basis or rationale for the discrimination.
Leser,
While the Leser/Wolff test has been widely applied, so too has it been criticized frequently for its reliance on undefined notions of what is “reasonable”, “legitimate” and “in good faith.” One legal commentator has collected and summarized some of those criticisms:
First, on a conceptual level, no legal standard comprised merely of a collection of factors can be applied with any degree of confidence or predictability.... This point is bolstered by the fact that the factors listed are apparently not intended to be exhaustive of appropriate considerations.
Second, again like many multifactor tests, the relationship among the factors is unclear. For example, after concluding that a plan failed the first prong, because the proposed discrimination was unreasonable, one Bankruptcy Appellate Panel nevertheless went on to analyze the remaining prongs. In contrast, a district court recently concluded there was no need to evaluate other factors after concluding that a proposed plan failed the first prong.
Third, on a more specific level, the interrelationship of at least three of the factors makes the test quite redundant. For example, the reasonableness of the plan’s discrimination (factor one) will necessarily be affected and informed by the necessity of that discrimination (factor two).... Fourth, each of the individual factors is itself unclear, suspect or circular. The first factor’s requirement of reasonableness depends upon the interests advanced in support of the discrimination, but no makes no effort to identify what interests can justify it. As a result, it lacks precision and leaves the issue to the court’s subjective discretion.... The third factor’s inquiry into good faith is completely redundant of § 1325(a)(3).... Beyond that, it is circular to measure fairness in relation to good faith, since good faith itself requires a substantial measure of fairness.
Sepinuck, supra at 355-59.
A few courts have responded to the perceived flaws in the
Leser/Wolff
test by trying to improve the test by incorporating additional factors. For example, in
In re Husted,
Of course, the inevitable consequence of any multi-factored test, as highlighted above in the criticisms of the
Leser/Wolff
test, is that it devolves into a “totality of the circumstances” or “case-by-case” analysis, thereby running the risk of being depicted as an
ad hoc,
potentially purely subjective determination.
See, e.g., In re Groves,
The “legitimate interests of the debtor” approach was rejected by an Illinois district court in
McCullough v. Brown,
While stating that it was “cheerfully rejecting] any temptation to formulate a universal standard by which to measure all future class-discriminatory plans,”
Id.
at 516, the
McCullough
decision is most commonly associated with the “correlative benefit to the creditor” approach. Under this analysis, to justify discrimination a debtor is required to place something material on the scales to show correlative benefit to the disfavored creditors.
See also In re Chapman,
Several other tests and hybrids of the above-referenced tests have also been applied to determine what constitutes “unfair” discrimination. I do not endeavor to name all of them.
In this Circuit, there is no binding precedent concerning what factors should be considered or what test should be implemented in assessing what constitutes “unfair” discrimination. Certain courts have applied the test for analyzing unfair discrimination that was articulated in 1987 in
In re Furlow,
C. Plan Fairness Issues in the Student Loan Context
Before proceeding further to analyze the Debtor’s Plan, I find it helpful to review
In the student loan context, issues regarding the fairness of separately classifying and preferentially treating educational debt came to the fore with the enactment of the Student Loan Default Prevention Initiative Act of 1990, Pub.L. 101-508, §§ 3001, 3007, 104 Stat. 1388, 1388-25, 1388-28 (eff.Nov.5, 1990) (“the 1990 Act”), which made certain government-sponsored educational loans nondis-chargeable in Chapter 13. 26 Prior to this time, student loan claims were generally dischargeable in Chapter 13 under 11 U.S.C. § 1328(a). By way of the 1990 Act, Congress amended § 1328(a)(2) to add § 523(a)(8) as an exception to discharge.
The 1990 Act created an “impetus to classify student loans as either payable in full (like a priority claim) or substantially payable (to the extent that 100% disposable income could afford to pay) and as a result [in order to maximize] the debtor’s fresh start following discharge.” Oliver B. Poliak & David G. Hicks,
Student Loans, Chapter 13, Classification of Debt, Unfair Discrimination and the Fresh Start After the Student Loan Default Prevention Initiative Act of 1990,
1999 Det. D.L.Rev. 1617, 1629 (Winter 1993). Not only are student loan debts likely to be nondis-chargeable, but the claims also accrue interest during the life of a chapter 13 plan if the debtor does not maintain monthly payments.
See Leeper v. Pennsylvania Higher Educ. Assistance Agency,
The courts’ receptivity to debtors’ efforts to favor their educational debt has varied. At one end of the spectrum are courts that have announced a “bright line” rule prohibiting “any discrimination in favor of nondischargeable student loan obligations over other unsecured creditors.”
See In re Taylor,
1. Policy favoring equal treatment of creditors. While providing an honest debtor a “fresh start” is an important policy driving interpretation of the Code, equal treatment and strict prioritization of claims are also important principles. Given that “nothing in the Code or case law ... defines ‘fresh start’ as the emergence from bankruptcy completely free of all debt,” In re Mulkey,2005 WL 4659360 at *2 (Bankr.N.D.Ga. Sept.29, 2005), where discrimination favoring student loan claims creates a tension between these two policies, which policy should prevail? Better yet, how may these two policies be balanced — or should they be?
2. Shifting the burden of nondis-chargeability from the debtor to creditors holding dischargeable, unsecured claims. It has been said that, in making educational loans nondischargeable, Congress has evidenced a preference that “those who benefítted from the loans should not be allowed to avoid the burden of repayment (except in the most dire circumstances).” Id. (citing In re McCullough,162 B.R. at 516 ). As a general proposition then, is it unfair (and contrary to Congressional intent) to effectively shift the burden of repayment from the chapter 13 debtor to the holders of dischargeable claims? See, e.g., In re Crawford,324 F.3d at 541 (describing issue on appeal in case involving preferential treatment of child support payments as consideration of “the circumstances in which and the degree to which a Chapter 13 debtor may shift the burden of nondischargeable debt from his shoulders to those of his unsecured creditors by invocation of 11 U.S.C. § 1322(b)(1).... ”). Perhaps even more to the point, some courts express concern over the apparent lack of equity “for creditors holding nondischargeable claims ... who may ... pursue post-bankruptcy collection efforts against the debtor ... to be preferred not only after the bankruptcy case is completed but also during the time payments are being made to creditors.” See, e.g., In re Coonce,213 B.R. at 346 .
3.The absence of express, statutory priority in the Code. Some courts have observed that if Congress wished to permit debtors to prefer their student loan creditors in chapter 13 plans and shift part of the burden of this nondischargeable debt to the remaining unsecured creditors, it could have granted educational loans statutory priority and it did not. As such, does the confirmation of plans that propose to discriminate in favor student loans grant an impermissible de
facto
priority to these claims?
See, e.g., In re Mulkey
D. Bentley — A Framework For Analyzing Fairness
In In re Bentley, the First Circuit Bankruptcy Appellate Panel articulated a framework for analyzing the issue of unfair discrimination against the backdrop of chapter 13 bankruptcy policy. At issue in Bentley was whether a plan that provided for full payment of student loans and a dividend of approximately 3% to remaining unsecured creditors violated § 1322(b)(1).
Under the approach the
Bentley
court employed, the core principles and policies of chapter 13 provide a “baseline” for evaluating a plan that proposes to deviate from the baseline.
See
In reviewing a chapter 13 plan that proposed to provide substantially more favorable treatment to a student loan claim to the detriment of general unsecured claims, the Bentley court identified four (4) baselines warranting consideration: 32
1. Equality of distribution reflects the general expectation that, absent an express grant of priority, unsecured creditors will share equally in any dividend. As a result of this principle, “fairness in Chapter 13 requires equality of distribution among nonpriority unsecured creditors, and the burden of justification is on those who propose plans to the contrary.” Id. at 240.
2. Nonpriority of student loans incorporates the notion that the Code does not grant student loans priority status. Id. at 240-41. The baseline expectation here is simply that nothing in the Code mandates treating student loans more favorably than general unsecured claims.
3. Contributions: mandatory v. optional expresses the chapter 13 requirement that a debtor devote all of his or her projected disposable income to a plan if the plan does not pay the full amount of allowed unsecured claims. The expectation emanating from that requirement is that unsecured creditors would share pro rata from distributions funded with the debtor’s mandatory contributions.
4. A fresh start for honest debtors is one of the Bankruptcy Code’s fundamental purposes. This baseline is tempered against the notion that Chapter 13 does not contemplate that debtors “will necessarily emerge from Chapter 13 entirelyfree of student loan obligations.” Id. at 242.
Insofar as Bentley sets out a framework for measuring discrimination and instructs that the degree of departure from the baseline is relevant in determining “fairness” under § 1322(b)(1), I find it helpful. In particular, I find it useful because it: (1)requires identification of the underlying bankruptcy policy principles that guide the determination; (2) recognizes that the decision regarding fairness has both a qualitative and quantitative component; and (3) suggests, at least implicitly, that the decision may involve a balancing of competing interests.
E. The Debtor’s Plan Is Not Unfairly Discriminatory
It is the Debtor’s burden to justify her Plan’s disparate treatment of her unsecured claims and preferential treatment of her student loan debt.
See In re 222 Liberty Assocs.,
1. the parties’ positions
The Debtor’s primary argument is that her Plan is not unfair because it is funded, in her view, entirely with optional funds. 34 She derives the premise of the argument, that the Plan is funded with optional funds, by reasoning:
(1) Form 22C is the sole determinant of projected disposable income, or PDI;
(2) her Form 22C shows negative income; 35 and, therefore,
(3) her unsecured creditors are not entitled to any distribution.
Then, she argues that by contributing income to the Plan for distribution to her non-student loan unsecured creditors (in the amount of $6,000.00 reduced by administrative expenses), she is providing those creditors with a material benefit, one to which they have no legal entitlement.
The foundation of the Debtor’s position regarding the fairness of her Plan’s proposed discrimination is that § 1325(b) does not require her to devote either the
The Trustee has a different opinion regarding the unsecured creditors’ entitlement. The Trustee contends that Form 22C is just a starting point in the PDI analysis and that the Debtor’s Schedules I and J must be considered as well.
See
Trustee’s Mem. of Law at 5 (citing
In re Plumb,
In sum, to juxtapose their positions: the Debtor contends that her Plan is being funded wholly with voluntary contributions and that it is not unfair for § 1322(b)(1) purposes for her to devote that portion of her own funds that are required to satisfy her contractual obligation to pay monthly installments to Sallie Mae, thereby avoiding the post-petition accrual of interest and penalties. She distinguishes her Plan from those plans that were denied confirmation in the reported case law on the grounds that those debtors sought to accelerate their student loan obligation and pay it in full through the plan. 39 She asserts that she filed for bankruptcy relief under chapter 13, rather than chapter 7, in a sincere, good faith effort to pay some portion of her debt obligation back to her creditors. If I were to restyle the issue in terms of the Bentley framework, the Debt- or argues that, though discriminatory, the Plan places an additional benefit on the scales for both her student loan creditor and the remaining unsecured creditors as a balance to the discriminatory plan treatment. In opposition, the Trustee contends that the Debtor’s argument is based on a false premise because § 1325(b) requires that the Debtor pay $317.00 per month to all of her unsecured creditors and there is no additional value being offered to justify the deviation from chapter 13 norms. See Trustee’s Mem. of Law, at 2-5. He urges me to deny confirmation on that basis. 40
Thus, the issue of plan discrimination under § 1322(b)(1) has transposed, in large part, into a dispute concerning the meaning of PDI under § 1325(b)(2) and (3). Accordingly, to properly analyze the issue of unfair discrimination, I must first determine the Debtor’s PDI.
2. the meaning of “projected disposable income”
Like the issue whether a plan is “unfairly discriminatory” under § 1322(b)(1), defining and applying the term “projected disposable income” under § 1325(b)(2) and (3) is no simple task. In the relatively short period of time since BAPCPA was enacted in 2005, there has been considerable litigation on the question without the development of a consensus.
Section 1325(b)(1)(B) speaks in terms of the debtor’s obligation to make payments to unsecured creditors under a plan funded with “all of the debtor’s projected disposable income ... received in the applicable commitment period.” 11 U.S.C.
Two lines of authority have developed concerning what “projected disposable income” means in the post-BAPCPA world:
One line of cases holds that the term “projected disposable income” differs from the term “disposable income” as it is described in section 1325(b)(2). Therefore, the amount reflected on Form 22C for “disposable income” is merely a starting point for the court’s inquiry for determining the “projected” amount of the debtor’s disposable income, because the sums set forth in Form 22C are historical and are not forward looking. [These cases] acknowledge a flexible, sliding scale taking into consideration changes in a debtor’s circumstances.
A second line of cases adopts the approach that the term “projected disposable income” is the same as the term “disposable income”; and a mechanical test using historical data is to be utilized. Among the first cases to follow this reasoning was In re Alexander,344 B.R. 742 (Bankr.E.D.N.C.2006). The Alexander court determined that “disposable income” is determined from the six month period prior to filing. Accordingly, the Alexander court concluded that projected disposable income is determined by taking the calculation for current disposable income and multiplying it by the number of months of the proposed plan. Id. at 749.
In re May,
Having considered the different approaches to defining PDI, the one I find most persuasive is articulated in
In re Briscoe,
First, it is difficult to reconcile either of the competing views of the meaning of PDI with the plain language of the statute.
Id.
at 15. On one hand, the PDI determination starts with a debtor’s “current monthly income”, which is expressly defined through a fixed, historical calculation, based on income the debtor received in the six (6) month period
prior to the filing of the case. See
11 U.S.C. § 101(10A). Yet, § 1325(b)(2) refers to PDI as the difference between current monthly income “to be received” during the pendency of the plan less the debtor’s reasonable expenses. It is obviously a logical impossibility for prepetition income “to be received” postpe-tition. The plain language of the statute would produce a PDI of $0.00 in every chapter 13 case — an obviously absurd result that Congress could not have intended.
See generally Lamie v. U.S. Trustee,
Second, in pre-BAPCPA practice under § 1325(b), “projected disposable income” meant income that was “predicted for the future” not income that was “calculated from the past” and historical information (typically, the information the debtor provides in Schedules I and J) was used only
Third, in the absence of any clear changes in the statutory text and legislative history on this question, and considering the original purpose of § 1325(b)
(i.e.,
for a chapter 13 plan to be entitled to confirmation, the debtor should make a good faith effort to repay his or her creditors based on his or her projected income and reasonable expenses), it is reasonable to conclude that, in enacting BAPCPA, Congress did not intend to change entirely prior practice in which PDI was calculated as a prediction of the debtor’s net future income that is available for commitment to the plan.
Id.
at 16-17. As the court observed in
In re Pak,
The term “projected disposable income” is not new with the BAPCPA amendments to the Bankruptcy Code. Before BAPCPA, “projected disposable income ‘was derived from’ income not reasonably necessary for maintaining or supporting the debtor or a dependent, with that determination being made on an estimated basis at plan confirmation.” [quoting In re Slusher,359 B.R. 290 , 295 (Bankr.D.Nev.2007) ]. In most cases, disposable income was determined by subtracting the debtor’s monthly expenses, as set forth on Schedule J, from the monthly net income on the debtor’s Schedule I.
Congress changed the determination of “disposable income” in chapter 13 under BAPCPA by adding extended, if not necessarily precise, definitional terms in §§ 1325(b)(2) and (b)(3) 42 and 101(10A). However, Congress did not alter either the term “projected disposable income” in § 1325(b)(1)(B) or the requirement of § 1322(a)(1) that the debtor commit “such portion of future earnings or other future income of the debtor to the supervision and control of the trustee as is necessary for execution of the plan.”
Id. at 262 (emphasis added to quotation in original). 43
Fifth, where the debtor, the trustee or a party-in-interest disputes the debtor’s PDI as determined by Form 22C due to an alleged change or reasonably anticipated change in the debtor’s income or expenses, courts must avoid the methodology of calculating PDI simply by importing the debtor’s income and expense disclosures from Schedules I and J. Rather, the court must employ the methodology set forth in § 1325(b)(2) and (3) in calculating PDI based on the alleged changed circumstances. Thus, on the income side of the equation, the court must honor the income exclusions found in 11 U.S.C. § 101(10A)
(e.g.,
Social Security benefits) and § 1325(b)(2)
(e.g.,
certain child support payments). On the expense side of the equation, the court can adjust only those expense deductions allowed under § 707(b)(2) that are based on “actual expenses.”
Briscoe,
Sixth, in certain “extreme circumstances where the debtor’s manipulation of the means test amounts to an abuse of the chapter 13 process,” a chapter 13 plan that satisfies 11 U.S.C. § 1325(b) must nonetheless be denied confirmation because it was not “proposed in good faith,” as required by § 1325(a)(3).
Briscoe,
With these concepts in mind, I consider the evidence regarding the Debtor’s PDI.
3. the Debtor’s PDI
Applying the principles discussed above, I conclude, without difficulty, that the Debtor’s PDI is $0.00. 46
The Trustee has not challenged the accuracy of the Debtor’s calculation of PDI on Form 22C. Nor has the Trustee produced any evidence of a change in income or expenses that formed the basis of the PDI calculation under 11 U.S.C. § 1325(b)(2) and (3) as set forth on Form 22C. The Trustee bases his view that the Debtor’s PDI is $317.00 per month solely on the facts that: (1) the Debtor has proposed to commit to the Plan more than the PDI calculated in her Form 22C and (2) her Schedules I and J show the existence of net monthly income of $317.00 (once the Debtor’s student loan payments are subtracted from the listed expenses).
I find the Trustee’s methodology to be inconsistent with § 1325(b)(3). More than the mere consideration of Schedules I and J is required to modify the determination of PDI for above median debtors statutorily mandated by § 1325(b)(2) and (3) as implemented through Form 22C. If the existence of net monthly income in Schedules I and J, by itself, were determinative of PDI for above-median chapter 13 debtors, the elaborate statutory means test methodology for determining PDI required by § 1325(b)(3), commonly viewed as the cornerstone of the BAPCPA reforms, would be nullified. For this reason, to the extent that the Trustee argues that Schedules I and J demonstrate that the Debtor’s PDI is $317.00 per month, I reject that position as a matter of law.
Insofar as the Trustee’s objection is intended to be a good faith objection under § 1325(a)(3),
47
I reject that position as well. There is no evidence that the Debtor engaged in any conduct that could be characterized as a manipulation of the means test or other Bankruptcy Code provisions in order to obscure or diminish her ability to pay her unsecured creditors. Given the modest level of the Debtor’s monthly income, it is unlikely that she is an individual
Bad faith is not demonstrated by showing that the debtor elected to spend less on one class of expenses (in an amount less than the expenses allowed by § 1325(b)(3)) and more on another class of expenses (in excess of the expenses allowed by § 1325(b)(3)), and arguing, without more, that the debtor’s actual expenditure on the first class demon-strafes that he has a greater ability to pay than is indicated by § 1325(b)(3).
Briscoe,
For these reasons, I conclude that the Debtor’s PDI is $0.00 and that neither § 1325(b)(2) and (3) nor § 1325(a)(3) compel her to commit $317.00 per month for payment of unsecured creditors in her chapter 13 plan.
4. Application of Bentley to determine if the Plan’s discrimination is unfair
I find that the Debtor has justified the Plan’s deviation from the relevant chapter 13 baselines. 48
The Debtor has chosen to voluntarily contribute $317.00 a month, for a total of $19,020.00, to her Plan. This funding is derived entirely from income that she is not legally obligated to commit to the Plan. She seeks to utilize this income, not to improve a moderate standard of living or indulge in luxuries, but to make some effort to repay her creditors.
49
In doing so, she is not proposing to accelerate her student loan indebtedness and pay that accelerated amount at the expense of her other unsecured creditors. Rather, she seeks to
For these reasons, I find that the Plan does not unfairly discriminate within the meaning of 11 U.S.C. § 1322(b)(1). Accordingly, I overrule the Trustee’s objection to confirmation and confirm the Debt- or’s Plan. An Order consistent with this Opinion will be entered.
ORDER
AND NOW, upon consideration of the Chapter 13 Trustee’s Motion to Dismiss Case (“the Motion”) and the Chapter 13 Trustee’s Objection to Confirmation of the Debtor’s Chapter 13 Plan (“the Objection”), and after a hearing, and upon consideration of the post-hearing written submissions of the parties, and for the reasons stated in the accompanying Opinion,
It is hereby ORDERED that:
1. The Motion to Dismiss is DENIED.
2. The Objection is OVERRULED.
3. The Debtor’s First Amended Chapter 13 Plan (Docket Entry No. 21) is CONFIRMED.
Notes
. Paragraph 17 of the Debtor's Schedule I states:
Debtor was recently injured on the job and has been out of work since 4/11/07. She will be getting surgery on 5/4 and expects to be out of work for two full months following the surgery. During this period, she will be receiving only temporary disability payments in the amount of $502 per week.
Schedule I reflects that, when not on disability leave, the Debtor’s monthly gross salary was $3,846.00, which is roughly $961.00 a week. The Trustee has not disputed any of the income and expense information provided by the Debtor in her schedules or in her Form 22C.
. See 11 U.S.C. § 101 (10A) (defining current monthly income”),
. Under 11 U.S.C. § 1325(b), the methodology used to determine whether a plan is con-firmable differs depending upon whether the debtor’s annualized current monthly income is above or below the median family income in the applicable state that corresponds to the
. The existence or non-existence of non-exempt property affects the amount of money that must be distributed to unsecured creditors for a chapter 13 plan to be confirmed.
See
11 U.S.C. § 1325(a)(4);
see also In re Funches,
. On its face, the Plan also provides for payment of all priority claims and all secured claims. However, no priority claims were filed. The Debtor's only secured claim is held by the lender who is secured by her automobile and who will receive no distribution from the Trustee because the Debtor proposes to pay directly to the lender the monthly installments on the automobile loan as they fall due under the terms of the contract. (See Plan ¶ 4).
. For the sake of convenience, I shall refer to the creditor(s) to whom the debt obligations on Claims 2 and 9 are owed simply as "Sallie Mae.”
. The notes underlying the Larger and Smaller Student Loans were not produced or introduced into evidence. I have taken judicial notice of the filing of the proofs of claims relating to the two loans at the Debtor’s request and without objection.
See
Fed.R.Evid. 201;
In re Scholl,
.In her testimony, the Debtor used both terms. Compare N.T. 28, 26, 41 (using "deferred”) with id. 41 (using "voluntary forbearance”).
. The Claims Register states that secured claims total $50,336.32, but that total appears to be the result of an error. VW Credit’s original claim and amended claim were added together rather than the latter substituting the former. It appears that VW Credit is asserting a single, secured claim of $25,168.16 and not two separate claims for the same amount.
. This is based on the expectation of the Debtor’s counsel that counsel fees in that amount will be allowed as an administrative expense pursuant to 11 U.S.C. §§ 503(b) and 11 U.S.C. § 330(a)(4)(B). I have previously observed that the filing of a proof of claim for an administrative expense for counsel fees is “of questionable legal significance.”
In re Murray,
. I infer from the Debtor's testimony and her counsel’s representations that, during the initial postpetition period, the Debtor was still in the process of recovering financially from the effects of the reduced income she received while on disability leave. The Trustee has not argued that this temporary period of difficulty impacts the feasibility of the Debtor’s Plan under 11 U.S.C. § 1325(a)(6).
. In his Motion, the Trustee cited § 1325(b)(2). Actually, that provision is a definitional subsection to § 1325(b). It provides the definition of the term "disposable income” used in subsection (b)(1).
.See, e.g., In re Lilley,
.
See, e.g., In re Jackson,
.
See In re Kane,
.
See In re Edwards,
.
See
N.T. 33-34 (unchallenged testimony that the Debtor is still recovering from the financial effects of her disability leave a few
. Because I conclude that the Debtor’s proposed payments of $217.00 per month are to be made “under the plan,” I need not and do not reach the Debtor’s argument that student loan payments may constitute "special circumstances” warranting a downward adjustment to the Debtor’s calculation of disposable income. See 11 U.S.C. § 1325(b)(3) (incorporating § 707(b)(2)(A) and (B) for purposes of determining projected disposable income under § 1325(b)(2)); id. § 707(b)(2)(B) (providing for rebuttal of presumption of abuse by demonstration of "special circumstances” that justify "additional expenses or adjustments of current monthly income”).
. Strictly speaking, one might question whether an objection to confirmation is properly brought under 11 U.S.C. § 1322(b). That section identifies various terms that may be included in a plan. On its face, it does not purport to identify mandatory plan provisions, an interpretation that is reinforced when its text is compared to that of § 1322(a).
See In re Szostek,
.See, e.g., In re Leser,
. The parties also debate another issue. The Debtor asserts that her discriminatoiy plan is nonetheless authorized by 11 U.S.C. § 1322(b)(5), which provides that a plan may provide for the cure of a default and maintenance of payments while the case is pending “on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due.” Id. (emphasis added). The Trustee argues that because the Debtor's student loans were not in default prior to the filing of her bankruptcy, § 1322(b)(5) is unavailable to her.
Courts are divided on this issue of whether § 1322(b)(5) provisions are excepted from § 1322(b)(1) fairness scrutiny.
See, e.g., In re Colley,
I find it unnecessary to decide whether the Plan properly invokes § 1322(b)(5) or whether treatment of a long-term, nondis-chargeable, unsecured debt under § 1322(b)(5) renders discriminatory treatment of other unsecured claims inherently fair under § 1322(b)(1). This is because, as explained below, I find that proposed discrimination in this case is not unfair under § 1322(b)(1), even without consideration of § 1322(b)(5).
.
See, e.g.,
ALR Annotation §§ 9-16 (collecting cases that apply different tests and presumptions and reach varying results in analyzing what constitutes “unfair” discrimination in the student loan classification context);
see also In re Sullivan,
Separate classification of student loan indebtedness has been the subject of quite a number of bankruptcy opinions since 11 U.S.C. § 523(a)(8) was enacted in 1990. It is possible to find case law support for just about any proposition, ranging from the allowance of a separate class providing for the 100% payment of student loans while general unsecureds receive practically nothing, to the disallowance of any plan that proposes to treat student loan creditors substantially different than other unsecured creditors.
. The Husted court's test requires consideration of:
1. whether there is a rational basis for the classification;
2. whether the classification is necessary to the debtor's rehabilitation under chapter 13;
3. whether the discriminatory classification is proposed in good faith;
4. whether there is meaningful payment to the class discriminated against;....
5. the difference between what the creditors discriminated against will receive as the plan is proposed, and the amount they would receive if there was no separate classification.
. The factors developed by the Bird court in the context of assessing disparate treatment of priority debts, are:
1. whether the discrimination substantially enhances or is necessary to the feasibility of the plan;
2. whether the discrimination reflects chapter 7 liquidation priorities;
3. whether the discrimination is otherwise contemplated by the Code;
4. whether the creditor discriminated against will receive more under the plan then [sic] it would in a hypothetical chapter 7 liquidation;
5. if the creditors as a whole will receive more under the plan then [sic] in a hypothetical chapter 7 liquidation, will the discrimination encourage the use of chapter 13;
6. will the discrimination reduce the chances that the debtor will be forced to file bankruptcy in the future;
7. does the discrimination enhance an interest of the debtor which is otherwise protected or furthered by the Code; and
8. the extent of the discrimination.
1994 WL 738644 , at *4.
.In Crawford, speaking through Judge Pos-ner, the court stated candidly:
We haven't been able to think of a good test ourselves [under § 1322(b)(1)]. We conclude, at least provisionally, that this is one of those areas of the law in which it is notpossible to do better than to instruct the first-line decisionmaker, the bankruptcy judge, to seek a result that is reasonable in light of the purposes of the relevant law, which in this case is Chapter 13 of the Bankruptcy Code.
. As a result of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Pub.L. 109-8) (BAPCPA), both government-sponsored and private student loans are non-dischargeable in a chapter 13 bankruptcy. See § 1328(a)(2); § 523(a)(8).
. I use "compelling” to mean "understandable” and "rational” and not to suggest that a motivation that is "compelling” to the debtor is necessarily "fair” for purposes of § 1322(b)(1).
.See, e.g., In re Bentley,
.
See, e.g., In re Belda,
. Foremost among these is that priorities apply in Chapter 7 as well as in Chapter 13, and priority in Chapter 7 may not be appropriate. Moreover, priority claims must be paid in full in Chapter 13, and it would be impossible for many debtors with outstanding student loans to pay them off during a three-year or five-year plan. Thus, priority treatment would actually foreclose many debtors from seeking Chapter 13 relief.
See Sepinuck, supra at 18.
.
But see, e.g., In re Pora,
. The Bentley court also noted that:
It is not clear whether there are factors outside the contemplation of Chapter 13 that might fairly justify departures from baseline. None are offered or evident in this case, but we hesitate to conclude that the standard of fairness we propose is exhaustive and adequate to every manner of discrimination between classes.
Bentley,
.See also In re Martorana,
. The Debtor has also argued that her Plan’s disparate treatment of unsecured claims is justified because if she fails to make her monthly student loan payments during the life of her plan, she will face nondischargeable accrued interest and/or penalties postpetition. In other words, the Debtor suggests that the consequences to her of a non-discriminatory plan would be so onerous that the discrimination is not unfair. I find it unnecessary to rule on the merits of this argument.
. The reason why the "bottom line” in the Debtor’s Form 22C is lower than that found in Schedules I and J is because most of the Debtor's projected, actual expenses in Schedule J are somewhat lower than the IRS expense allowances taken on Form 22C.
. The current Plan requires the Debtor to pay the Trustee $100.00 a month for sixty (60) months, resulting in a total contribution of $6,000.00. Subtracting administrative expenses of $2054.00 and the Trustee’s commission (estimated at 7% or $420.00), the non-student loan creditors can expect a distribution of $3,526.00. Because there are $27,824.78 in allowed non-student loan claims, the dividend for that class is 12.6%. Under the amended plan that the Debtor states that she will file in the event the Plan is not confirmed, if the same $3,526.00 distribution available after administrative expenses and payment of the Trustee’s commission is paid to the holders of all allowed unsecured claims, which total $61,423.91 (including Sallie Mae), the resulting dividend is 5.7%.
. It is not clear whether the amended plan that the Debtor says she will file if “forced” to do so by denial of confirmation of the Plan would still require the Debtor to make contractual payments directly to Sallie Mae. If so, such a plan would be even more discriminatory than the Plan presently under consideration (because Sallie Mae would receive distributions from both the Debtor and the Trustee resulting in payments excess of $217.00 per month contractual obligation). If the "forced” plan included an adjustment— providing that the Debtor reduce her direct payment to Sallie Mae by the amount of the Trustee’s distribution to Sallie Mae — the amended plan would still be more discriminatory than the Plan presently before the court for confirmation. This is because Sallie Mae would continue to be paid its contractual due while the other creditors would receive even less than their proposed distribution under the Plan (because their distribution would be diluted by the Trustee's payments to Sallie Mae).
It is also possible that denial of confirmation of the Plan would cause the Debtor to propose a plan that provides for $100.00 per month plan payments to the Trustee but is silent with respect to Sallie Mae (i.e., does not require the Debtor to maintain contractual payments to Sallie Mae). Considering the prior expression of the Debtor’s intent to pay Sallie Mae and her apparent ability to do so as expressed in Schedules I and J, is it fair assume that the Debtor will make the contractual payments to Sallie Mae? If so, does the possibility or likelihood of such payments to Sallie Mae continue to raise a § 1322(b)(1) issue or even a § 1325(a)(3) good faith issue? Or, would the Debtor’s decision to use non-PDI income be totally within her discretion, making it permissible for her to use that income to make discriminatory payments "outside the plan” on account of a nondischargeable debt?
I describe these issues only to point out that if the Plan cannot be confirmed due to § 1322(b)(l)’s prohibition against unfair discrimination, any amended plan the Debtor might choose to file may implicate issues similar to the ones presented by the Plan.
.If payments of $317.00 per month were distributed pro rata in a nondiscriminatory manner, the unsecured creditors would share from a contribution of $19,020.00 for a dividend of 25.45% (z'.e., total unsecured claims are $61,423.91; the Trustee's fee would be approximately $1331.40, administrative expenses are $2,054.00 — these total $3,385.40; this leaves $15,634.60 for distribution), or more than double the amount promised by the Debtor's proposed Plan.
.
See, e.g. In re Mulkey,
. The Trustee states that he would recommend confirmation of a plan that would pay $317.00 a month for a pro rata distribution to all of the Debtor’s unsecured creditors. Trustee's Mem. of Law, at 4.
.
Briscoe
is also one of a number of cases that has collected the decisions in the competing lines of cases.
See
. Section 1325(b)(3) provides:
Amounts reasonably necessary to be expended under paragraph (2), other than subparagraph (A)(ii) of paragraph (2), shall be determined in accordance with subpara-graphs (A) and (B) of section 707(b)(2), if the debtor has currently monthly income, when multiplied by 12, greater than—
(A) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner;
(B) 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
(C) 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 $575 per month for each individual in excess of 4.
. As the Pak court states, no changes in the statute's text, other than the use of “current monthly income" in § 1325(b)(2) and the means test methodology of § 1325(b)(3) for above median debtors, evidence an intent to alter the prior methodology for calculating PDI. And, as discussed above, the use of “current monthly income” in § 1325(b)(2), by itself, is not decisive on the issue.
In addition, as the
Briscoe
court reasoned convincingly, that Congress did not amend § 1329, which permits debtors to modify their confirmed plans based on,
inter alia,
changes in financial circumstances, and that it would make little sense for Congress to permit modification of a plan when a debtor's financial circumstances change after confirmation, "but not to provide for a realistic determination of the debtor's ability to make payments in the first place."
The
Briscoe
court also observed that a forward-looking interpretation of PDI is consistent with the "means test” methodology set forth in 11 U.S.C. § 707(b) and incorporated into the calculation of PDI for above-median debtors.
See
Finally, the Briscoe court made the incisive observation that in chapter 7 cases, § 707(b)(2) already adopts the counterintui-tive concept that "current monthly income,” an amount calculated based on fixed, historical events, is subject to being "adjusted” based on later events. Id. There is no policy reason why the same concept should not be imported into chapter 13.
. “[T]here may be times when a debtor commits so little income to creditors, relative to his true ability (for example, as a result of a
.
Id.
at 22 (quoting
In re Goeb,
. PDI is determined by projecting the debt- or's monthly disposable income over the applicable commitment period, see 11 U.S.C. § 1325(b)(2). In this case, the Debtor’s monthly disposable income, as calculated on line 58 of Form 22C, is negative number (minus $580.97). The applicable commitment period is sixty (60) months. Thus, a literal application of the statutory methodology would result in a negative PDI. Because a negative amount is meaningless in the context of determining the amount of the distribution unsecured creditors are entitled to receive in a chapter 13 case, I find it more useful to refer to a negative PDI as a PDI of $0.00.
.I believe that is a fair interpretation of the Trustee’s position. I understand the Trustee to contend that it would be inappropriate for the Debtor to propose a plan committing less than $317.00 per month to her unsecured creditors because both her schedules and her plan show an actual ability to make such a payment.
. Out of the four baselines that Bentley iden tified — i.e., equality of distribution, nonpriority of student loans, mandatory vs. optional contributions and fresh start — three are implicated. The Plan does not cause a deviation from the fourth baseline-the expectation that mandatory plan contributions shall be distributed pro rata amongst a debtor’s unsecured creditors — because she is funding her Plan entirely with optional contributions. The parties have not identified any other chapter 13 or Bankruptcy Code policies or principles that require consideration as baselines other than those identified by the Bentley court nor have I culled any from their arguments.
. The Debtor's voluntary contribution of payments in excess of her PDI obviously is a significant factor in this analysis. However, this decision does not hold that a debtor has carte blanche in proposing a discriminatory distribution in a chapter 13 plan funded entirely with "voluntary” contributions.
The view that there can never be unfair discrimination if an unsecured creditor is not entitled to any chapter 13 distribution was expressed in
In re Sutherland,
Under circumstances like these, this Court would allow a classification for unsecured creditors whose credit managers have red-headed secretaries. Who would be hurt? Maybe some creditor could meet this test and, if so, at least that creditor would be paid.
Id.
at 422. For a contrary view,
i.e.,
that a plan may yet be unfairly discriminatory based upon consideration of legal principles embedded in chapter 13 or perhaps even other sources of law
see McCullough v. Brown,
. Previously, I noted that my disposition of this case made it unnecessary to decide whether the right of a debtor to provide for the cure of a long-term debt under 11 U.S.C. § 1322(b)(5) is restricted by the “unfair discrimination” provision under § 1322(b)(1). See n. 21, supra. Another issue that I need not and do not decide is whether, without reference to § 1322(b)(5) and without some compensating benefit to the disfavored class of creditors, there are circumstances in which a debtor’s interest in an effective financial rehabilitation and fresh start may justify discriminatory treatment under § 1322(b)(1).