ORDER
Pending before the Court is the Trustee’s Objection to Confirmation and Motion to Dismiss filed by the Chapter 13 Trustee (the “Trustee”) on October 29, 2012, the Memorandum of Law in Support of Trustee’s Objection to Debtors’ Confirmation and Motion to Dismiss filed by the Trustee on November 27, 2012, the Amended Memorandum of Law in Support of Trustee’s Objection to Debtors’ Confirmation and Motion to Dismiss filed by the Trustee on December 21, 2012, the Response to Trustee’s Objection to Confirmation and Motion to Dismiss filed by Joe Henry Pliler and Katherine Marie Pliler (the “Debtors”) on October 31, 2012, and
The Debtors filed a petition for relief under Chapter 18 of the Bankruptcy Code on August 10, 2012. Robert R. Browning was duly appointed as the Trustee, and filed the Trustee’s Objection to Confirmation and Motion to Dismiss for failure to file a plan in good faith and failure to pay an amount necessary during the applicable commitment period. The Debtors have filed the required Schedules A through J, a Statement of Financial Affairs, a master Mailing Matrix, and a Chapter 13 Statement of Income and Calculation of Commitment Period and Disposable Income (hereinafter the “B22C”). After completing Parts I and II of the B22C, the Debtors calculated their household income to be above the median family income in North Carolina for comparably sized households and listed disposable income of negative $291.20 on B22C.
The Debtors filed a proposed Chapter 13 plan pursuant to 11 U.S.C. § 1321 (the “Plan”). The Plan proposes to pay $1,784.00 for fifteen (15) months and then $1,547.00 for forty (40) months. The total of plan payments is $88,640.00 and consists of $3,335.00 in attorneys’ fees.
Schedule F shows the Debtors have approximately $24,008.31 in unsecured claims. Schedule I shows a combined average monthly income of $4,292.34. Schedule J shows average monthly expenses of $2,759.33 leaving a monthly net income of $1,533.01.
The Debtors’ Plan contains language commonly referred to as “early termination language,” and states:
This Chapter 13 Plan will be deemed complete and shall cease and a discharge shall be entered, upon payment to the Trustee of a sum sufficient to pay in full: (A) Allowed administrative priority claims, including specifically the Trustee’s commissions and attorneys’ fees and expenses ordered by the Court to be paid to the Debtor’s Attorney, (B) allowed secured claims (including but not limited to arrearage claims), excepting those which are scheduled to be paid directly by the Debtor “outside” the plan, (C) Allowed unsecured priority claims, (D) Cosign protect consumer debt claims (only where the Debtor proposes such treatment), (E) Post-petition claims allowed under 11 U.S.C. § 1305, (F) The dividend, if any, required to be paid to non-priority general unsecuredcreditors (not including priority unsecured creditors) pursuant to 11 U.S.C. § 1325(b)(1)(B), and (G) Any extra amount necessary to satisfy the “liquidation test” as set forth in 11 U.S.C. § 1325(a)(4).
Because of the early termination language, the plan will likely last fifty-five (55) months or less.
DISCUSSION
The issue before the Court is whether these debtors, who have zero or less disposable income, as determined by Form B22C, may obtain confirmation of a Chapter 13 Plan, which in effect will terminate before the respective applicable commitment period when the plan proposes to discharge substantial amounts in unsecured debt and pay only the Trustee commission and the debtor’s attorney fees.
The Court shall confirm a Chapter 13 plan if the provisions of 11 U.S.C. § 1325(a) are met. In cases where an objection to confirmation has been made by either the trustee or an unsecured creditor the court may not confirm a plan unless:
(A) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or
(B) the plan provides that all of the debtor’s projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.
11 U.S.C. § 1325(b)(1)(B).
11 U.S.C. § 1325(b)(4) defines “applicable commitment period” as
(A) subject to paragraph (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 $625 per month for each individual in excess of 4; and
(B) may be less than 3 or 5 years, whichever is applicable under subpara-graph (A), but only if the plan provides for payment in full of all allowed unsecured claims over a shorter period.
The phrase “projected disposable income” is not defined in the Bankruptcy Code. The Code defines “disposable income” as “current monthly income to be received by the debtor
This Court has previously discussed “projected disposable income” and its interplay with § 1325(b)(2) in In re Musselman,
Subsequent to the decisions in Mussel-man v. eCast Settlement Corp.,
The Supreme Court held that when a bankruptcy court calculates a Chapter 13 debtor’s projected disposable income, the court may “account for changes in the debtor’s income or expenses that are known or virtually certain at the time of confirmation.” Id. at 2478. In coming to this conclusion the Supreme Court discussed the phrase “projected disposable income.” In its discussion, the Court noted
the term ‘projected’ is not defined, and in ordinary usage future occurrences are not ‘projected’ based on the assumption that the past will necessarily repeat itself. For example, projections concerning a company’s future sales or the future cash flow from a license take into account anticipated events that may change past trends.
Id. at 2471. The Court noted “[tjhere is no dispute that [the debtor] would in fact receive far less than [the calculated amount] per month in disposable income during the plan period, so [the trustee’s] projection does not accurately reflect ‘income to be received’ during that period.” Id. at 2474. The Court recognized that Congress rarely uses the term “projected” to refer to simple multiplication, and “when Congress wishes to mandate simple multiplication, it does so unambiguously— most commonly by using the term ‘multiplied.’ ” Id. at 2472. The Court reasoned that the mechanical approach “clashes repeatedly with the terms of 11 U.S.C. § 1325,” noting that the language of § 1325(b)(1)(B) “ ‘to be received during the applicable commitment period’ strongly favors the forward-looking approach,” and that the mechanical approach “effectively reads this phrase out of the statute when a debtor’s current disposable income is substantially higher than the income that the debtor predictably will receive during the plan period.” Id. at 2474.
Further, the Court noted that § 1325(b)(1) directs bankruptcy courts to determine projected disposable income as of the effective date of the plan, rather than the filing date of the plan. The Court recognized that not considering the debt- or’s changed circumstances would be inconsistent with the language of 11 U.S.C. § 1325 and would produce “senseless results” such as creditors being denied “payments that the debtor could easily make,” or denying “the protection of Chapter 13 to debtors who meet the chapter’s main eligibility requirements.” Id. at 2475-2476. The Court noted that “[i]n cases in which the debtor’s disposable income is
Following Lanning, the Supreme Court in Ransom v. FIA Card Services, N.A., — U.S.-,
Congress designed the means test to measure debtors’ disposable income and, in that way, ‘to ensure that [they] repay creditors the maximum they can afford.’ H.R. Rep., at 2. This purpose is best achieved by interpreting the means test, consistent with the statutory text, to reflect a debtor’s ability to afford repayment. Cf. Hamilton, 560 U.S. at-,130 S.Ct., at 2475-2476 (rejecting an interpretation of the Bankruptcy Code that ‘would produce [the] senseless result] of ‘denying] creditors payments that the debtor could easily make’). Requiring a debtor to incur the kind of expenses for which he claims a means-test deduction thus advances the BAPC-PA’s objectives.
Id.
Subsequent to the Supreme Court’s decision in Lanning and Ransom, other courts have followed suit allowing for accounting of changes in both income and expenses when determining “projected disposable income.” The Fourth Circuit in Morris v. Quigley addressed the issue of “whether a debtor’s ‘projected disposable income’ must be equal to the debtor’s ‘disposable income’ for purposes of satisfying § 1325(b)(1)(B), or whether the projected disposable income should reflect changes that have occurred or that will occur and that are known as of the date of confirmation.”
taken together, this recent line of cases departs from the strict formulaic approach to the means test and takes into account what is likely to occur in the future. Applying this reasoning furthers the purpose of the means test, “which was intended to ‘ensure that those who can afford to repay some portion for their unsecured debts be required to do so.’ ”
In re Sterrenberg, Case No. 11-08543-8-RDD,
The same principles laid out in Lanning, Ransom, and Quigley, have been applied when determining
whether the income that becomes available after the debtors have fully repaid their 401(k) loans (which is allowed by 11 U.S.C. § 1322(f)) is “projected disposable income” to be paid to the unsecured creditors or whether the income can be used to begin making voluntary contributions to the debtors’ 401(k) plans and deemed excludable from both disposable income and property of the estate under 11 U.S.C. § 541(a)(1) and (b)(7).
Seafort v. Burden,
While the Supreme Court did not address the definition of the phrase “applicable commitment period” in Lanning, other courts have cited the Supreme Court decision to support a temporal interpretation of the “applicable commitment period.” The Eleventh Circuit in In re Tennyson,
This brings us to the issue of whether there is an exception to the temporal requirement set forth in § 1325(b) for debtors with zero or negative projected disposable income....
In addressing this difficult issue, we begin once again with the language of the statute itself.... Under the express language of § 1325(b)(4), the applicable commitment period does not depend on the amount of the debtor’s projected disposable income. To the contrary, the applicable commitment period depends on the current monthly income of the debtor and the debtor’s spouse combined .... Accordingly, we conclude that the better reading of § 1325(b) is that the temporal requirement of the applicable commitment period applies to debtors facing a confirmation objection even if they have zero or negative disposable income.
Id. at 350-351 (emphasis added).
Relying on Laming and Ransom, the Sixth Circuit stated:
[A]s the Supreme Court recognized in both Ransom and Laming, the legislative history makes clear that the focus of Congress in enacting BAPCPA was on maximizing the amount of disposable income that debtors would pay to creditors. And there are numerous circumstances in which disposable income might become available to the Appellees and to other debtors after confirmation, even those who have zero or negative projected disposable income as of confirmation ....
Id. at 356.
Courts that have applied the mandatory applicable commitment period to debtors with zero or negative projected disposable income have concluded that this approach would best serve BAPCPA’s goal of ensuring that debtors repay creditors the maximum amount they can afford. See, e.g., In re Tennyson,
Prior to BAPCPA, the Bankruptcy Code required that in order to be confirmed, a Chapter 13 plan had to be proposed for a minimum duration of three (3) years unless unsecured claims were paid in full in a shorter period of time. 11 U.S.C. § 1325(b)(1) (2004). Before BAPCPA, the three (3) year period announced in § 1325(b)(1) operated as a temporal requirement. See Fridley v. Forsythe (In re
BAPCPA’s core purpose is to ensure that debtors devote their full disposable income to repaying creditors and maximizing creditor recoveries. See Ransom v. FIA Card Services, — U.S.-,
Congress intended to require higher income debtors to pay 100% of unsecured claims or make payments for five (5) years. Coop v. Frederickson,
The Bankruptcy Court for the District of Kansas noted:
[A] negative disposable income number on Form B22C does not conclusively establish the debtor has no disposable income to be received in the Applicable Commitment Period. Indeed, a feasible plan payment proposal rebuts the presumption that Form B22C alone determines disposable income. A negative number on Form B22C indicates a plan is not feasible. However, if the debtor can propose a feasible plan payment, then the debtor has shown there is, in fact, disposable income, and the plan must last for five years if his income is above median. Debtors cannot have it both ways. If they want to rely exclusively on Form B22C with a negative disposable income number, then they cannot propose a feasible plan. On the other hand, a feasible plan payment commits debtors to a certain plan length, for the above-median income debtor, of no less than five years.
In re Beckerle,
Additionally, the debtor’s “disposable income” may not be the same as the debtor’s actual “projected disposable income.” See In re Frederickson,
The United States District Court for the Eastern District of North Carolina addressed the applicable commitment period in Musselman v. eCast Settlement Corp.,
The adoption by the Supreme Court in Lanning of the “forward-looking” approach is totally contradictory to the concept of a plan which includes an early termination provision. “Forward-looking” clearly sanctions and requires a debtor to commit projected disposable income to be received during the applicable commitment period, which means thirty-six (36) months for a below median income debtor, or sixty (60) months for an above median income debtor. Lanning proscribes that courts must account for changes in a debtor’s income or expenses that are known or virtually certain at the time of confirmation. It is known or virtually certain at the time of confirmation that a debtor proposes to terminate the plan early after payment of attorney’s fees and other designated claims. At that point in time, it is known or virtually certain that the debtor will continue to have the income to continue making payments for the duration of the thirty-six (36) or sixty (60) month period and will have the income available after attorney’s fees are paid. This court has adopted the forward-looking approach which is the majority view of courts across the nation, which requires a debtor to commit all projected disposable income for thirty-six (36) or sixty (60) months. If disposable income is zero or less, the court must look to projected disposable income based on income minus expenses from Schedules I and J to determine what actual income or expenses are known or virtually certain at the time of confirmation.
The Debtors’ plan proposes to pay $1,784.00 for fifteen (15) months, then $1,547.00 for forty (40) months. With the early termination language, if the Debtors complete their plan as proposed, this will result in an 0% dividend paid to the unse
CONCLUSION
Therefore, the Trustee’s Motion to Dismiss is DENIED. The Trustee shall file his motion for confirmation for a plan of $1,784.00.00 per month for sixty (60) months with no early termination language.
SO ORDERED.
ORDER
This matter came before the Court on the Notice of Appeal and Motion for Leave to Appeal Interlocutory Order filed by Joe Henry Pliler and Katherine Marie Pliler (the “Debtors”) on January 29, 2018, the Request for Certification of Issue for Direct Appeal filed by Robert R. Browning, the Chapter 13 Trustee (the “Trustee”) on February 1, 2013, the Answer in Opposition to Motion for Leave to Appeal filed by the Trustee on February 4, 2013, and the Response in Opposition to Request for Certification of Issue for Direct Appeal filed by the Debtors on February 14, 2013.
BACKGROUND
The Debtors filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code on August 10, 2012. The Debtors filed the required Schedules A through J, a Statement of Financial Affairs, a master Mailing Matrix, and a Chapter 13 Statement of Income and Calculation of Commitment Period and Disposable Income (hereinafter the “B22C”). After completing Parts I and II of the B22C, the Debtors calculated their household income to be above the median family income in North Carolina for comparably sized households and listed disposable income of negative $291.20 on B22C.
On August 10, 2012, the Debtors filed a proposed Chapter 13 Plan pursuant to 11 U.S.C. § 1321 (the “Plan”). The Plan proposed to pay $1,784.00 for fifteen (15) months, and then $1,547.00 for forty (40)
This Chapter 13 Plan will be deemed complete and shall cease and a discharge shall be entered, upon payment to the Trustee of a sum sufficient to pay in full: (A) Allowed administrative priority claims, including specifically the Trustee’s commissions and attorneys’ fees and expenses ordered by the Court to be paid to the Debtor’s Attorney, (B) allowed secured claims (including but not limited to arrearage claims), excepting those which are scheduled to be paid directly by the Debtor “outside” the plan, (C) Allowed unsecured priority claims, (D) Cosign protect consumer debt claims (only where the Debtor proposes such treatment), (E) Postpetition claims allowed under 11 U.S.C. § 1305, (F) The dividend, if any, required to be paid to non-priority general unsecured creditors (not including priority unsecured creditors) pursuant to 11 U.S.C. § 1325(b)(1)(B), and (G) Any extra amount necessary to satisfy the “liquidation test” as set forth in 11 U.S.C. § 1325(a)(4).
Because of the early termination language, the Debtors’ Plan would likely last fifty-five (55) months or less.
On October 29, 2012, the Trustee filed the Trustee’s Objection to Confirmation and Motion to Dismiss (the “Motion to Dismiss”) for the Debtors’ failure to file a plan in good faith and failure to pay an amount necessary during the applicable commitment period. The Court conducted a hearing on the Trustee’s Motion to Dismiss on December 10, 2012 in Raleigh, North Carolina. On January 15, 2013, the Court entered an order denying the Trustee’s Objection to Confirmation and Motion to Dismiss. In re Pliler, No. 12-5844-8-RDD,
In the Notice of Appeal and Motion for Leave to Appeal Interlocutory Order, the Debtors appeal the January 15, 2013 order to the United States District Court for the Eastern District of North Carolina. The Debtors seek leave to appeal the order that directs the Trustee to file a motion to confirm a plan of $1,784.00 per month for sixty (60) months with no early termination language, as the direction is contrary to the Debtors’ plan filed pursuant to 11 U.S.C. § 1321 and contrary to the requirements of 11 U.S.C. §§ 1322,1325. In the Answer in Opposition to Motion for Leave to Appeal, the Trustee opposes the Debtors’ Motion for Leave to Appeal Interlocutory Order and requests that the issue on appeal be certified to the United States Court of Appeals for the Fourth Circuit for direct appeal. In the Response in Opposition to Request for Certification of Issue for Direct Appeal, the Debtors ask the Court to deny the Trustee’s request for certification and set the matter for hearing.
I. The Court has Authority to Certify the Appeal to the United States ' Court of Appeals for the Fourth Circuit Pursuant to Federal Rule of Bankruptcy Procedure 8001(f)(2)(A)
Pursuant to Rule 8001(f) of the Federal Rules of Bankruptcy Procedure, the bankruptcy court, upon request or on its own initiative, may certify an order for direct appeal to a court of appeals provided that the bankruptcy court certifies that one of the requirements of 28 U.S.C. § 158(d)(2)(A) is met. Fed. R. Bankr.P. 8001(f). Section 158(d)(2)(A) allows for direct appeal to the court of appeals from a final order or judgment provided that the bankruptcy court certifies one of the following circumstances exists:
(i) the judgment, order, or decree involves a question of law as to which there is no controlling decision of the court of appeals for the circuit or of the Supreme Court of the United States, or involves a matter of public importance;
(ii) the judgment, order, or decree involves a question of law requiring resolution of conflicting decisions; or
(iii) an immediate appeal from the judgment, order, or decree may materially advance the progress of the case or proceeding in which the appeal was taken; and if the court of appeals authorizes the direct appeal of the judgment, order, or decree.
28 U.S.C. § 158(d)(2)(A).
Rule 8001(f) further provides that before the grant of leave to appeal by the district court, “[o]nly the bankruptcy court may make a certification on request or on its own initiative while the matter is pending in the bankruptcy court.” Fed. R. Bankr.P. 8001(f)(2)(A)(i). In the present case, the Debtors filed the Motion for Leave to Appeal Interlocutory Order on January 31, 2013. As of the date of this order, the United States District Court for the Eastern District of North Carolina has not granted the Debtors’ motion. Therefore, the matter is still pending in the bankruptcy court and this Court has authority to certify the appeal to the court of appeals.
The Court finds all the requirements of 28 U.S.C. § 158(d)(2)(A) are met and certifies this direct appeal to the United States Court of Appeals for the Fourth Circuit.
II. Projected Disposable Income
A. The Judgment, Order, or Decree Involves a Question of Law to Which There is No Controlling Decision of the Court of Appeals for the Circuit or of the Supreme Court of the United States, or Involves a Matter of Public Importance Pursuant to 28 U.S.C. § 158(d)(2)(A)(i)
In the Order, which denied the Trustee’s Motion to Dismiss, the Court discussed “projected disposable income” and concluded the Supreme Court holding in Hamilton v. Lanning, 506 U.S.-,
As noted by many courts, the phrase “projected disposable income” is not defined in the Bankruptcy Code. The Code defines “disposable income” as “current monthly income to be received by the debtor
This Court has previously discussed “projected disposable income” and its interplay with § 1325(b)(2) in In re Mussel-man,
Subsequent to the decisions in Mussel-man v. eCast Settlement Corp.,
Following Canning, the Supreme Court in Ransom v. FIA Card Services, N.A., — U.S.-,
Subsequent to the Supreme Court’s decision in Canning and Ransom, other courts have followed suit, allowing for accounting of changes in both income and
Amidst this analysis, a majority of courts do not focus on strict construction of § 1325(b)(2) but on the debtor’s actual ability to pay and known congressional intent. This shift aligns with the practice of multiplying a debtor’s net monthly income by the length of the plan established prior to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) and adjusting for any known or virtually certain changes in income. Hamilton v. Lanning,
B. The Judgment, Order, or Decree Involves a Question of Law Requiring Resolution of Conflicting Decisions Pursuant to 28 U.S.C. § 158(d)(2)(A)(ii)
In light of the emerging case law, the issue before this Bankruptcy Court in Pli-ler was whether “projected disposable in
In addition to Ballew and Temple, the two other Bankruptcy Courts entered identical orders finding there is no requirement for a debtor’s projected disposable income to be devoted to unsecured creditors for the applicable commitment period where a debtor has zero or negative projected disposable income in a total of thirty-one (31) cases, including In re Ortega, Case No. 12-00315-8-JRL. In re Bal-lew,
[wjhether, following the U.S. Supreme Court’s decision in Hamilton v. Lanning and the line of cases following the Hamilton v. Lanning decision, when it is known or virtually certain at the time of confirmation that a debtor’s regularly scheduled plan payments will pay allowed administrative, unsecured priority, and non-long-term secured claims proposed to be paid through the debtor’s plan in full prior to the expiration of the applicable commitment period, it follows, absent a clear showing that it is now known or virtually certain that the debt- or will not be able to continue making such monthly plan payments thereafter, that projected disposable income will exist and, therefore, is known or virtually certain at the time of confirmation to beavailable prospectively for the remainder of the uncompleted applicable commitment period, to be distributed as a pro rata dividend to allowed unsecured claim holders, and therefore, the continuation of such payments for the remainder of the applicable commitment period should be required as a condition of meeting the requirements for plan confirmation under 11 U.S.C. §§ 1322 and 1325?
Request for Cert, of Issue for Appeal, In re Ortega, No. 12-00315-8-JRL, at 3 (Bankr.E.D.N.C. Feb. 5, 2013).
Among the various bankruptcy courts within the Fourth Circuit, strict adherence to a mechanical means test is the minority view, as the majority of districts find projected disposable income should be calculated under the forward-looking or similar approach. In re Wilson,
III. Applicable Commitment Period
A. The Judgment, Order, or Decree Involves a Question of Law to Which There is No Controlling Decision of the Court of Appeals for the Circuit or of the Supreme Court of the United States, or Involves a Matter of Public Importance Pursuant to 28 U.S.C. § 158(d)(2)(A)(i)
There is no controlling decision of the Fourth Circuit or the Supreme Court of the United States on the issue of whether the “applicable commitment period” provided by 11 U.S.C. § 1325(b)(4)
The Sixth Circuit in Baud v. Carroll noted that in Lanning, the Supreme Court relied on the “lack of explicit multiplier language in § 1325(b)(1)” to adopt a forward-looking approach and that a similar lack of multiplier language supports a temporal reading of § 1325(b). Baud v. Carroll,
The United States District Court for the Eastern District of North Carolina addressed the applicable commitment period in Musselman v. eCast Settlement Corp.,
B. The Judgment, Order, or Decree Involves a Question of Law Requiring Resolution of Conflicting Decisions Pursuant to 28 U.S.C. § 158(d)(2)(A)(ii)
In addition, Pliler, holding that the early termination language is contrary to the temporal applicable commitment period creates a conflict in the Eastern District of North Carolina with the decisions in In re Ballew and In re Temple. These issues are pressing in this district because without instruction from the Fourth Circuit, attorneys in the Eastern District of North Carolina, will continue to use In re Alexander and Musselman v. eCast Settlement Corporation as precedent to formulate plans that terminate prior to the applicable commitment period provided by § 1325(b)(4). In re Alexander,
Additionally, the majority of courts which have addressed the issue of the applicable commitment period pursuant to § 1325(b)(4), have found that the applicable commitment period is a temporal requirement that applies to all debtors, and therefore, a plan must continue for either three (3) or five (5) years, depending on whether a debtor has above or below-median income. In re Girodes,
IV. Good Faith
A. The Judgment, Order, or Decree Involves a Question of Law to Which There is No Controlling Decision of the Court of Appeals for the Circuit or of the Supreme Court of the United States, or Involves a Matter of Public Importance Pursuant to 28 U.S.C. § 158(d)(2)(A)(i)
The practice of filing plans including language that allows payment to terminate after costs of administration and payments to secured debts are complete raises good faith issues pursuant to 11 U.S.C. § 1325(a)(3), (7) because the plans are proposed in direct violation of a provision of the Bankruptcy Code. Additionally, by using the early termination language, attorneys in this district have developed attorney fee only plans, which provide for payment of attorneys’ fees and the trustee’s commission without curing arrearag-es on secured debts or paying a dividend to unsecured creditors. See In re Tedder, No. 12-06232-8-RDD,
In his request, the Trustee poses one of the issues as whether proposing a plan that terminates early after paying only attorneys’ fees, priority claims, secured claims, and the trustee’s commission and discharges significant portions of unsecured debt despite ability to pay, can be proposed in good faith pursuant to § 1325(a)(3) and whether the petition was filed in good faith pursuant to § 1325(a)(7).
Neither the Fourth Circuit nor the Supreme Court have addressed the issue of whether a debtor with zero or negative projected disposable income acts in good faith by proposing a plan that terminates prior to the expiration of the debtor’s applicable commitment period. The Fourth Circuit did address the issue of good faith in Deans v. O’Donnell (In re Deans),
B. The Judgment, Order, or Decree Involves a Question of Law Requiring Resolution of Conflicting Decisions Pursuant to 28 U.S.C. § 158(d)(2)(A)(ii)
In the present case, the Debtors’ plan includes secured claims, so it is not a Chapter 13 case filed solely for the purpose of discharging unsecured debts and paying only attorneys’ fees, but the plan does propose to terminate prior to payment of unsecured creditors and in direct contravention of § 1325(b)(4). Therefore, good faith issues pursuant to § 1325(a)(3), (7) arise in conjunction with the question of whether the applicable commitment pe
Further, similar to the Eastern District of North Carolina, the issue of whether a plan is filed in good faith also creates conflict in the bankruptcy court for the Eastern District of Virginia. In In re Kelly, the court held that meeting the disposable income test alone does not mean a debtor has satisfied the good faith requirement of § 1325(a)(3) if it is clear a debtor could reasonably afford a larger plan payment. In re Kelly,
V. An Immediate Appeal from the Judgment, Order, or Decree May Materially Advance the Progress of the Case or Proceeding in Which the Appeal is Taken Pursuant to 28 U.S.C. § 158(d)(2) (A)(iii)
The order entered in Pliler instructed the Trustee to file a motion for confirmation for a plan of $1,784.00 per month for sixty (60) months with no early termination language. The Debtors filed a motion for leave to appeal to the district court for the Eastern District of North Carolina. Should the district court grant leave to appeal, the Trustee would be stayed from filing a motion for confirmation as directed by the Court’s order. The bankruptcy proceeding would then be delayed until further order is entered by the district court. While the Debtors are required by 11 U.S.C. § 1326(a)(1) to commence making payments to the Trustee within thirty (30) days after the date of the filing of the petition, the payments made under § 1326(a)(1) “shall be retained by the trustee until confirmation or denial of confirmation.” 11 U.S.C. § 1326(a)(2). Thus, certifying the issue directly to the Fourth Circuit would reduce any longer delay of confirmation of the plan and distributions to creditors. Accordingly, direct appeal to the Fourth Circuit would materially ad-
CONCLUSION
Accordingly, for the foregoing reasons, the Trustee’s Request for Certification of Issue for Direct Appeal is GRANTED. Further, pursuant to 28 U.S.C. § 158(d)(2), the Court, on its own initiative, certifies the following issues for direct appeal to the United States Court of Appeals for the Fourth Circuit:
(1) Whether in calculating a debtor’s “projected disposable income” pursuant to § 1325(b), the bankruptcy court should follow the “forward-looking” approach to reflect a debtor’s actual ability to pay and consider changes in income and expenses that are known or virtually certain at the time of confirmation?
(2) Whether the term “applicable commitment period” refers to a temporal requirement such that an above-median debtor must propose a plan no shorter than sixty (60) months and a below-median debtor must propose a plan no shorter than thirty-six (36) months as provided by § 1325(b)(4)?
(3) Whether a plan that includes “early termination language” that ends after payments of administrative expense claims, the trustee’s commission, and secured claims but provides no payment to unsecured creditors is proposed in good faith pursuant to 1325(a)(3), (7)?
SO ORDERED.
Notes
.
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. The term "current monthly income”'—■
(A) means the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor's spouse receive) without regard to whether such income is taxable income, derived during the 6-month period ending on—
(i) the last day of the calendar month immediately preceding the date of the commencement of the case if the debtor files the schedule of current income required by section 521(a)(l)(B)(ii); or (ii) the date on which current income is determined by the court for purposes of this title if the debtor does not file the schedule of current income required by section 521(a)(l)(B)(ii); and
(B) includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of thedebtor or the debtor’s dependents (and in a joint case the debtor's spouse if not otherwise a dependent)....
11 U.S.C. § 101(10A)
. In In re Musselman, the Chapter 13 debtor's Form B22C indicated that he was an above-median income debtor and had a monthly disposable income of negative $255.80. The debtor proposed plan payments for 55 months. eCast Settlement Corporation, the holder of two unsecured claims against the debtor, objected to the terms of the plan insisting the debtor’s plan should be for five years or 60 months.
The Bankruptcy Court held that the length of the applicable commitment period is tied to the above or below-median current monthly income of the debtor, not to the projected disposable income of the debtor. The applicable commitment period must be three years for below-median income debtors or five years for above-median income debtors, unless debtors pay all allowed unsecured claims in full, prior to the expiration of the applicable commitment period. The above-median income debtor must propose a plan for payments over a period of five years, unless unsecured creditors are paid in full over a shorter period. Both the debtor and the creditor appealed the bankruptcy court's order to the District Court.
The District Court reversed the bankruptcy court’s decision as to the length of the debt- or's plan. The District Court held that the applicable commitment period time requirements do not apply to above-median debtors with zero or negative "projected disposable income." Musselman v. eCast Settlement Corp.,
. The Supreme Court’s adoption of the forward-looking approach effectively reverses the holding of the United States District Court for the Eastern District of North Carolina in Musselman v. eCast Settlement Corp., which adopted the multiplication or mechanical approach, where disposable income and projected disposable income are the same. See supra note 5.
. For instance, § 1325(b)(4)(B), is the only statutorily permitted termination of the applicable commitment period prior to the expiration of the applicable commitment period, which provides unsecured creditors must be paid in full.
. In Hamilton v. Lanning, the debtor’s payment of $144.00 per month was not the recalculated disposable income of B22C, but was the projected disposable income determined by taking income from Schedule I minus expenses of Schedule J. This is further confirmation that Schedule I and J may be used by the court to determine projected disposable income.
. $1,784.00 times 60 equals $107,040.00 less attorney fees of $3,335.00, less $78,595.00 for secured creditors; less $4,816.80 for the Trustee commission, leaving $20,293.20 for unsecured creditors, which is an 84% dividend.
. Since the minimum payment of $1,533.01, initially proposed by the Debtors, does not appear to be available after subtracting Schedule J expenses from Schedule I income, the issue of feasibility pursuant to 11 U.S.C. § 1325(a)(6) may be an issue at a confirmation hearing, if an objection to the Trustee’s Motion for Confirmation is filed. The Trustee may also want to examine the expenses claimed by debtor in Schedule J and B22C to determine if all claimed expenses are reasonably necessary to be expended pursuant to 11 U.S.C. § 1325(b)(3) to determine if any additional projected disposable income may be available. At a minimum, the Debtors have projected their disposable income to be $1,784.00 per month.
. The Debtors assert that the Trustee’s request is not effective because the Trustee failed to file "a timely appeal” pursuant to Fed. Rule Bankr.P. 8001(a)-(b). Fed. Rule Bankr.P.
. The term "current monthly income”—
(A) means the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor’s spouse receive) without regard to whether such income is taxable income, derived during the 6-month period ending on—
(i) the last day of the calendar month immediately preceding the date of the commencement of the case if the debtor files the schedule of current income required by section 521(a)(l)(B)(ii); or
(ii) the date on which current income is determined by the court for purposes of this title if the debtor does not file the schedule of current income required by section 521(a)(l)(B)(ii); and
(B) includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents (and in a joint case the debtor's spouse if not otherwise a dependent)....
11 U.S.C. § 101(10A)
. The phrase "amounts reasonably necessary to be expended” includes the full amount needed for "maintenance or support,” for a debtor whose income is below median for his or her state, but for an above-median-income debtor, only certain expenses are included. Hamilton v. Lanning,-U.S.-,
. The facts in Ballew are similar to the facts in Pliler in that the proposed Chapter 13 plan would terminate early prior to payments of the debtor's projected disposable income for the full applicable commitment period.
. Section 1325(b)(4) provides that the term “applicable commitment period,"
(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 $625 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.
11 U.S.C. § 1325(b)(4).
. For instance, § 1325(b)(4)(B), is the only statutorily permitted termination of the applicable commitment period prior to the expiration of the applicable commitment period, which provides unsecured creditors must be paid in full.
. In the Request for Certification of Issue for Direct Appeal, the Trustee notes one of the issues on appeal is:
[w]hether a Chapter 13 plan with "early termination language” that proposes to terminate early after paying only attorneys’ fees, priority claims, secured claims, and the trustee’s commission and thereby discharges significant portions of unsecured debt despite a debtor’s actual ability to pay something toward unsecured creditors can be proposed in good faith under 11 U.S.C. § 1325(a)(3) and 11 U.S.C. § 1325(a)(7).
Req. for Certification of Issue for Direct Appeal, 3, In re Pliler, No. 12-05844-8-RDD (Bankr.E.D.N.C. Feb. 1, 2013).
. In Pliler, this Court did not specifically discuss the good faith issue as the Court found
. Except for the curing of arrearages and payment of secured claims, Pliler would be an attorney fee only case. The vast majority of case law nationally finds attorney fee only Chapter 13 cases do not, on their face, meet the good faith requirements of 11 U.S.C. § 1325. See In re lackson, Nos. 11-42528-JJR13, 11-42825-JJR-13,