In Re Ross
MEMORANDUM OPINION
This matter comes before the Court on the objection of Marilyn O. Marshall, the Chapter 13 Standing Trustee (the “Trustee”), to confirmation of the Chapter 13 plan proposed by Robert Charles Ross (the “Debtor”). The Trustee objects to confirmation on the basis that the plan does not propose to pay interest to the Debtor’s general unsecured creditors. According to the Trustee, the Debtor is required to pay interest to the unsecured creditors because the plan does not commit all of the Debtor’s projected disposable income to the unsecured creditors for a period of five years. The Court holds that the Bankruptcy Code does not mandate that the Debtor’s plan provide payment of interest on the allowed, unsecured claims. In addition, the Debtor must commit his projected disposable income as prescribed under 11 U.S.C. § 1325(b)(1)(B) based on “current monthly income” as defined in 11 U.S.C. § 101(10A) in order to satisfy the means test of 11 U.S.C. § 707(b)(2) as calculated in Official Form B22C.
For the reasons set forth herein, the Court sustains in part the Trustee’s objection to confirmation of the Debtor’s proposed plan. Confirmation of the plan at bar is denied without prejudice. Leave is given the Debtor to file an amended plan within thirty days hereof in accordance with the findings and conclusions set forth in this Opinion. A continued confirmation hearing will be held on October 31, 2007, at 10:30 a.m.
I. JURISDICTION AND PROCEDURE
The Court has jurisdiction to decide this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. It is a core proceeding under 28 U.S.C. § 157(b)(2)(L).
II. FACTS AND BACKGROUND
The facts in this matter are undisputed. On March 22, 2007, the Debtor filed a
The Debtor’s plan proposes to make monthly payments to the Trustee in the sum of $1,715.00 for thirty-seven months and $1,790.00 per month for an additional seventeen months after the Debtor pays his 401K loan. The plan provides a 100% dividend to all allowed general unsecured creditors over a period of fifty-four months.
The Trustee refuses to recommend the plan for confirmation unless the plan includes interest to general unsecured creditors. The Trustee contends that the unsecured creditors are entitled to interest because the Debtor’s disposable income according to the B22C Form is $2,852.17, which, when multiplied by sixty months — the applicable commitment period — equals $171,130.20. This amount exceeds the Debtor’s total unsecured debt of $75,465.00. According to the Trustee, the Debtor’s proposed plan does not satisfy the requirements of 11 U.S.C. § 1325(b)(1)(A) or (B) because the Debt- or’s projected disposable income, as determined by the B22C Form, is not being paid to the unsecured creditors, nor is it being paid over the requisite sixty-month commitment period. The Trustee argues that in order to comply with the statute, the Debtor must pay the unsecured creditors the value of their claims “as of the effective date of the plan.” This language, according to the Trustee, has been routinely interpreted to mean that interest must be paid to compensate for the delay in receiving prompt payments. The Trustee acknowledges that while the 2005 amendments to the Bankruptcy Code change the way disposable income is calculated for above median income debtors, present value payments are still required when a debtor is not devoting all of his disposable income.
III. DISCUSSION
The issues before the Court are of first impression for this judge and involve a determination of (1) whether an above median income debtor who proposes to pay his unsecured creditors in full in less than five years must pay interest to those creditors and (2) how to calculate a debtor’s “projected disposable income.” The latter issue has generated a plethora of divergent case law and, unsurprisingly, has produced a split among the judges of this and other courts as discussed infra. The problem, in part, is created by the lack of a statutory definition for the term.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPC-PA”) governs because this case was filed after October 17, 2005. Section 1325(b)(1) of the Bankruptcy Code, the relevant statute at issue, speaks to objections to confirmation of a Chapter 13 plan and provides as follows:
(b)(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—
(A) the value of the property to be distributed under the plan on accountof 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 under the plan.
11 U.S.C. § 1325(b)(1). Thus, § 1325(b)(1) permits the Trustee to object to confirmation of the Debtor’s plan if the value of the property to be distributed under the plan is less than the amount of the claim, or the plan fails to propose that all of the Debt- or’s “disposable income” to be received in the applicable commitment period will be applied to make payments under the plan.
Section 1325(b)(2) defines “disposable income” for purposes of subsection (b)(1) and states in pertinent part that it “means current monthly income received by the debtor ... less amounts reasonably necessary to be expended ... for the maintenance or support of the debtor....” 11 U.S.C. § 1325(b) (2) (A) (i). The phrase “projected disposable income,” however, is not defined by § 1325 nor is it one of the defined terms in 11 U.S.C. § 101. Section 1325(b)(3), in turn, states that disposable income “shall be determined in accordance with subparagraphs (A) and (B) of section 707(b)(2).” 11 U.S.C. § 1325(b)(3). Section 1325(b)(4) defines the term “applicable commitment period” and provides in pertinent part that such period “may be less than 3 or 5 years, ... 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)(B).
The Trustee contends that the Debtor’s plan does not comply with either § 1325(b)(1)(A) or § 1325(b)(1)(B) because the Debtor is not committing all of his projected disposable income to the plan. Because the Debtor’s income is above the median income for Illinois residents, the Code provides that his disposable income is determined by § 1325(b)(2) and (3). Pursuant to the Debtor’s B22C Form, this amount is calculated at $2,852.17 per month. Under § 1325(b)(1)(B), the total disposable income received over the sixty-month commitment period is $171,130.20. The Trustee argues that this amount is not being applied to make payments to unsecured creditors under the plan. The Trustee asserts that § 1325(b)(1)(B) cannot be complied with by proposing full payment to unsecured creditors in less than sixty months. The language of subsection (b)(1)(B), according to the Trustee, clearly requires all of the Debtor’s projected disposable income be used to make payments to unsecured creditors. The Trustee maintains that a plan for a fifty-four-month term does not comply with this provision. Consequently, the Trustee contends that § 1325(b)(1)(A) applies, and the Debtor must pay interest to the unsecured creditors in order for the Trustee’s objection to be overruled. Thus, according to the Trustee, the Debtor must make present value payments to unsecured creditors in order to satisfy the requirements of § 1325(b)(1).
The Debtor argues that he has complied with § 1325(b)(1)(B). The Debtor maintains that “projected disposable income” is defined by Schedules I and J. Using those Schedules, he asserts under the plan he commits all of his projected disposable income for fifty-four months. Further, the Debtor contends that the plan satisfies § 1325(b)(1)(B) by proposing to pay all unsecured claims in full in less than the sixty-month commitment period.
Although the Court must decide the disputed issue of whether the debtor must pay interest to the unsecured claimants, in addition to the full amounts of their allowed claims, at the heart of this matter is
Judge Kenneth J. Meyers in
In re Nance,
Nance
noted that the first view holds that “projected disposable income” must be calculated by using the debtor’s actual income at the moment of filing as reflected on a debtor’s Schedule I.
Id.
at 362
(citing In re Fuller,
The second view, on the other hand, according to
Nance,
uses the number on the debtor’s B22C Form as the “projected disposable income” unless the debtor or some other party can show that there has been a substantial change in circumstances such that the figures on the B22C Form are not commensurate with a fair projection of the debtor’s budget in the future.
Id. (citing In re Jass,
Nance
further examined the third approach which holds that the plain meaning of § 1325(b) requires a simple mathematical calculation using the B22C Form to determine “projected disposable income.”
Id.
at 364
(citing In re Alexander,
After summarizing the three approaches and analyzing § 1325(b) and the case law interpreting same, the court in
Nance
adopted the third approach on the question of how to calculate “projected disposable income.”
Id.
at 364-368. The
Nance
court stated that “ ‘projected disposable income’ should be calculated in strict accordance with Form B22C.”
Id.
at 367.
Nance
noted that § 1325(b)(2) “‘plainly sets forth a new definition and method for calculating disposable income, and Form B22C is the tool for arriving at that disposable income figure under the new law.’ ”
Id.
at 364
(quoting Alexander,
The three approaches are supported by persuasive arguments and authority. The present lack of either a definition of “projected disposable income” or a clear statutory method or directive for computing same is at the heart of the problem that has led to the various approaches. The problem cries out for remedial legislation similar to that which solved the conundrum of determining how to calculate “impairment” of exemptions by liens. The addition of 11 U.S.C. § 522(f)(2)(A)-(C) provides an arithmetic test to determine whether a lien impairs an exemption. See H.R. Rep. No. 103-835, at 52-54 (1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3361-63.
The Court concurs with the logic and reasoning in the
Nance
decision. The Court agrees with the view that when a Chapter 13 debtor is above the median income, § 1325(b)(3) makes clear that “projected disposable income” should be calculated based on the B22C Form; Schedule J has no role in computing that figure. Section 1325(b)(3) expressly states that the amounts reasonably necessary to be expended for purposes of determining disposable income shall be determined pursuant to § 707(b)(2)(A) and (B). The disposable income calculations made on the B22C Form are drawn from the Internal Revenue Service standards and additional deductions allowed under § 707(b)(2), not from the Schedule J.
Miller,
Courts that turn to Schedules I and J to calculate disposable income also fail to recognize that Congress tied the calculation of disposable income for above median income debtors not only to § 707(b)(2)(A) under the means test, but also to § 707(b)(2)(B). Under § 707(b)(2)(B), the court may consider special circumstances that make “such expenses or adjustments to income necessary and reasonable.” If special circumstances necessitate a deviation from Form B22C, those circumstances can be raised under § 707(b)(2)(B) without turning to Schedules I and J.
Id. at 235 (footnotes omitted).
Had Congress intended the term “projected disposable income” to mean something with reference to Schedules I and J it could have so clearly legislated. The B22C Form references §§ 1325(b) and 707(b) in several places; those sections are not referenced in Schedules I or J. Thus, it is logical to infer that the B22C Form controls for purposes of the required computations under § 1325(b) and § 707(b).
Turning to the matter at bar, the Court finds the B22C Form provides that the Debtor has monthly disposable income of $2,852.17. Hence, because the Debtor is only proposing to commit the sum of $1,715.00 for thirty-seven months and $1,790.00 per month for an additional seventeen months, the Court finds that not all of the Debtor’s projected disposable income, as determined by the B22C Form, is being applied to make payments under the plan. Hence, the Court sustains the Trustee’s objection to the Debtor’s proposed plan on this point.
In the case at bar, the Debtor’s plan proposes to pay the unsecured claims in full over a period of fifty-four months without committing all of his disposable income. Section 1325(b)(4)(B) unequivocally allows for a plan term that is less than five years if the plan provides for full payment of unsecured claims. Hence, the Trustee’s argument that an above median income debtor’s plan must last for five years fails. Accordingly, the Court overrules the Trustee’s objection to the Debtor’s proposed plan on this point.
The Trustee states that Congress contemplated the payment of interest to unsecured creditors when a debtor makes those creditors wait for full payment—the present value of the allowed claim. The Trustee fails to cite any authority for this proposition. This is not a ease where there is equity in property the Debtor proposes to keep, thus triggering objections under the best interest of creditors test of § 1325(a)(4) that is satisfied by a plan proposing to pay 100% to unsecured allowed claimants over time, plus interest to compensate for the delay in payment. The Court rejects the Trustee’s assertion. Indeed, 11 U.S.C. § 502(b)(2), the portion of the Code that deals with the allowance of claims and interest, does not contemplate the payment of unmatured interest to claimants.
Leeper v. Pa. Higher Educ. Assistance Agency,
Moreover, because the Debtor’s Chapter 13 plan proposes to pay the unsecured creditors the full value of their allowed claims, the requirement of § 1325(b)(1)(A) has been met.
See In re Eaton,
IV. CONCLUSION
For the foregoing reasons, the Court sustains in part the Trustee’s objection to confirmation of the Debtor’s plan. Confirmation of the plan at bar is denied without prejudice. Leave is given the Debtor to file an amended plan within thirty days hereof in accordance with the findings and conclusions set forth in this Opinion. A continued confirmation hearing will be held on October 31, 2007, at 10:30 a.m.
This Opinion constitutes the Court’s findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. A separate order shall be-entered pursuant to Federal Rule of Bankruptcy Procedure 9021.