In Re Trimarchi
MEMORANDUM OPINION
These matters come before the Court on the objection of Glenn Stearns, the Chapter 13 Standing Trustee (the “Trustee”), to confirmation of the Chapter 13 plan filed by Christina M. Trimarehi (the “Debtor”) and on the application of John P. Carlin, the attorney for the Debtor, for compensa
I. JURISDICTION AND PROCEDURE
The Court has jurisdiction to decide these matters 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. They are core proceedings under 28 U.S.C. § 157(b)(2)(A), (L), and (0).
II. FACTS AND BACKGROUND
The facts are undisputed. On August 20, 2009, the Debtor filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code. The Debtor is married, but her spouse did not file a petition. On her Schedule A, the Debtor indicates that she does not own any real property. The Debtor’s non-filing spouse owns real property located in Bensenville, Illinois (the “Bensenville Property”). According to the Debtor, her spouse owned the Bensenville Property prior to their marriage. The Debtor, her spouse, and her eight year old son reside in the Bensenville Property. The Debtor’s spouse is solely responsible for and pays the mortgage on the Bensen-ville Property.
The Debtor filed the requisite B22C Form (Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income) which indicates total monthly income for both spouses on Line 11 of $10,097.66. On Line 16, the Debtor lists the correct applicable median family income for an Illinois household of three as $68,730. Further, on Line 19 of the B22C Form, the Debtor claims the following disputed expenses as a marital adjustment: (1) mortgage on non-filing spouse’s home $2,316; and (2) non-filing spouse’s additional utility bills for maintenance of the swimming pool $250. The other items on Line 19 for the non-debtor spouse’s expenses for his vehicle payment and credit card debt are not in dispute. The Debtor subtracts these expenses from the $10,097.66 monthly income to arrive at a current monthly income of $6,493.66 for purposes of 11 U.S.C. § 1325(b)(3). The Debtor lists her annualized current monthly income as $77,923.92 on Line 21. Because her annual income is over the median, the Debtor indicates on Line 23 that disposable income is determined under § 1325(b)(3). Given the amount of unsecured claims, § 1325(b)(4)(A)(ii) requires an applicable commitment period or plan term of five years or sixty months.
Next, the Debtor calculates the deductions from her income allowed under 11 U.S.C. § 707(b)(2) and lists on Line 25B standardized IRS housing and utilities expense of $1,527. After making the other applicable and appropriate entries for various line items not in dispute, the Debtor arrives at a monthly disposable income under § 1325(b)(2) on Line 59 of the B22C Form of $69.82.
The Trustee objects to the Debtor’s plan because she allegedly fails to use all of her disposable income to fund the plan. The Trustee’s objection is twofold. First, the Trustee objects to the Debtor taking two deductions on the B22C Form on Lines 19a and 25B ($2,316 and $1,527) for the mortgage expense paid by her non-filing spouse as a marital adjustment and as a housing and utilities standard deduction. Second, the Trustee objects to the Debt- or’s deduction on Line 19d for her spouse’s “additional utility bills for maintenance of pool” in the sum of $250.00 as unnecessary and unreasonable.
John P. Carlin, an attorney who represents the Debtor, filed his application for compensation on September 24, 2009. Proper notice was given to all parties in interest. Therein, he seeks an award of fees in the sum of $3,500 for services rendered to the Debtor through case closing. The application indicates that the Debtor entered into the Court’s Model Retention Agreement. The fees sought are within the current general ceiling for flat fees presently allowed in this District.
See generally In re Geraci,
The parties were given the opportunity for an evidentiary hearing and declined. The Court took the matters under advisement based on the filed papers.
III. APPLICABLE STANDARDS
Section 1325(b)(1) of the Bankruptcy Code speaks to confirmation of a plan and when an objection is filed. That section provides in relevant part as follows:
(b)(1) If the trustee ... 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.
11 U.S.C. § 1325(b)(1)(B). Section 1325(b)(2) defines “disposable income” for purposes of this subsection as “current monthly income received by the debtor” less certain expenses that differ depending on whether the debtor’s household income is above or below the median family income for the applicable state. 11 U.S.C. § 1325(b)(2);
In re Forbish,
The term “current monthly income” consists of two parts.
In re Clemons,
Bankr.No. 08-82968,
If a debtor’s non-filing spouse has income, that portion of the spouse’s income not expended regularly to pay household expenses is deducted from current monthly income.
In
re
Shahan,
The “determination of the amount paid by a non-filing spouse on a regular basis for household expenses of the debtor or the debtor’s dependents is necessarily fact specific and subject to interpretation.”
In re Travis,
Federal Rule of Bankruptcy Procedure 1007(b)(6) provides that a debtor in a Chapter 13 case must file a statement of current monthly income, prepared as prescribed by the appropriate Official Form, and if the debtor has current monthly income greater than the applicable median family income, a calculation of disposable income made in accordance with § 1325(b)(3), prepared as prescribed by the appropriate Official Form. Fed. R. Banks. P. 1007(b)(6). The Judicial Conference of the United States, in October 2005, promulgated Official Form B22C to enable debtors to provide the information required to calculate whether the debtor’s income is above or below the median, and if above, to calculate the deductions allowed by 11 U.S.C. § 707(b)(2)(A) and (B).
In re Guzman,
Pursuant to § 1325(b)(3), when a Chapter 13 debtor’s annual income exceeds the median income for households in the applicable state, the debtor’s expenses must be determined by using the formula set forth in § 707(b)(2)(A) and (B).
In re Ross,
In order to determine disposable income for a Chapter 13 debtor with current monthly income greater than the applicable median family income, § 707(b)(2)(A)(ii)(I) sets forth certain “monthly expenses” that include a “debt- or’s applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor’s actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides.... ” 11 U.S.C. § 707(b)(2)(A)(ii)(I). On Line 24 of the B22C Form, an above-median income Chapter 13 debtor is to enter the National Standard amount for living expenses such as food, clothing, and the like. On Lines 25 through 29, a debtor is told to enter the Local Standard amount for other expenses. Line 25B requires the “IRS Housing and Utilities Standards; mortgage/rent expense” for “your county and household size.” It is undisputed that the Debtor has a three-member household and resides in DuPage County, Illinois. The IRS Housing and Utilities Local Standards for a three-member household in DuPage County, Illinois is $1,527. See http://www. usdoj.gov/usVeo/bapepa/meanstesting.htm (select Illinois).
IV. DISCUSSION
A. The Trustee’s Objection to the Mortgage Expense of the Non-filing Spouse
The Trustee argues that the Debt- or is entitled to only one deduction for her non-filing spouse’s mortgage expense. The Trustee maintains that the B22C Form is not clear as to where this deduction should be taken. According to the Trustee, “marital adjustment” is defined in Line 19 of the B22C Form as any income “NOT paid on a regular basis for the household expenses of the debtor or the debtor’s dependents.” The Trustee contends that under this definition, the mortgage expense paid by the Debtor’s spouse for a home where the Debtor resides does not constitute an appropriate marital adjustment. The Trustee states that the Debtor could achieve the same result in reducing her disposable income by utilizing Line 26 to add $789 to the IRS standard deduction of $1,527 on Line 25B. The Trustee does not oppose the mortgage deduction from the Debtor’s income on Line 19 as long as it is the only deduction the Debtor takes for her spouse’s mortgage expense. The Trustee asserts that by removing the mortgage deduction from Line 25B, the total expenses allowed under the IRS standards on Line 38 are reduced and subsequently the total of all deductions on Line 52 is thereby reduced by $1,527 leaving a monthly disposable income on Line 59 of $1,596.82. As a result, according to the Trustee, the Debtor has disposable income each month of $1,596.82, which is an amount sufficient to pay her unsecured creditors 100% of their allowed claims, not the 22% she proposes in her plan.
It is under Part IV, Line 25B of the B22C Form that the Debtor takes a deduction for mortgage/rent expense of $1,527 under the Local Standards. The Debtor also lists the mortgage expense of $2,316 paid by her non-filing spouse on Line 19a as a marital adjustment. According to the Trustee, the marital adjustment effectively further reduces a debtor’s monthly disposable income while the Local Standards
On the B22C Form, all of the income of a non-filing spouse is included in Part I, Column B, in calculating a debtor’s current monthly income. However, the deduction, referred to as a “marital adjustment,” is permitted for that portion of a non-debtor spouse’s income that is “NOT paid on a regular basis for the household expenses of the debtor or the debtor’s dependents.” The Court has previously held that the B22C Form controls for purposes of the § 707(b) calculations.
Ross,
The Court finds that the Debtor is not entitled to take both of the deductions on the B22C Form for the mortgage expense paid by her non-filing spouse. The Court finds that the Debtor improperly lists the mortgage expense on Line 19a as a marital adjustment. The Court further finds this expense is regularly paid for the household expenses of the Debtor and her son who reside in the home and benefit therefrom. The Court concludes that the plain language and directions for Line 19 preclude the Debtor from deducting the mortgage expense of her non-debtor spouse as a marital adjustment because the mortgage is an expense that is paid on a regular basis for the household expenses of the Debtor and her son, as well as the non-debtor spouse.
The Debtor does not dispute that she, her spouse, and her eight year old son reside in the Bensenville Property. Further, it is undisputed that the mortgage expense is being paid on a regular basis by her non-debtor spouse. Certainly, the regular payment of the mortgage expense on a home where the Debtor and her son reside constitutes a contribution to the household expenses of the debtor and her dependents.
Cf. Travis,
The Trustee argues, on the one hand, that the mortgage expense of the spouse does not properly belong on Line 19 because of the definition of marital adjustment. On the other hand, however, the Trustee does not oppose the deduction from Line 19 as long as it is the only deduction the Debtor takes for her spouse’s mortgage expense. The Trustee suggests that the Debtor should remove the deduction from Line 25B to reduce the total expenses allowed under the IRS standards on Line 38 and subsequently the total of all deductions on Line 52 by $1,527, thereby leaving a monthly disposable income on Line 59 of $1,596.82. The Trustee’s suggestion contradicts the express directions on the B22C Form, the Bankruptcy Code, and established case law.
In order to eliminate the Debtor’s “double dipping” with respect to the mortgage expense, the Court finds that the appropriate place to remove the deductions is on Line 19 under the marital adjustment. The Debtor has appropriately claimed the standard housing and utilities deduction on Line 25B. Section 1325(b), by reference to § 707(b)(2)(A), allows the Debtor to claim the IRS housing and utilities deduction.
See In re Farrar-Johnson,
Moreover, the elimination of the mortgage expense as a marital adjustment appears to be a more common sense approach to the Debtor’s “double dipping.” To allow the Debtor to claim the standard mortgage and utilities expense on Line 25B as an IRS housing and utilities deduction and as a marital adjustment on Line 19 unjustly enriches the Debtor at the expense of her unsecured creditors. As the Seventh Circuit Court of Appeals noted, a debtor should not be allowed to use a “phantom deduction to reduce the recovery by [her] unsecured creditors without benefitting any other creditor.”
In re Turner,
The Debtor cites to
In re Clemons,
Bankr.No. 08-82968,
Judge Perkins agreed with
In re Shahan,
This Court respectfully disagrees and concludes that the instructions on Line 19 mandate the result here, contrary to Sha-han and Clemons. To do otherwise ignores the clear directions for Line 19. To allow such deduction on the basis that the Debtor is not liable on the underlying note and mortgage ignores the reality that the Debtor benefits from the payment of the mortgage expense. This expense is a regularly paid household expense that benefits the Debtor. To allow her to deduct this expense on Line 19 is detrimental to her unsecured creditors.
B. The Trustee’s Objection to the Non-filing Spouse’s Utility Bills for the Pool
Next, the Trustee objects to confirmation of the Debtor’s plan because the Debtor deducts $250 on the B22C Form on Line 19d as a marital adjustment for her spouse’s additional utility bills for maintenance of a swimming pool. The Trustee contends that this deduction from the Debtor’s income is not reasonably necessary for the support of the Debtor and her dependents. In addition, the Trustee maintains that $250 per month to heat a swimming pool is more than the monthly heating bills for most homes in the winter. Thus, the Trustee argues that the deduction is unreasonable on its face. According to the Trustee, if this deduction is removed from Line 19, it increases the current monthly income on Line 20 and also increases the total current monthly income on Line 53 to $6,743. In turn, the monthly disposable income on Line 59 would increase to $319. As a result, the Debtor would be required to pay a dividend to the unsecured creditors of $19,140 ($319 x 60 = $19,140) or approximately 82% of their allowed claims, not the 22% proposed in her plan.
The Court agrees with the Trustee on both points with respect to the deduction of $250 for maintenance of the swimming pool. Expenses associated with a swimming pool are not reasonably necessary.
In re Durczynski,
The Debtor argues that her spouse, who is not seeking Chapter 13 relief, should not be forced to give up his enjoyment in the swimming pool because of her financial situation. This argument fails. There is no evidence that anyone is or will be unable to use the pool if this line item deduction is not allowed. After all, the non-debtor spouse is paying that expense. When a debtor seeks Chapter 13 relief, “the entire family is affected by the sacrifices and special efforts required by the Code. This family may not continue its prepetition lifestyle to the detriment of creditors.”
In re Gleason,
Furthermore, “the object of a Chapter 13 bankruptcy is to balance the need of the debtor to cover [her] living expenses against the interest of the unsecured creditors in recovering as much of what the debtor owes them as possible.... ”
Turner,
The Debtor contends that if the Court disallows the deduction for the heating of the swimming pool, it will be functionally unusable, and thus will affect negatively the non-filing spouse’s interest in this asset by lowering the value of the Bensen-ville Property. This point lacks merit and there is no evidence to support it. The mere fact that a swimming pool is unheated does not render it unusable, especially in the summer months. The Debtor has not proffered any evidence to show that an unheated swimming pool reduces the value of the real property upon which it is located or that the pool could not be drained of water in the winter and the piping “winterized” to avoid damage during that season.
Accordingly, the Court sustains the Trustee’s objection to the Debtor’s Chapter 13 plan because it does not provide for all of the Debtor’s disposable income to be applied to make payments to the unse
V. CONCLUSION
For the foregoing reasons, the Court sustains the Trustee’s objection to the Debtor’s plan and denies confirmation. The Court affords the Debtor fourteen days to file an amended plan consistent with the findings made herein. A confirmation hearing on the amended plan is set for February 26, 2010 at 11:00 a.m. The application of John P. Carlin for compensation is allowed in full as requested on the separate order provided with the application.
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.