In Re Watson
- Reporters:
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- Before:
- Keir
MEMORANDUM OPINION
DUNCAN W. KEIR, Bankruptcy Judge.Before the court for consideration is the Debtors’ Second Amended Chapter 13 Plan, as further amended on the record at a hearing on September 12, 2006, and the objection to confirmation thereof filed by creditor agent eCast Settlement Corporation. After the hearing, the court took the matter under advisement and provided the parties with an opportunity to provide supplemental memoranda containing points and authorities. 1
Debtors filed this Chapter 13 case on Aрril 7, 2006. Debtors initially filed a Chapter 13 plan which proposed to pay monthly to the Chapter 13 trustee $548 for 60 months. eCast, the agent for five different unsecured creditors which together represent an alleged 21% of the unsecured claims, objected to that plan. Although *525 the Debtors thereafter amended their plan, they did not change the amount being paid into the plan. Upon an objection to the amended plan by eCast (and also at the urging of the Chapter 13 trustee), Debtors filed a Second Amended Plan which proposed payment to the Chapter 13 trustee of $548 for the first four months and $689 for the remaining 56 months. At the hearing held upon the Debtors’ Second Amended Plan, the Chapter 13 trustee informed the court that Debtors had agreed to further amend their plan to include another increase in monthly payments, this time to $750, for the final 55 months of the plan. The court notes that Debtors subsequently have not filed such a third amended plan.
At the September 12, 2006 hearing, the parties stipulated that the Debtors’ income exceeds that of the median family income. 2 The parties further stipulated that Debtors own two vehicles, and neither of those vehicles is collateral for a secured debt that requires monthly installment payments. On Form B22C, Debtors listed as an allowable expense (as further defined below) both an operating allowance and ownership allowance for each vehicle. eCast and the other interested parties dispute Debtors’ entitlement to the ownership allowance because the Debtors do not have secured payments due as payment for the vehicles.
All of the parties agreed at the initial hearing that if Debtors are not entitled to claim such expense as part of the analysis required by
The first issue raised is whether, when applying the means test of
The second question, of equal divisiveness in caselaw, is the issue of whether the court must restrict its confirmation analysis to the final number shown on Form B22C, or whether the court may also take into account other evidence regarding income and expenses of Debtors at the time confirmation is considered.
The calculations of expenses under
BAPCPA added new subsection 1325(b)(3) as to the determination of “amounts reasonably necessary to be expended.” Where the debtor’s adjusted CMI when multiplied by 12 is greater than the applicable median family income for the State (based on household size as provided in
Boiled down, in a Chapter 13 case in which a party-in-interest has objected to confirmation, a plan can only be confirmed if the plan pays 100% of the allowed claims provided for in the plan, or the plan provides that all of the debtor’s “projected disposable income” would be applied to make payments to unsecured creditors for the period of the plan. In determining “projected disposable income,” “disposable income” shall be the adjusted CMI of the debtor minus “amounts reasonably necessary to be expended” for support and maintenance of the debtor and debtor’s family, certain charitable contributions, and debtor’s business expenses. If the debtor’s CMI multiplied by 12 exceeds the median family income applicable to the debtor’s household, “amounts reasonably
*527
necessary to be expended” are determined as provided under
The debtor’s monthly expenses shall be the debtor’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, as in effect on the date of the order for relief, for the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent.
Courts are split concerning the application of Local Standards as set forth in
Other recent opinions have permitted a debtor to take the Local Ownership Allowance for vehicles owned by the debtor even though the vehicles are not encumbered by liens. See, e.g., In re Enright, 2007 WL
*528 748432 (Bankr.M.D.N.C., March 6, 2007); In re Fowler, 349 B.R. 414 (Bankr.D.Del. 2006); In re Demonica, 345 B.R. 895 (Bankr.N.D.Ill.2006). This court finds particularly persuasive the reasoning of the United States Bankruptcy Court for the District of Delawаre in In re Fowler, 349 B.R. at 418-421.
Those courts which have disallowed the application of the Local Ownership Allowance for an unencumbered vehicle, have done so by applying language contained in the Internal Revenue Manual (the “IRM”), a publication of the Internal Revenue Service that provides guidance to revenue collectors. As explained by Judge Mary F. Walrath in the opinion in
In re Fowler,
349 B.R. at 416, the Collection Financial Standards are published by the Internal Revenue Service to determine a tаxpayer’s ability to pay a delinquent tax liability. The Financial Analysis Handbook contained in part 5, chapter 15, section 1 of the IRM provides instructions to IRS agents for analysis of a taxpayer’s financial condition to determine case resolution. Under the IRM, as to Local Standards, for tax collection purposes, the agent is instructed to allow the debtor the lesser of the actual amount paid or the Local Standards. But,
The court in
In re Hardacre
acknowledges this difference in reaching its conclusion that a debtor is entitled to the
greater
of the Local Standards or debtor’s actual expenditure. However, it appears that the
In re Hardacre
opinion then relies upon the IRM to disallow the Local Ownership Allowance for an unencumbered vehicle. With that disallowance, this court must respectively disagree. Instead this Court agrees with the holding in
In re Fowler
that the Local Standards referred to by
[S]ince the means test treats the Local Standards not as caps but as fixed allowances, it is more reasonable to permit a debtor to claim the Local Standards ownership expense based on the number of vehicles the debtor owns or leases, rather than on the number for which the debtor makes payments. This approach reflects the reality that a ear for which the debtor no longer makes payments may soon need to bе replaced (so that the debtor will actually have ownership expenses), and it avoids arbitrary distinctions between debtors who have only a few car payments left at the time of their bankruptcy filing and those who finished making their car payments just before the filing.
In re Fowler, 349 B.R. at 418-19 (quoting Wedoff, Means Testing in the New World, 79 Am. Bankr.L.J. at 255-57). Without the belaboring the issue further, this court adopts not only the conclusion but the reasoning set forth in In re Fowler.
Having determined the applicability of the Local Ownership Allowance in determining “disposable income” under Section (b)(2), the rеmaining issue is the relationship between “disposable income” and the “projected disposable income” that may be required to be applied to payments under the plan pursuant to
Prior to BAPCPA, the typical Chapter 13 debtor would calculate “projected disposable income” to be committed to a plan on the basis of debtor’s actual income and reasonable expenses. This would often be reflected by subtracting the Schedule J expenses from the income listed on Schedule I. 7 If a dispute of fact arose concerning the income or reasonаble expenses, the court would conduct an evidentiary hearing to determine disputed facts including the reasonableness of expenses listed on Schedule J.
Under BAPCPA, as to a debtor whose annualized CMI exceeds the applicable median family income, courts have dramatically split on the question of the effect of the formula calculation of “disposable income” under
Several courts have held that “projected disposable income” should be based solely upon the calculation of “disposable income” (adjusted CMI minus “Allowable Expenses”), as reflected on Form B22C. These courts reason that the means test was “designed to make the determination for [above median income] debtors ‘formulaic.’ ” In re Farrar-Johnson, 353 B.R. 224 (Bankr.N.D.Ill.2006). See also In re Alexander, 344 B.R. 742 (Bankr.E.D.N.C. 2006). The opinions acknowledge that the Form B22C may not accurately reflect the debtor’s available income from which to make plan payments at the effective date of the plan, but find that they are limited in their consideration of outside evidence nonetheless.
The Chapter 13 trustees in this district, not surprisingly, have expressed disagreement with a rigid approach. They caution that a possible result may be that a debtor who enjoys a higher level of income post-petition (as compared to the six month historical CMI calculation) may be required to pay less into the plan than would be required if the court were able to consider current income and expenses reflected on Schedules I and J. 9 Conversely, *530 a debtor with lower income or higher expenses may not be able to pay the amount required, which would effectively deny them relief in bankruptcy.
Yet another scenario presented itself in the
In re Farrar-Johnson
case. In
In re Farrar-Johnson,
the trustee objected to confirmation of the debtors’ plan which was based on the “disposable income” available as determined on the debtors’ Form B22C. The Allowable Expenses when applied to these debtors permitted a significant housing expense which in reality the debtors did not pay because they lived in military housing.
Id.
at 230. The trustee objected to the housing deduction, but also objected to certain expenses listed on the debtors’ Schedule J. The court rejected the trustee’s position and held instead that Schedule J was irrelevant to the
When a chapter 13 debtor is above the median income,section 1325(b)(3) accordingly makes clear that Schedule J has no role in calculating disposable income .... One of the aims оf the means test was to limit judicial involvement and so judicial discretion by making mechanical the determination of abuse under 707(b).
Id. at 228 (citations omitted). Notably, in In re Farrar-Johnson, the court was not required to consider whether evidence of income beyond the CMI reflected on Form B22C was applicable to the court’s determination of “projected disposable income.”
In In re Alexander, the court found that both the income and expenses to be used in calculating “projected disposable income” were those numbers found on Form B22C. The court rejected the holdings in In re Hardacre, 338 B.R. at 723 and In re Jass, 340 B.R. 411 (Bankr.D.Utah 2006)(discussed, infra) and found that “[Section] 1325(b)(2)-(3) 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.” In re Alexander, 344 B.R. at 747.
Other courts have found that while the Form B22C calculation is important, such disposable income calculation is “merely a starting point and not a determinative number.” In re McGuire, 342 B.R. 608, 615 (Bankr.W.D.Mo.2006). See also In re Kibbe, 361 B.R. 302 (1st Cir. BAP 2007); In re Barraza, 346 B.R. 724, 732 (Bankr. N.D.Tex.2006); In re Gress, 344 B.R. 919 (Bankr.W.D.Mo.2006); In re Grady, 343 B.R. 747 (Bankr.N.D.Ga.2006); In re Jass, 340 B.R. at 411; In re Hardacre, 338 B.R. at 722-23; In re Riggs, 359 B.R. 649 (Bankr.E.D.Ky.2007).
In
In re Hardacre,
the court looked at the income portion of the analysis. The court noted three key points regarding thе drafting of
Similarly, in In re Jass, the court found that it must view the debtors’ income in a forward-looking analysis. In re Jass, 340 B.R. at 415-16. However, the court went further than the Hardacre court and found that circumstances could exist whereby the court could properly review a debtor’s expenses (as opposed to just the future anticipated income) in determining projected “disposable income.” Id. at 418. In so ruling, the court explained:
If the Court finds adequate evidence to rebut the presumption in favor of Form B22C, the Court will allow the debtor to use a projected budget in the form of Schedules I and J to determine the debtor’s “projected disposable income.” For purposes of§ 1325(b)(1)(B) , the Court will then require the debtor to propose a plan to return to unsecured creditors an amount consistent with those schedules.
It is most likely that only in rare instances will the court consider confirming chapter 13 plans where the “projected disposable income” does not conform with the calculations on Form B22C.
Id. at 418-19.
This court agrees with and adopts the court’s analysis in In re Jass.
In looking to the language of a statute, the Court must consider two important assumptions. First, thе Court must give meaning and import to every word in a statute. Second, the Court must presume that “Congress acts intentionally and purposefully when it includes particular language in one section of a statute but omits it in another.”
The Court believes that the language of§ 1325(b)(1)(B) is clear and unambiguous-section 1325(b)(l)(B) ’s requirement that a plan propose to pay projected “disposable income” means that the number resulting from Form B22C is a starting point for the Court’s inquiry only.Section 1325(b)(2) defines “disposable income” but§ 1325(b)(1)(B) requires that a debtor propose a plan paying “projected disposable income.” (emphasis added). The Court must give meaning to the word “projected,” as it obviously has independent significance. The word “projected” means “[t]o calculate, estimate, or predict (something in the future), based on present data or trends.” Thus, the word “projected” is future-oriented. By definition under§ 1325(b)(2) , the term “disposable income” is oriented in historical numbers. By placing the word “projected” next to “disposable income” in§ 1325(b)(1)(B) , Congress modified the import of “disposable income.” The significance of the word “projected” is that it requires the Court to consider both future and historical finanсes of a debtor in determining compliance with§ 1325(b)(1)(B) .
Id. at 415 (footnotes omitted).
For the reasons enunciated hereinabove, this court holds that the Local Ownership Allowance is properly included by the debtor in the calculation of “disposable income” on Form B22C. The Court further holds “disposable income” as calculated on Form B22C is the presumptive “projected disposable income” for application of
A continued hearing upon debtor’s plan will be held tо allow presentation of evidence and determination of confirmation of the plan in accordance with the holding of this opinion.
Notes
. Additional memoranda were filed by eCast, the United States Trustee, the Chapter 13 Trustee assigned to this case, the Debtors, and the three other Maryland standing Chapter 13 trustees.
.The Debtors’ Amended Official Form B22C lists Debtors’ annualized “current monthly income” (line 21) as $74,241.24, whereas the applicable median family income is $60,541.00. “Current monthly income” is defined in Section 101(10A) and is an average of debtors’ monthly income for the six month period immediately preceding the commencement of the bankruptcy case. Under this definition “current monthly income” may not reflect debtor’s actual income on the petition date, or at any point in time during the bankruptcy case. The Code defined term, “current monthly income” is hereinafter referred to as “CMI.”
. Hereafter, till code sections refer to the United States Bankruptcy Code found at title 11 of the United States Codе.
. Debtors did not present any evidence at hearing, but Debtors’ counsel made reference to the large student loan payment reflected on Schedule J, which is not considered on Form B22C.
. The standards enunciated in
. Some of those courts which have not permitted the debtor to takе the Local Ownership Allowance for an unencumbered vehicle have in turn split as to whether the debtor is entitled to an additional allowance per vehicle of $200.00 where the vehicle is more than six years old or has mileage over 75,000, as provided in section 5.8.5.5.2 of the Internal Revenue Manual. See In re Johnson, 2006 WL 2883243 at *3 fn. 9; In re McGuire, 342 B.R. at 612.
. Unlike schedules of assets and liabilities which set forth a debtor’s interests in property and debtor’s debts as of the petition date, in a Chapter 13 case, Schedule I and J should reflect income and expenses on a current basis and thus be amended by the debtor from time to time, if debtor’s income or expenses change.
.
(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 account of such claim is not less than the amount of such claim; or
(B) the plan prоvides that all of the debt- or’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.
(2) For purposes of this subsection, the term “disposable income” means current monthly income received by the debtor (other than child support payments, foster care payments, or disability payments for a dependent child made in accordance with applicable nonbankruptcy law to the extent reasonably necessary to be expended for such child) less amounts reasonably necessary to be expended....
.The court noted in In re Alexander:
*530 However, for the seven cases of above-median income debtors, the debtors uniformly have less disposable income using the new calculation method. The trustees reported that this is the typical result for above-median income debtors under the new law. Perhaps Congress, in an effort to make higher income debtors pay more to their unsecured creditors, unwittingly reached the opposite result.
Alexander, 344 B.R. at 747 (footnote omitted).