Yarnall v. Martinez (In Re Martinez)

ty-month applicable commitment period debtors,

for above median propose a plan applicable

must with an period sixty

commitment months.

ACCORDINGLY, the Trustee’s Motion

to Amend the Plan is GRANTED. Debt-

ors are directed to file an plan, amended

with an period commitment months,

sixty twenty within days.

IT IS SO ORDERED. MARTINEZ; re Francisco J. Stine;

Melissa J. Alex

Wathen, Debtors. Yarnall, A. Chapter

Rick

Trustee, Appellant, Martinez;

Francisco J. Melissa J.

Stine; Wathen; Alex Haines &

Kreiger, LLC, Appellees. NV-08-1332-MoJuH,

BAP Nos. NV-08-

1335-MoJuH, NV-08-1340-MoJuH. 08-14571-BAM,

Bk. Nos. 08-15414-

LBR, 08-15133-MKN.

United Bankruptcy States Appellate Panel

of the Ninth Circuit.

Argued and Submitted

Videoconference on

May 2009.

Filed Oct. NV, Gatti, Vegas, for

Marianne Las Rick A. Yarnell. MONTALI, JURY and

Before: HOLLOWELL, Judges. Bankruptcy OPINION MONTALI, Bankruptcy Judge: three different pending In cases before courts, above-median valu- debtors obtained orders chapter 13 wholly “stripping off’ unsecured ing and The junior against liens their residences.2 indicated, everyday bankruptcy part chapter, that have become all sec- 1. Unless otherwise fact, Bankrupt- type are to the of this are parlance. tion and rule references motions 101-1532, Code, cy §§ and to the 11 U.S.C. "Valuation of under Rule authorized Procedure, Bankruptcy Federal Rules of ("The the val- Security” court determine 1001-9037, promulgat- as enacted and Rules property by a lien on ue of a claim secured Bankruptcy date of The ed after the effective on mo- has an interest which the estate Consumer Protection Abuse Prevention and See, ...”). example, Guidelines for tion. 109-8, 119 Stat. Act of Pub.L. Valuing Avoiding in Individual Liens ("BAPCPA”). Cases, Chapter 13 Unit- Chapter Cases and Court, Bankruptcy Northern Dis- ed States off,” strip” "stripping "lien 2. Terms such as California, at: trict of available strip” actually misnomers or “motion to debtors proposed chapter also plans holder of the priority first lien. Signifi- that deducted cantly, case, associated each alleged stripped those liens from their “disposable “on the date the instant bankruptcy filed,” income” devoted no payments. equity existed in subject chapter objected properties, 13 trustee junior the confirmation affected of the three lienholders were plans, “wholly and the three unsecured on bankrupt the petition date.” cy judges held a consolidated hearing on objections. the The bankruptcy judges case, In each the court en- objections overruled the and entered or tered an order stripping the lien of the confirming plans. ders The chapter 13 junior lienholder, finding that “on the filing appealed trustee each order. We RE date chapter instant petition,” 13 VERSE without reaching the trustee’s claim “wholly unsecured.” The courts faith good objections.3 Our conclusion is therefore junior ordered that the lienhold- persuasive reinforсed a and compelling (sic) ers’ “secured claims is ‘stripped off statement from our own appeals court of and shall be ‘general treated as a unse- just a ago: few weeks “Ironic it would be cured claim’ pursuant 506(a) to [section] indeed payments to diminish ”, to unsecured ... junior that each lienholders’ claim creditors this context “be on basis a reclassified general as a unsecured claim,” fictitious not junior incurred a and that the debt lienholders’ “se- (In or.” Ransom v. MBNA Am. Bank rights cured re lien-holder rights in and/or Ransom), (9th the Subject Property are hereby Cir. terminat- 2009). ed.” Because the Debtors were above-median I. FACTS debtors, income they calculated their “dis- In May appellees Frаncisco J. posable income” for the purposes (“Martinez”),

Martinez Melissa J. Stine payments by utilizing the means test for- (“Stine”), (‘Wathen”) and Alex Wathen mula set forth in 707(b)(2)(A)(iii), “Debtors”) (collectively, filed separate which allows debtors to deduct from their chapter petitions and filed their respec- gross monthly payments income “contrac- tive Statements of Current Monthly In- tually due to secured creditors.” See come and Calculation of Commitment Peri- §§ 707(b)(2)(A)(iii). U.S.C. (“Form od and Disposable Income B case, In each 22C, on Form B 22C”). They each filed a motion to value Debtors deducted gross from their collateral, liens, to strip off and to modify the amounts due under the con- relevant rights of the junior holders of liens on tracts with the junior respective lienhold- respective residences, their alleging ers, though they even were making each instance that equity no existed in the payments these postpetition and even property beyond the secured claim of the though they stripping obtained orders off http://www.canb.uscourts.gov/procedures/dist/ disposable from payments income for not be- guidelines/guidelinesvaluing-and-avoiding- ing made because underlying property has liens-individual-chapter-ll-cases-and-cha. voluntarily been surrendered to the secured convenience, For we will continue to use creditors, leaving any remaining claim no the more terminology throughout common wholly more than unsecured. American Ex- opinion. Bank, press Smith), FSB v. Smith No. WW-08-1311, WL Cir. separate opinion In a issuing arewe con- 5, 2009). BAP Oct. currently with this one we reach a similar regarding attempted

conclusion deductions' 1325(b)(3)) permit- by section corporated petition date upon based liens the relevant to the payments to deduct ted the Debtors values. lienholders, Debt- though even junior (cid:127) B 22C Form Martinez’s Consequently, (and did) strip liens of ors intended in- disposable negative reflected (and did and would not those lienholders $104.90, though the even come of not) payments to any postpetition make have been $352.10 would ble income those lienholders. to the phantom if the month 5, 2008, the in Mar- courts On Dеcember from the were excluded junior lienholder cases entered orders tinez’s and Stine’s Amended Similarly, Stine’s deductions. and orders confirming plans B reflected Form 22C objections to con- overruling the Trustee’s the payments if the a month of $22.50 8, 2008, the court December firmation. On Re- mortgage were deducted. stripped an con- case entered order in Wathen’s payments stripped mortgage moving the Trustee chapter plan. firming the calculation leaves the means test from timely appealed. at disposable income monthly Stine’s In- appeals. the not consolidate We did B 22C month. Form a Wathen’s $377.50 joint brief from authorized stead we disposable income of negative reflected in they appear not these but did appellees $390.67, though his even appeals.5 if the would have been ble $209.33 junior lien were stripped May on the on payments argued before us The case 14, 2009, calculation. August in the means test the Ninth not included 2009. On issued its Ransom decision. Circuit Yarnall, chapter the Rick A. Appellant (“Trustee”), objected to confir- 13 trustee II.ISSUE cases, that arguing of the in each mation income to calculating disposable their failed to all of the Debtors had devote may chapter 13 plans, their paid disposable pay- income to their projected junior lien- debtors deduct required of unsecured creditors ment making will not be holders whom 1325(b) plans and that their by section plans their payments under their because good Follow- proposed were faith. not (viz., stripped have been valued liens briefing by and the ing extensive Trustee zero)? Debtors, assigned bankruptcy the three hearing on the a consolidated judges held III.JURISDICTION of the objections to confirmation Trustee’s jurisdiction court had bankruptcy plans.4 Debtors’ 157(b)(2)(L) § 1334. under 28 U.S.C. (In Maney Kagenveama re Applying v. jurisdiction under 28 U.S.C. We have (9th Cir.2008), Kagenveama), 541 F.3d 868 § 158. that an bankruptcy

the courts each held OF REVIEW IV.STANDARD above-median income debtor’s ap presented as of effective these is determined the The issue statutory date, purely one ‍​​​‌‌​​‌​​‌​​‌​‌​‌​​‌‌​‌‌‌​‌‌‌​‌‌‌​​‌‌‌​​​​‌‌‌‌‌‍of law peals that the fixed formula (as construction; exists. disрute no factual in- test under section means LLC, Kreiger, that is the lawfirm chapter plan & objection to the Haines 4. Trustee’s time, represented in the courts. was heard at same fourth Although caption, do not named in the we appeal. included but case is not that , appellee. it an consider review “We issues of construc commitment period on beginning the date law, tion and conclusions of including inter payment first is due under pretation provisions Bankruptcy plan will be applied to make payments to (In Code, de novo.” Mendez v. Salven re unsecured creditors under plan.” Mendez), 1325(b)(1)(B). 367 B.R. Cir. BAP U.S.C. 2007) (citing Bagel Corp. v. Einstein/Noah In Kagenveama, the Ninth Circuit held W., L.P.),

Smith BCE a debtor’s “projected disposable income” (9th Cir.2003)). 1166, 1170 for the purposes 1325(b)(1)(B) of section the debtor’s “disposable income” as de- y. DISCUSSION6 fined in subsection “projected out

A. Overvieiv. ” over ‘applicable period.’ commitment 1325(b)(1)(B) provides if a Kagenveama, 541 F.3d at 872. The Ninth trustee or objects unsecured creditor to Circuit specifically rejected confirmation of a chapter plan, argument trustee’s approve unless, 1325(b)(1)(B) court requires a forward-looking date, its effective plan “provides determination of “projected disposable in- 7 that all of projected the debtor’s Id. at 873-74. The Ninth Circuit come.” ble to be received in applicable rejected also the argument that the “dis- (see analysis Our set as forth in Smith foot- But in other cases it will be the debtor .... 3), collateral, note date, to surrendered The use of the later which is consis- applies equal presented force to the facts tent with language though not by appeals it, these three wherein the liens have compelled by is more sensible. stripped. been incorporate We that decision (In Id. at 355. See also Nowlin v. Peake re by reference and analysis reiterate that Nowlin), in this (5th Cir.2009) 576 (holding F.3d 258 Part V completeness for of our record here. "projected” that disposable permits "reasonably consideration of certain” future issuance, Kagenveama’s 7. Since four other stating evеnts and that the Ninth Circuit em appeal rejected courts of have reasoning its phasized the "disposa modified of definition holding. particular, In the Seventh Cir- ble recognizing income” indepen without Turner, (7th cuit held in In re 574 F.3d 349 significance dent of "projected”); the word Cir.2009), that a 13 above-median (In Lanning Hamilton v. Lanning), re income debtor could not deduct as an (10th Cir.2008), 1269 petn. filed, cert. 77 for mortgage his property on that he (Feb. 3, 2009) U.S.L.W. 3449 (Supreme Court intended to reaching surrender. its hold- requested briefing has by the Solicitor Gener ing, the Circuit apply Seventh to refused (- -, petition al on the U.S. 129 S.Ct. mechanical calculation that considers ex- 2820, 288)) (holding L.Ed.2d starting that date, penses petition noting on the exist point calculating chapter for pro 13 debtor's that such a appropriate mechanical test is for jected disposable presumed income is to be determining eligibility proceed par- to under income, debtor’s subject current chapters. ticular showing of substantial change in circum object Since stances); a Chapter ‍​​​‌‌​​‌​​‌​​‌​‌​‌​​‌‌​‌‌‌​‌‌‌​‌‌‌​​‌‌‌​​​​‌‌‌‌‌‍of (In 13 bank- Coop v. Frederickson re Freder ruptcy ickson), 652, is to (8th balance need of the debtor Cir.2008), - living expenses denied, to cover against -, his the in- cert. U.S. S.Ct. terest of the unsecured (2009) creditors in recover- 173 L.Ed.2d (holding ing as much what the debtor owes them only starting point means test is for deter possible, we cannot mining see the merit a chapter 13 debtоr's in information, throwing undisputed come). out bear- "[T]he final can take calculation into ing on how much the debtor can afford to changes consideration that have occurred in pay, light that comes to between the sub- the debtor’s financial circumstances as well approval mission and plan reorgani- of a as the debtor’s actual income and zation. Sometimes as in reported Frederickson, the cred- case on Schedules I and J.” itors will from the benefit new information. 545 F.3d at 659. and sub- provision, test” chapter 7 “means of section calculation posable (b)(2)(A)(iii) the debt- provides that starting presumptive awas account monthly payments evi- on supplemented average could be or’s point which actual “finances future or be calculated as debts shall dence of secured 874, overruling 60) Pak v. (then Id. at debtor.” divided sum Pak), Corp. eCast Settlement scheduled as the total of all amounts 2007). BAP Cir. B.R. to secured creditors contractually due following the 60 months in- each month of “disposable defines monthly in- petition; current the date of the debtor’s as the come” reasonably neces- amounts less the (II) come secured any payments to additional alia, for, inter sary expended to be debtor, necessary for the creditors her de- and his or of the debtor support chapter 13 of this filing 1325(b)(2).8 Sec- 11 U.S.C. pendents. title, possession maintain of thе debt- however, 1325(b)(3), restricts the abili- tion vehicle, residence, motor or primary or’s to determine bankruptcy court ty of a sup- for the property other ex- reasonably “amounts and the debtor’s de- port of the debtor has an above- pended” when as collateral for pendents, that serves income.9 median secured debts[.] income, above-median For a debtor with 707(b)(2)(A)(iii). 11 U.S.C. necessary to be ex- “amounts Necessary Expenses B. The Are Not (2) ... shall be” paragraph pended under Support. Debtors’ in accordance with section calculated (B). Holding Kagenveama requires 707(b)(2)(A) 11 U.S.C. 707(b)(2) backward-looking or 1325(b)(3). of a static application is the continuation, preservation, sary provides: for the 8. Section subsection, operation business. and of such (2) the purposes of this For "disposable means current term 1325(b)(3)provides: 9. Section monthly income received (other support payments, foster than child reasonably necessary ex- to be Amounts disability payments payments, for care or (2), paragraph other than pended under with dependent child made in accordance (2), (A)(ii) paragraph subparagraph of shall applicable nonbankruptcy law to the extent subpara- determined in accordance be reasonably necessary expended for to be (B) 707(b)(2), (A) graphs of section if and child) less amounts neces- such income, monthly the debtor has current sary expended— multiplied by greater than— when (A) (i) support the maintenance or of for (A) in a household in the case of a debtor debtor, dependent of the the debtor or person, family of the median of support obligation, that or for a domestic earner; applicable State for 1 the payable the date the becomes after first (B) filed; of a debtor in a household in the case petition individuals, (that 2, 3, (ii) highest medi- contributions of or 4 for charitable of "charitable contri- family applicable meet the definition State an income of 548(d)(3) qual- to a bution” under section family number or fewer for a of same entity religiоus or or- ified or charitable individuals; or (as ganization defined in section (C) of a debtor in a household in the case 548(d)(4))) exceed 15 in an amount not to individuals, highest exceeding medi- gross the debtor for percent of income of family State an year are in which the contributions individuals, family of or fewer made; and plus per each individual $575 month for business, (B) engaged in if the debtor is in excess of payment expenditures neces- for the of measurement of an above-median income the bankruptcy courts. pay- Phantom debtor’s expenses in determining projected ments cannot be necessary. The fact that disposable income, bankruptcy courts courts make the valuе determinations to held that Debtors could deduct from their support the orders stripping the hens current income mortgage pay- some time after the petition dates is of no ments which will not making. be consequence. The alleged, re- Thus, they held that postpetition events spondent under-secured creditors con- (such affecting income or expenses _ as sur- ceded by defaults, their and the courts render of collateral liens, or stripping even found that petition date values were values) petition-date based on should not correct. aHad creditor contended other- in considered deciding whether an wise, the outcome different, have been above-median income debtor has contribut- but that is not what happened any of all projected ed disposable income to a these three cases. plan under section 1325. disagree. We Sections C. The Dicta Kagenveama. (b)(3), together, read provide that if an goes It without saying that we must expense is not reasonably necessary, it is follow binding precedent in circuit, our not included in the calculation court felt it must. doWe ble income. If is reasonably not read Kagenveama as binding prece- necessary for a debtor’s depen- and/or with respect dent to the calculation ex- dants’ maintenance and support, and the penses sections debtor is аn debtor, above-median income (b)(3). Consequently, we are bound only section requires the court Supreme Court’s directive to follow determine the amount accordance with the plain meaning of the of a words statute 707(b)(2). unless they lead to an absurd result.10 A determination of whether an expense The issue before the Ninth Circuit is reasonably necessary requires a court to Kagenveama did not involve either the consider what the has say about determination what proper expenses the financial existing realities at the time (under 1325(b)(2)) section or the measure- of confirmation of a chapter plan, par- 13 (under (b)(3)). ment of them Its ticularly where the affected lienhоlder con- only meaningful allusion expenses to to be by sents Here, its silence. where Debtors deducted from income a is passing refer- have no intention of paying the mortgage subsections, ence to those two any without payments either through or outside their analysis; plans, and in fact have obtained orders

stripping the liens effective as of the rele- “disposable revised income” test vant petition dates, those mortgage pay- uses a to determine ex- what formula ments cannot be for the support penses are reasonably necessary. See of or their dependents. They 11 lS25(b)(2)-(S). U.S.C. ap- This made the decision strip hens, to not proach represents dеpar- deliberate Inc., 10. U.S. Ron Enterprises, v. Pair 489 U.S. controls); rather language, than strict Lamie 235, 242, 1026, 109 S.Ct. Trustee, 103 526, 534, L.Ed.2d 290 v. U.S. 540 U.S. 124 S.Ct. (1989) (plain meaning legislation 1023, of should be (when 157 L.Ed.2d 1024 stat- conclusive, except in rare cases in which liter language ute’s plain, is sole function of application al produce courts, of statute will result disposition least where the required demonstrably at with absurd, odds by intention of its statute's is text not is to enforce drafters; cases, drafters, in such intention terms). of statute according to its 354 interpretation an applying income” “disposable old

ture from is not that if an item that teaches scheme with the calculation, up bound which was main- support or necessary for a debtor’s of the debtor’s circumstances facts and in the tenance, engage cannot Winokur, In re affairs. financial for it. pay pretending fiction of (Bankr.E.D.Va.2007); In 204, 206 B.R. 224, Farrar-Johnson, B.R. figuring “projected out It true that (stating (Bankr.N.D.Ill.2006) necessarily involves income” point: flexibility was “[eliminating to sub- proper expenses of consideration [C]hapter 13 debtors obligations But monthly income”. “current tract from clear, stan defined subject to would struggling Kagenveama the court of a dards, to the whim longer left no how to views about competing with (internal quotations judicial proceeding”) “in- respect to the “projected” define omitted). was not equation half of come” expenses the deducted addressing whether (еmphasis at 874 Kagenveama, support.13 the debtor’s necessary for were added).11 us to Thus, directs Kagenveama while rise to the even If statements those brief to be the income backward” define binding on “look dicta, are still not level of com- throughout analysis projected no absolutely there is us because (b)(3) not address the period, it did mitment ‍​​​‌‌​​‌​​‌​​‌​‌​‌​​‌‌​‌‌‌​‌‌‌​‌‌‌​​‌‌‌​​​​‌‌‌‌‌‍sections of whether measurement expenses or the in definition one, redundantly, or albeit operate as does not put, opinion (b)(3) Simply if of them. only operative sequence, with the “dis- are to calculate direct how courts there specifically, it. More triggers “projected disposable portion of posаble” or how whether analysis no or discussion (income x tempo- minus determine de- operate to the subsections = amount years three or five period ral therefore do expenses.12 We ductible creditors). For paid to unsecured to be of stare decisis the doctrine violate Cir.2007) (“we footnotes, (9th by a are not bound n. 1 opinion, in two in the 11. Elsewhere analysis, casually without holding ‘made are cited: the subsections passing without due consider ... uttered in "current Disposable is defined as alternatives, merely it is or where ation of ... monthly income received legal prelude issue that com to another less amounts ...’”), quot panel’s full attention mands 1325(b)(2).... expended!.]" U.S.C. Johnson, F.3d ing v. United Statеs a debt- requires that if Cir.2001); (9th Pakootas v. Teck see also monthly income is annualized current or's Metals, Ltd., Cominco family greater median than the Johnson, Cir.2006) holding (quoting households, “amounts similarly-sized then deliberate consid made without a statements expended” are binding presented are not eration of the issues 707(b)(2). § in accordance with determined re-visited). may and be at n. 1. Kagenveama, 541 F.3d 872 "projected disposable in holding that 13.In what replaced the definition of BAPCPA old income,” "disposable the same as come” is necessary” a "reasonably formu- v. Satter relied on Anderson the Ninth Circuit debtors. approach for above-median laic Anderson), 357 lee 1325(b)(3). sig- This formula 11 U.S.C. case, Cir.1994) determining the (pre-BAPCPA way nificantly changed which "dis- pro and then "disposable debtor's calculated. posable income” is future for the re jecting that sum into the at 873 n. 2. Id. plan). This is how quired duration of “projected” within the Gatos-Saratoga the term Joint court defined rel. A.O. v. Los 12. V.S.ex Dist., disposable income.” phrase "projected High Union School this reason the opinion does not bind us to D. Two-Part Analysis Subsections (b)(2) (b)(8). a rule of how to expenses determine the and applied must to be the income side of statute, Under the a debtor may equation, nor compel does it to us deduct from income those expenses rea impose a symmetry that neglects the reali- sonably necessary “fоr the maintenance or ty us, viz., before case that Debtors support of the debtor dependent or a decided they did not need their extra debtor.” U.S.C. vehicle or their two 1325(b)(2)(A)(i).15 houses. Thus, we read sec 1325(b)(2) (b)(3) tions and in sequence, as apply We the words of the statute even if follows: a says debtor an expense is not though doing so leaves with a us backward reasonably necessary for the debtor’s looking definition of projected disposable dependants’ sup and/or maintenance and (because of Kagenveama) and a port, inquiry ends at section (because definition expenses which as there is no to amount determine in statute) plain wording of the takes into sеction 1325(b)(3). via section (the account financial realities liens have otherwise, Stated there is no correspond date) been as of stripped petition oc- ing amount to subtract from the income curring post-petition incorporated and into component get to what is “disposable” a debtor’s plan.14 for the above-median income debtor. If is reasonably necessary citing

Without Kagenveama anywhere in for the debtor’s dependants’ main- its opinion, the and/or Ransom court quoted our tenance support, then section Panel’s thinking on very point: this 1325(b)(3) requires the court to determine However, in making that calculation the amount in accordanсe with section [what debtors can pay afford to their 707(b)(2).16 Sections creditors], what important is is the pay- require two-step a inquiry. make, ments that actually debtors Applied us, to the before facts the Debt- many own, how they ears because the ors valued their residences such pay- payments that debtors make are what ments to the stripped lienholders were actually affect their ability to make pay- completely unnecessary to their mainte- ments to their creditors. nance support. Thus had no Ransom, 577 F.3d (emphasis 1029-30 payments to make. inAs Ransom added). having precisely situation the same eco- 14. While labeled "forward-look a fixed debt that know disappear we will ing” approach expenses, actually it is con Chapter plan before the approved. is sideration “aof fixed debt that we know will Id. disappear Chapter before the ap Turner, proved.” Judge F.3d at 356. As 1325(b)(2)(B) 15. Subsection adds a deduction Posner stated on behalf of the Seventh Circuit from current income for in Turner: engaged in business. [B]ankruptcy judges engage must not speculation about the future income or ex- This because begins penses Chapter 13 debtor. That subsection, purposes “For of this the term delay would Chapter unsettle and ” ‘disposable income' means.... Then subsec- process exaggerate as well as how accurate- (b)(3) begins tion reasonably “Amounts neces- ly person’s a economic situation in five sary expended paragraph shall years predicted. can be But in this case be determined....” speculation; there is no all that is at issue is 1325(b)(3)’s (no there; incorporation at all no se- section of lien section nomic effect here), 707(b) the court’s words pay static, cured debt to requires backward-looking a are instructive: 707(b) inquiry, requires since itself such an BAP, our we this issue

As did decide See, analysis. e.g., Morse v. Rudler manual, but instead on not on IRS’s (1st Cir.2009). Rudler), Here, 576 F.3d 37 read, statutory language, plainly play, does not come into a which we believe does not allow debtor so we are not bound a backwards- (as “ownership to deduсt an cost” dis- looking inquiry. cost”) “operating from an that the tinct does not An “ownership have. interpretation This is consistent “expense” cost” is not an actual —either plain language with the of the statute. exist, it not peri- or does —if The Ninth Circuit ac Kagenveama od. a knowledged language when statute’s (citation and internal plain, is the court it should enforce accord omitted). marks quotation ing Kagenveama, to its terms. bankruptcy courts that Ka- The believed at 872. To the extent sections a genveama requires bankruptcy court to (b)(3) ambiguous, and are “snapshot” petition-date analysis a apply interpretation avoids an absurd result and prongs both in- calculating is сonsistent with the intent of the statute’s In expenses come: and income. other drafters. words, they they felt not could consider post-petition determining events wheth- Purely expenses historical which will reasonably necessary are expenses er paid never be under or outside of the support the maintenance and of debtors (phantom expenses) reasonably cannot be dependants. disagree and their We be- necessary for a support debtor’s or main- cause, noted, as the clear language sec- tenance. To include them in the calcula- 1325(b)(2)requires tion tion of disposable ignores the dif- reasonably necessary support for the ferеnt functions of subsections maintenance the debtor. Smith we (b)(3). holding that items that a debtor has are or intends to surrender are us, surrendered In the cases before have Debtors necessary support for his or her or chosen to value certain liens at zero and concepts maintenance. making any payments will not be under or —surrender necessity mutually exclusive of —-are plans mortgages. outside their on the Yet another. one deducting mortgage pay- these too, here, that wholly expenses “necessary” So the notions ments as for their petition debt—as of the date— unsecured support. Debtors cannot have it both paid must be secured debt cannot be ways. expense Either the or reconciled. Phantom for value- longer it no obligation exists as secured collateral are not less neces- purposes plans. for the of their Once sary support for a debtor’s and mainte- opt to eliminate the secured nance. claims, payment long- of those claims is no er an expense for their therefore re 1325(d)(2). support under section Conse- necessity the court to look at the quires quently, there is no need to resort to sec- determined real-time, basis, forward-looking dispatch on a while tion and its to the me- 707(b)(2)(A) chanical formulas of section & Catching Can-Pay Debtors: Is the Means (B).17 Test ‍​​​‌‌​​‌​​‌​​‌​‌​‌​​‌‌​‌‌‌​‌‌‌​‌‌‌​​‌‌‌​​​​‌‌‌‌‌‍the Only Way, 13 Am. Bankr.Inst. 665, (2005);

L.Rev. 677-683 Maney v. Ka (In genveama re Kagenveama), VI. CONCLUSION 868, Cir.2008); Alexander, In re reasons, For the foregoing we RE- (Bankr.E.D.N.C. 344 B.R. 747-48 VERSE. 2006) (Congress acted intentionally it when inserted the means test into the calculation HOLLOWELL, J., dissenting, of chapter 13 payment plans). guise Under the plain of a meaning stat- utory analysis, majority the holds Circuit, The Ninth Kagenveama, de- § must be read se- clined to “override the definition and pro- quentially, thereby arriving at a “common cess for calculating disposable income un- sense” only result which permits an above 1325(b)(2)-(3) § der as being absurd” even median-income debtor to use the means it produced if a less favorable result for test to calculate expenses unsecured creditors. after demonstrates the is reasonably (9th Cir.2008). contrast, In the Ninth Cir- necessary. While I sympathize with the cuit recently determined, v. Ransom majority’s desire to achieve a common MBNA Am. Ransom), Bank re result, sense I agree cannot with its con- (9th Cir.2009) F.3d 1026 that in order to torted statutory analysis. reach a result consistent with BAPCPA’s goal ensuring that repay debtors credi- provides that when a tors as much possible, as debtor has an income, above-median 707(b)(2)(A)(ii)(I) § could only be inter- reasonably necessary expenses to be de preted to “apply” expense standards ducted from current cases where debtors in pay fact such ex- (“CMI”) “shall be” calculated in accor penses. 707(b)(2)(A) § dance (B), with other wise known as the means test. 11 U.S.C. course, Of majority notes, § added). (emphasis The word somewhat inconsistent holdings of Kagen- “shall” mandatory. Therefore, for the veama and Ransom are not binding toas debtor, above median-income the resolution of this case since they did must be 707(b)(2). calculated under not address the issue presented here on Farrar-Johnson, (Bankr. 353 B.R. 224 appeal. However, part I majori- N.D.Ill.2006). ty’s contention that Kagenveama

Presumably, Congress the in- believed statutory court’s analysis and discussion clusion of the means test into calcula- about how projected disposable income tion of an above median-income debtor’s should be calculated was “made casually CMI was the mechanism through which and without analysis,” and cаn be dis- debtors would meet goals BAPCPA’s of missed as Instead, mere dicta. I believe ensuring repay debtors creditors the maxi- analysis undertaken mum they can afford judicial and reducing Ninth Circuit in Kagenveama provides im- discretion and non-uniformity. Mar- See portant guidance for the interpretation of ianne B. Culhane & White, Michaela (b)(3). M.

17. Based on our analysis, we do need Johnson, district court in Thissen v. 406 B.R. deal with merits an analysis alternate (E.D.Cal.2009). reach the same result set forth (Bankr. Smith, 469, In re 401 B.R. the Ninth Circuit was Kagenveama, W.D.Wash.2008). confronted, here, interpret are we “ 1325(b) § that contains

ing a subsection 1325(b)(3) noted, § Another court following in a sub an imbedded definition states that the amounts determined to be It did not read the sections se sectiоn. 1325(b)(2) § reasonably necessary under Rather, the court held that the quentially. shall be determined ‍​​​‌‌​​‌​​‌​​‌​‌​‌​​‌‌​‌‌‌​‌‌‌​‌‌‌​​‌‌‌​​​​‌‌‌‌‌‍in accordance with in “disposable income” definition of 707(b)(2)(A) § (B) period. and The term — 1325(b)(2) meaning phrase to the gave § 1325(b)(3) necessary’ §in ‘reasonably is disposable in “projected superfluous very is the term that —it 1325(b)(1)(B). § 541 F.3d at 873. The Ka reason, ... this section defines. For that “de-couple court refused to ‘dis genveama separate courts conduct a ‘rea- [not] ‘projected dispos income’ from the posable sonably necessary’ analysis beyond at simply 707(b)(2).” income’ calculation to arrive Smith, able § Bodegom In re Van (Bankr.E.D.Wis.2008) a more favorable result for unsecured 441, 383 B.R. creditors, espеcially plain when the text (ultimately holding on sur- linkage precedent and dictate[d] rendered collateral are not “scheduled as Id. at two terms.” contractually due” under 707(b)(2)(A)(iii)(I) therefore, and, § cannot agree I with the courts that find the in a be deducted debtor’s means test calcu- 1325(b)(3) § reading natural “com most lation). application of Section mands 1325(b)(2) (B) agree § I 707(b)(2)(A) do not and to determine the sequentially. should read The ‘reasonably meaning of the amounts neces ” 1325(b)(2). statutory analysis put majori- forth expended’ § sary to be 1325(b)(2) (Bankr. ty, § Burbank, which reads se- 401 B.R. In re D.R.I.2009) quentially, essentially language adds to (citing Quigley, In re 391 B.R. 1325(b)(3) § (Bankr.N.D.W.Va.2008)). to read it is determined 294, 299 Be “after expense reasonably necessаry, then § contains the definition cause reasonably necessary the amounts to be reasonably necessary of “amounts in expended shall be determined accor- give it must be read to mean expended,” 707(b)(2).” § dance with to what is to be deducted an above ing median-income debtor order to deter join my colleagues I cannot in an inter disposable income. As one bank mine pretation upends inclu correctly ruptcy analyzed court sion of the means test in re (b)(3): § judicial verting pre-BAPCPA back income,” “disposable As with the term discretion as to what of a debtor reasonably necessary reasonably necessary. Kagenvea “amounts to be ex- See (dеliberate 1325; ma, appears only § twice in pended” departure § pre-BAPCPA and then in from the once 1325(b)(3). If the Court were to re- calculation was so that would debtors “be clear, standards, quire requirement subject an additional that the defined no longer judicial also be for a debtor’s left to the whim of a pro (citation omitted)). support,” ceeding” majority “maintenance or it would like- surplusage wise render as the clear di- contends the discretion of the court, analysis, only rection to how under its to hold consequences “amounts to be ex- debtors to the of their deci pended” shall be determined. sions about what assets retain or surrender; however, reality of the ma-

jority’s interpretation of the statute is that will have courts the discretion

to make determinations about ex- what

penses “reasonably necessary.”

While I sympathize with the majority’s

desire for a common-sense solution to the

problem created incorporating

means test into 13 above medi-

an-income debtor’s calculation income,

ble I do not believe it is the role of judiciary to remedy outcomes that do comport with our view of common (“If

sense. See Id. the changes

imposed by poor poli- BAPCPA arose from

cy choices that produced undesirable re-

sults, it up Congress, courts, not the statute.”).

to amend the

In re Timothy SMITH and Karrie Smith,

A. Debtors. Express Bank,

American FSB; Robert Miller, Jr.,

D. Acting United States

Trustee; Howe, Chapter M. David

Trustee, Appellants,

v.

Timothy and Karrie Smith Smith, Appellees.

A.

BAP Nos. WW-08-1311-MoJuH,

WW-08-1312-MoJuH, WW-

08-1313-MoJuH.

Bankruptcy No. 07-43853-PBS.

United Bankruptcy States Appellate Panel

of the Ninth Circuit.

5,Oct.

Case Details

Case Name: Yarnall v. Martinez (In Re Martinez)

Court Name: United States Bankruptcy Appellate Panel for the Ninth Circuit

Date Published: Oct 5, 2009

Citation: 418 B.R. 347

Docket Number: BAP Nos. NV-08-1332-MoJuH, NV-08-1335-MoJuH, NV-08-1340-MoJuH. Bk. Nos. 08-14571-BAM, 08-15414-LBR, 08-15133-MKN

Court Abbreviation: 9th Cir. BAP