RANDY D. DOUB, Bankruptcy Judge.
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 13 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:
Because of the early termination language, the plan will likely last fifty-five (55) months or less.
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:
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 —
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, 379 B.R. 583 (Bankr.E.D.N.C.2007)
Subsequent to the decisions in Musselman v. eCast Settlement Corp., 394 B.R. 801, 814 (E.D.N.C.2008) and In re Alexander, 344 B.R. 742, 749 (Bankr.E.D.N.C. 2008) the Supreme Court of the United States has interpreted the phrase "projected disposable income" in Hamilton v. Lanning, ___ U.S. ___, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010). There, the above-median-income Chapter 13 debtor, in the six months preceding the bankruptcy filing, received a "one-time buyout from her former employer" greatly increasing the debtor's average monthly income for the sixth month period preceding the filing date. Id. at 2470. Post-petition, however, the debtor's income was drastically reduced with her new job. Id. Her monthly expenses calculated pursuant to § 707(b)(2), were $4,228.71 and her "disposable income" as reported on Form B22C was $1,114.98. On her Schedule I, she reported an income below the state median of $1,922.00 per month and on her Schedule J she reported actual monthly expenses of $1,722.97, resulting in a
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
Id. at 2471. The Court noted "[t]here 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 debtor'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.___, 131 S.Ct. 716, 178 L.Ed.2d 603 (2011), held a debtor may not deduct on form B22C an IRS Local Standard deduction for an expense which the debtor will not incur during the life of the plan. Id. at 725. In making its determination the Court noted that an "expense amount is `applicable' within the plain meaning of the statute when it is appropriate, relevant, suitable, or fit." Id. at 724. The Court noted that "[i]f a debtor will not have a particular kind of expense during his plan, an allowance to cover that cost is not `reasonably necessary' within the meaning of the statute." Id. at 725. The Court cited Lanning, when commenting on Congress' intent in passing BAPCPA:
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." 673 F.3d 269, 272 (4th Cir.2012). Specifically, the court addressed whether "projected disposable income" should take into account the debtor's intention to surrender two vehicles to her secured creditors. Id. at 270. The Fourth Circuit relied on Lanning and noted the Supreme Court adopted a "forward-looking approach" and held that "when a bankruptcy court calculates a 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 273 (citation omitted). The court found that "failing to account for [known decreases in a debtor's expenses] and thereby denying the unsecured creditors payments that the [d]ebtor clearly could make would be just the sort of `senseless result[ ]' that the Lanning Court rejected." Id. at 274 (citing Hamilton v. Lanning, ___ U.S. ___, 130 S.Ct. 2464, 2475, 177 L.Ed.2d 23 (2010)). The debtor in the case attempted to distinguish Lanning by arguing that Lanning involved a change in income while the debtor's case involved a change in expenses. Id. The court found that the principles articulated in Lanning applied equally to both situations. Id.
In re Sterrenberg, Case No. 11-08543-8-RDD, 2012 WL 1835183, at *5 (Bankr. E.D.N.C. May 18, 2012) (citing In re Harris, 353 B.R. 304, 309 (Bankr.E.D.Okla. Oct. 13, 2006); In re Krawczyk, Case No. 11-09596-8-JRL, 2012 WL 3069437 at *5 (Bankr.E.D.N.C. July 27, 2012)).
The same principles laid out in Lanning, Ransom, and Quigley, have been applied when determining
Seafort v. Burden, 669 F.3d 662, 663 (6th Cir.2012). The Sixth Circuit held that "income made available once Debtors' 401(k) loan repayments are fully repaid is properly committed to the debtors' respective Chapter 13 plans for distribution to the unsecured creditors and may not be used to make voluntary retirement contributions." Id. at 674. While the Sixth Circuit relied on an analysis of §§ 541(b)(7), 541(a)(1), and 1306(a) to reach its decision, the court did cite to the Congressional intent and purpose of BAPCPA "to ensure that debtors devote their full disposable income to repaying creditors and maximizing creditor recoveries." Id. at 674 (citations omitted).
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, 611 F.3d 873 (11th Cir.2010), held that the applicable commitment period mandates a minimum duration for an above-median income debtor's Chapter 13 plan. Id. at 874. The facts of In re Tennyson involved an above-median income debtor whose Form B22C indicated that he had negative disposable income. Id. at 875. Using the multiplier approach, this debtor determined that he had no applicable commitment period since he had no projected disposable income. Id. The debtor proposed a three-year plan and the Chapter 13 Trustee objected. Id. The Eleventh Circuit relied on Lanning's rationale to support its holding that the provisions of Title 11 setting out the applicable commitment period require an above-median income debtor to remain in a Chapter 13 bankruptcy for five (5) years. Id. at 878. The Circuit Court reasoned that "Lanning does not directly comment on the definition of `applicable commitment period' but what it does indicate is that § 1325(b) is not a strict mechanical formula existing in a vacuum." Id. With such a flexible approach, the Eleventh Circuit concluded that "in order for `applicable commitment period' to have any definite meaning, its definition must be that of a temporal term derived from § 1325(b)(4)." Id. at 879. The Eleventh Circuit did not make a distinction between positive and negative disposable income and applied the temporal approach to all debtors. Id.
Id. at 350-351 (emphasis added).
Relying on Lanning and Ransom, the Sixth Circuit stated:
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, 611 F.3d 873, 879 (11th Cir. 2010); In re Moose, 419 B.R. 632, 635 (Bankr.E.D.Va.2009). Even pre-BAPCPA case law points in favor of a forward-looking approach. In Hamilton v. Lanning, the Supreme Court looked to pre-BAPCPA practice and concluded that "we `will not read the Bankruptcy Code to erode past bankruptcy practice absent a clear indication that Congress intended such a departure.'" Hamilton v. Lanning, ___ U.S. ___, 130 S.Ct. 2464, 2473, 177 L.Ed.2d 23 (2010) (quoting Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Electric Co., 549 U.S. 443, 454, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007)). If the Court allowed above and below-median income debtors to exit bankruptcy upon payment of their secured claims, unsecured creditors would not be able to capitalize on any subsequent increase in the debtors' income. See In re King, 439 B.R. 129, 139 (Bankr.S.D.Ill. 2010).
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. ___, 131 S.Ct. 716, 725, 178 L.Ed.2d 603 (2011); see Seafort v. Burden, 669 F.3d 662, 674 (6th Cir.2012); Baud v. Carroll, 634 F.3d 327, 343 (6th Cir.2011).
Congress intended to require higher income debtors to pay 100% of unsecured claims or make payments for five (5) years. Coop v. Frederickson, 375 B.R. 829, 837 (8th Cir. BAP 2007) (Federman, J., dissenting). Looking at legislative history, the House Report on § 1325(b) shows that the applicable commitment period is a durational requirement. Id. There are numerous circumstances in which disposable income might become available to the debtors after confirmation, even for those who have zero or negative projected disposable income.
The Bankruptcy Court for the District of Kansas noted:
In re Beckerle, 367 B.R. 718, 721 (Bankr. D.Kan.2007) (citations omitted) (emphasis added).
Additionally, the debtor's "disposable income" may not be the same as the debtor's actual "projected disposable income." See In re Frederickson, 545 F.3d 652, 659 (8th Cir.2008). The debtor's actual expenses may be far less than the regional averages that are assumed in the calculation. Id. Thus, a debtor's "projected disposable income" is a forward-looking number and courts should look at things that are likely to occur in the future instead of relying on historical information. Id. Clearly, the Supreme Court and a majority of other courts are emphasizing a debtor's actual ability to pay in the future, rather than being tied to the mechanical formula, which often produces senseless results.
The United States District Court for the Eastern District of North Carolina addressed the applicable commitment period in Musselman v. eCast Settlement Corp., 394 B.R. 801 (E.D.N.C.2008). In Musselman, the court addressed the issue of whether the applicable commitment period as defined in § 1325(b)(4) determined the length of the plan regardless of the debtor's projected disposable income. The Musselman Court held that debtors who have no projected disposable income also have no applicable commitment period for
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 unsecured
Therefore, the Trustee's Motion to Dismiss is
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, 2013, 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.
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)
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, 2013 WL 153846, *1 (Bankr. E.D.N.C. Jan. 15, 2013). In the order, the Court held that the "Applicable Commitment Period" of 11 U.S.C. § 1325(b) is a temporal requirement, which requires an above-median-income debtor to commit to a sixty (60) month plan period; and that projected disposable income is calculated using a "forward-looking approach" and is not one in the same as disposable income as determined on Form B22C. The Court directed 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.
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.
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:
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.
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. ___, 130 S.Ct. 2464, 177 L.Ed.2d 23, (2010) allowed a bankruptcy court to consider income or expenses that are known or virtually certain at the time of confirmation when calculating projected disposable income. Based on Lanning, the Court held determining a debtor's projected disposable income requires considering income and expenses under the "forward-looking approach" rather than the mechanical approach, which involves multiplying
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 Musselman, 379 B.R. 583 (Bankr.E.D.N.C.2008) (finding projected disposable income and disposable income have the same meaning for above-median income debtors, which is used to determine the monthly amount to be paid to unsecured creditors through the plan and that the applicable commitment period is tied to the above or below-median current monthly income of a debtor) rev'd Musselman v. eCast Settlement Corp., 394 B.R. 801 (E.D.N.C.2009) and in In re Alexander, 344 B.R. 742, 749 (Bankr.E.D.N.C. 2006) (finding that to calculate a Chapter 13 debtor's projected disposable income, "one simply takes the calculation mandated by § 1325(b)(2) and does the math," while recognizing the debate and split of authority among bankruptcy courts).
Subsequent to the decisions in Musselman v. eCast Settlement Corp., 394 B.R. 801 (E.D.N.C.2008) and In re Alexander, 344 B.R. 742 (Bankr.E.D.N.C.2006) the Supreme Court of the United States interpreted the phrase "projected disposable income" in Hamilton v. Lanning, ___ U.S. ___, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010). There, 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." Hamilton v. Lanning, 130 S.Ct. at 2478.
Following Lanning, the Supreme Court in Ransom v. FIA Card Services, N.A., ___ U.S. ___, 131 S.Ct. 716, 178 L.Ed.2d 603 (2011), held a debtor may not deduct on form B22C an IRS Local Standard deduction for an expense that the debtor will not incur during the life of the plan. Id. at 725. In making its determination, the Court noted that an "expense amount is `applicable' within the plain meaning of the statute when it is appropriate, relevant, suitable, or fit." Id. at 724
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
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, 130 S.Ct. at 2467 (explaining under pre-BAPCPA case law, courts generally multiplied a debtor's current monthly income by the number of months in the commitment period, but had discretion in accounting for known changes); see also In re Quigley, 673 F.3d 269 (4th Cir.2012); In re Johnson, 382 Fed.Appx. 503, 507 (7th Cir.2010) (Lanning leaves no doubt that a bankruptcy court has discretion to account for changes in a debtor's income that have either occurred at the time of confirmation or are virtually certain to occur). In Lanning, the Supreme Court condones this practice as it stated "the Court `will not read the Bankruptcy Code to erode past bankruptcy practice absent a clear indication that Congress intended such a departure,' and Congress did not amend the term `projected disposable income' in 2005." Hamilton v. Lanning, 130 S.Ct. at 2467 (citation omitted). Therefore, by looking at a debtor's actual ability to pay, courts are adopting the purposeful intent of the statute in order to avoid senseless results and to accomplish the stated Congressional intent of requiring debtors who can afford to make payment to creditors do so. See Ransom v. FIA Card Servs. N.A., ___ U.S. ___, 131 S.Ct. 716, 725, 178 L.Ed.2d 603 ("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.'") (quoting H.R.Rep No. 109-31, pt. 1 p. 2 (2005)). In Pliler, it is known or virtually certain that the Debtors attorneys' fees will be paid after fifteen (15) months. Completion of payments on the attorneys' fees makes additional disposable income available for payment to unsecured creditors.
In light of the emerging case law, the issue before this Bankruptcy Court in Pliler was whether "projected disposable income"
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 Ballew, 487 B.R. at 668-69; In re Temple, at *1. In order to resolve the issue in the district, the Chapter 13 Trustee filed a similar Request for Certification of Issue for Appeal in In re Ortega, in which the trustee requests the Bankruptcy Court certify the following issue for appeal to the Fourth Circuit:
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, 397 B.R. 299, 312 (Bankr.M.D.N.C.2008) (Form B22C is only a starting point for determining a debtor's income for the purposes of 11 U.S.C. § 1325(b)(1)(B) because "the word `projected' is forward looking."); In re Houser, No. 07-50529, 2007 WL 6404340, at *4. (W.D.N.C. Dec. 14, 2007) ("If a debtor can demonstrate that his actual prospective disposable income differs from that elicited in the means test, we use the prospective income in calculating plan payments."); In re Plumb, 373 B.R. 429, 430 (Bankr. W.D.N.C.2007) (Form B22C is the starting point for determining projected disposable income for above-median debtors, but projected disposable income is a forward-looking concept, Schedules I and J should be considered as well); In re Edmunds, 350 B.R. 636, 646 (Bankr.D.S.C.2006) ("the income component of projected disposable income is a forward-looking concept" not limited by the means test but allows consideration of actual income and expenses expected during the plan term); In re Anstett, 383 B.R. 380 (Bankr.D.S.C.2008) (finding disposable income as calculated by the means test establishes a floor for the dividend to unsecured creditors, not the plan payment itself); In re Herrmann, No. 10-06523-JW, 2011 WL 576753 (Bankr. D.S.C. Feb. 9, 2011); In re Kelly, 416 B.R. 232, 237 (Bankr.E.D.Va.2009) (when disposable income calculations lead to distorted results, the court should account for the distortion in determining projected disposable income); In re Minahan, 394 B.R. 116, 131 (Bankr.W.D.Va.2008) (following the line of cases that hold "B22C is the starting point, not both the starting and ending point, in determining" the minimum obligation under a plan); In re Watson, 366 B.R. 523, 531 (Bankr.D.Md.2007) (Form B22C calculations are a debtor's presumptive projected disposable income but a debtor may rebut the presumption by showing the calculations are not commensurate with projected earnings and expenses). Therefore, the holdings in Ballew and Temple do not just create conflict within the Eastern District of North Carolina, but directly conflict with other bankruptcy courts throughout the Fourth Circuit.
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, 634 F.3d 327, 339 (6th Cir.2011). There, the Sixth Circuit relied on the language in Lanning and Ransom to require a five (5) year applicable commitment period upon the above-median income debtor whose disposable income was less than zero. Id. at 351. Adding to the confusion, the Ninth Circuit confirmed a thirty-six (36) month plan for above-median debtors with no projected disposable income but then ordered an en banc rehearing of the issues on appeal in Danielson v. Flores (In re Flores), 692 F.3d 1021 (9th Cir.2012), reh'g granted, 704 F.3d 1067 (9th Cir. 2012). The rehearing is set for March 18, 2013.
The United States District Court for the Eastern District of North Carolina addressed the applicable commitment period in Musselman v. eCast Settlement Corp., 394 B.R. 801 (E.D.N.C.2008). In Musselman, the court addressed the issue of whether the applicable commitment period as defined in § 1325(b)(4) determined the length of the plan regardless of the debtor's projected disposable income. The Musselman Court held that debtors who have no projected disposable income also
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, 344 B.R. 742 (Bankr.E.D.N.C.2006) (holding the term applicable commitment period is relevant only in regard to projected disposable income to unsecured creditors and if a debtor has no projected disposable income the applicable commitment period does not come into play); Musselman v. eCast Settlement Corp. (In re Musselman), 394 B.R. 801 (E.D.N.C.2008) (finding debtors who have no projected disposable income also have no applicable commitment period for purposes of § 1325(b)). The inclusion of the early termination language in the Debtors' plan is in direct conflict with § 1325(b)(4)(B), unless unsecured creditors are paid in full. This Court's decision in Pliler all but prevents attorney's from filing plans that include the early termination language, while Ballew and Temple allow the practice to continue.
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, 350 B.R. 31, 35 (Bankr.M.D.N.C.2006) (finding "the term `period' implies time period rather than amount"); In re Crittendon, No. 06-10322 C-13G, 2006 WL 2547102, at *5 (Bankr. M.D.N.C.2006) (applicable commitment period
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 arrearages on secured debts or paying a dividend to unsecured creditors. See In re Tedder, No. 12-06232-8-RDD, 2013 WL 145416 (Bankr.E.D.N.C. Jan. 14, 2013); In re Mathis, No. 12-05618-8-RDD, 2013 WL 153833 (Bankr.E.D.N.C. Jan. 15, 2013); In re Barnes, No. 12-06613-8-RDD, 2013 WL 153848 (Bankr.E.D.N.C. Jan. 15, 2013). Such plans bring good faith issues to the forefront as they contravene the purpose and intent behind BAPCPA. See Ransom v. FIA Card Servs. N.A., ___ U.S. ___, 131 S.Ct. 716, 725, 178 L.Ed.2d 603 ("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.'") (quoting H.R.Rep No. 109-31, pt. 1 p. 2 (2005)). The Fourth Circuit requires courts to examine the totality of the circumstances to determine whether a plan has been proposed in good faith. Deans v. O'Donnell (In re Deans), 692 F.2d 968, 972 (4th Cir.1982).
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), 692 F.2d 968, 972 (4th Cir.1982), where it found courts must examine whether a plan has been proposed in good faith based on the totality of the circumstances. In Deans, the Fourth Circuit addressed the issue of whether 11 U.S.C. § 1325(a)(3) requires that all plans must provide substantial and meaningful repayment to the debtor's unsecured creditors. Id. at 969. The Court concluded that the plain language of the statute does not impose a per se rule of substantial repayment into the "good faith" requirement in every case. Id. at 970. Therefore, no controlling precedent exists on the issues involved in Pliler.
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 period
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, 416 B.R. 232, 238 (Bankr.E.D.Va.2009) (denying confirmation of a plan that proposed a plan payment of $1,805.00 when the debtor's schedules indicated he had income of $7,405.00 and expenses of $3,324.00, for a monthly surplus of $4,081.00); see also In re Degrosseilliers, No. 08-10942-SSM, 2008 WL 2725808 at *3 n. 7 (Bankr. E.D.Va. July 11, 2008). This is in direct conflict with the court in In re Winokur, which followed In re Alexander and found that if a "debtor proposes to pay the amount Congress requires by the mathematical formula, the debtor has complied with the good faith requirement." In re Winokur, 364 B.R. 204, 206 (Bankr. E.D.Va.2007) (confirming an above-median debtor's plan that provided for payment greater than or equal to the amounts computed under § 1325(b)(2) but less than the debtor's actual net disposable income). Such conflict among districts is further cause to certify the appeal directly to the Fourth Circuit.
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 advance
Accordingly, for the foregoing reasons, the Trustee's Request for Certification of Issue for Direct Appeal is
Dividend to Unsecured Unsecured Early Sch. I- Proposed Plan Debt Creditors Termination Form B22C Sch. J a. $1,784 × 15 months, then $24,008.31 0% Yes-included -$291.20 $1,533.01 $1,547 × 40 months in proposed (above-median) = $88,640 plan b. Attorney's Fees = $3,335 c. Trustee's Commission = $3,988.80 d. Payment to Secured Creditors = $1,429 × 55 = $78,595 e. Payment to Unsecured Creditors with early termination language = $0
11 U.S.C. § 101(10A)
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 debtor'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., 394 B.R. 801, 814 (Bankr.E.D.N.C. 2008). Further, after analyzing both the multiplicative approach, which finds "`projected disposable income' intimately related to `disposable income'" as identified in In re Alexander, 344 B.R. 742 (Bankr.E.D.N.C.2006), and the "forward-looking approach," which "require[s] a forward looking inquiry to determine what a debtor's `projected disposable income' will be during the pendency of the chapter 13 plan," the District Court held that "projected disposable income" is equivalent to the debtor's "disposable income" as defined in 11 U.S.C. § 1325(b)(2). Id. at 808-13.
(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 —
11 U.S.C. § 101(10A)
11 U.S.C. § 1325(b)(4).
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).