Keith L. Phillips, United States Bankruptcy Judge.
The chapter 13 trustee (the "Trustee") has objected to confirmation of the chapter 13 plan (the "Plan") filed by Debtor Marian Leah Baker (the "Debtor"). The Trustee's objection (the "Objection") claims that the Plan fails to provide that "all of the Debtor's projected disposable income... will be applied to make payments to unsecured creditors under the plan," as
The issue before the Court is what portion of the income of the Debtor's non-filing spouse (the "Spouse") should be included in Debtor's projected disposable income and used to make payments to unsecured creditors. Specifically, the Court must determine the extent to which the Debtor is entitled to claim a "marital adjustment" on line 13 of Official Form 122C-1 ("Form 122C-1").
The Trustee asserts that the Debtor has improperly reduced her projected disposable income by using the marital adjustment to exclude amounts paid by the Spouse on (1) a mortgage for which he solely is liable, and (2) other debts owed only by the Spouse. Although the mortgage debt is an obligation of the Spouse only, the Debtor and her dependent reside with the Spouse in the property securing the mortgage indebtedness. In response to the Objection, the Debtor has agreed to forego a portion of the disputed marital adjustment but disagrees with the Trustee's assertion that she may not exclude the amounts representing her Spouse's mortgage payments.
The parties have elected to submit stipulations of fact in lieu of conducting an evidentiary hearing. The stipulations are as follows:
This Court has jurisdiction pursuant to 28 U.S.C. § 1334 and the Order of Reference of the U.S. District Court for the Eastern District of Virginia dated August 15, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(L).
Section 1325(b)(1)(B) of the Bankruptcy Code states that if the trustee or an unsecured creditor objects to confirmation, a chapter 13 plan must provide that all of a debtor's projected disposable income be used to pay unsecured creditors.
Form 122C-1, entitled "Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period," implements the language of § 101(10A) by permitting a debtor to take a "marital adjustment" if the debtor is married and the debtor's spouse is not a joint debtor in the case. Line 13 of Form 122C-1 instructs a debtor who is married and filing individually to designate the amount of the non-filing spouse's income "that was NOT regularly paid for the household expenses of [the debtor] or [the debtor's] dependents ...." That amount constitutes the marital adjustment that, when applied, reduces a debtor's CMI. In the present case, the Debtor claimed a marital adjustment of $1200 for her "[h]usband's First and Second Mortgage."
A marital adjustment reduces the amount of a debtor's CMI and is significant in a chapter 13 bankruptcy case for two primary reasons. The term of a debtor's plan is determined by comparing CMI to the median family income in the debtor's state of residence. If CMI multiplied by twelve equals or exceeds the median family income for the state, the debtor's
Here, the Debtor has not attempted to qualify for a commitment period of less than five years;
When interpreting a provision of the Bankruptcy Code, the Court must first look to the language of the statute itself. Ransom v. FIA Card Services, N.A., 562 U.S. 61, 69, 131 S.Ct. 716, 178 L.Ed.2d 603 (2011). The statutory language at issue is § 101(10A)(B)'s provision that CMI includes amounts "paid by any entity other
At least one court has pointed out that "expenses" for purposes of § 101(10A)(B) does not include payments on debts because the language of § 707(b)(2)(A) specifically distinguishes "expenses" from "payments on debts." In In re Hall, 559 B.R. 463 (Bankr. S.D. Tex. 2016), the court stated that "§ 707(b)(2)(A)(ii) is unequivocal that monthly expenses of the debtor shall not include any payments for debts." Id. at 470.
In Hall, the disputed payments were made on vehicles titled only in the
Alternatively, even if the Spouse's mortgage payments were to be considered "household expenses," the marital adjustment would still be allowed because the mortgage payment expenses are not expenses "of the debtor or the debtor's dependents." The Spouse purchased the residential home before marrying the Debtor, the residence is owned solely by the Spouse, and only he is obligated to make payments on the mortgage indebtedness.
A number of courts, after determining that mortgage expenses are "household expenses" under § 101(10A), have considered whether those mortgage payments constitute expenses "of the debtor or the debtor's dependents" and may thus be excluded from a debtor's CMI when, as here, the debtor's non-filing spouse is the only one liable on the mortgage.
In this Court's view, the statutory language of § 101(10A), both in wording and context, supports the application of a debtor-centric approach in this case. To disallow the marital adjustment solely on the basis that the Debtor and her dependent receive an indirect benefit from the Spouse's mortgage payments would lead to an artificially inflated monthly disposable income calculation and would deprive the Spouse of the income needed to make the mortgage payments that only he owes.
The facts in In re Toxvard, 485 B.R. 423 (Bankr.D.Col.2013), are similar to the facts in this case. There, the chapter 13 trustee objected to a debtor's marital adjustment, claiming that it was overstated for the
Id.
The court in Toxvard considered the implications of Ransom v. FIA Card Servs., N.A., where the Supreme Court held that a debtor may not deduct loan or lease expenses under § 707(b)(2)(A)(ii) if the debtor does not own a vehicle on the date of filing. In Toxvard, the court pointed out that were it to deny the marital adjustment for mortgage payments the debtor is not obligated to pay, Ransom would compel "[a]n outcome where the Debtor may declare her non-filing spouse's mortgage payment as her income, but is unable to deduct the mortgage payment," something the court found to be "an absurd result." Toxvard, 485 B.R. at 438.
Another court, in finding that a debtor was entitled to a marital adjustment for her non-filing spouse's mortgage payment when the house in which she and her spouse resided was owned by the spouse solely and only the spouse was liable for the mortgage payments, concluded that if "the expenses of a nonfiling spouse are to be included in Current Monthly Income so long as they vaguely benefit the debtor or her dependent, the distinction between a single and joint filing is unnecessary." Sturm v. U.S. Trustee, 455 B.R. 130, 137 (N.D. Ohio 2011). The court in that case instructed that:
Id. at 136-37.
Line 33 of Form 122C-2 is designated as the appropriate place on the form to include deductions for debt payments; however, in accordance with § 707(b)(2)(A)(iii), line 33 applies to debts "secured by an interest in property that you own ...." The Trustee's answer to the dilemma posed by the Debtor's lack of ownership of the collateral or liability for the debt is to ignore the language of § 707(b)(2)(A) and utilize line 43's deduction for "special circumstances" to recharacterize what is properly a marital adjustment as a deductible expense. Line 43 is not intended to include deductions otherwise addressed in Form 122C-2, particularly those involving payments on secured debts. Requiring the Debtor to complete the Form in the manner suggested by the Trustee for the sole purpose of designating the Debtor as above-median pursuant to § 1325(b)(3) is inappropriate.
The Debtor is entitled to claim the marital adjustment for the Spouse's mortgage payments on line 13 of Form 122C-1. The mortgage payments in this case are not an "expense" of the Debtor or the Debtor's dependent under § 101(10A)(B) because they represent "payments for debts" as described in § 707(b)(2)(A)(ii)(I). Alternatively, the court rejects the applicability of the household-centric approach in this case; even if the mortgage payments are considered an "expense" under § 101(10A)(B), they are not an "expense" of the debtor or the debtor's dependents." In light of the Debtor's concessions that Form 122C-1 includes improper marital adjustments, and for the foregoing reasons, the Court will sustain the Objection and deny confirmation of the Plan with leave to amend within 21 days. The Debtor is directed to amend Form 122C-1 within 14 days and, if the amendment so requires, simultaneously complete and file Form 122C-2.
A separate order will be entered.
"Applicable commitment period" is defined in subsection (b)(4).
11 U.S.C. § 707(b)(2)(A)(ii)(I).
Treas. Reg. § 1.2-2(d). This regulation does not include payment of mortgage principal as a household expense.
Sturm, Clemons, and In re Hall, 559 B.R. 463 (Bankr. S.D. Tex. 2016), demonstrate that interpreting § 101(10A)(B) to permit the deduction of a non-filing spouse's monthly payment obligation on a secured debt, when (1) the payment is not an obligation of the debtor or the debtor's dependent and (2) the debtor has no interest in the property securing the debt, is compatible with the remainder of the statutory scheme, including § 707(b)(2)(A). "Statutory construction is a `holistic endeavor.... A provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme — because the same terminology is used elsewhere in a context that makes its meaning clear, or because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law." Koons Buick Pontiac GMC, Inc. v. Nigh, 543 U.S. 50, 60, 125 S.Ct. 460, 160 L.Ed.2d 389 (2004) (quoting United Sav. Assn. of Tex. v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 371, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988)) (internal citations omitted).
