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"Disposable Income" Determination Disregards Actual Projected Income
Wednesday, September 13, 2006
George W. Bush memorably opined at the BAPCPA signing ceremony that "under the new law, Americans who have the ability to pay will be required to pay back at least a portion of their debts." Well, Mr. President, the courts are divided on the accuracy of your conclusion.
In In re Rotunda, the US Bankruptcy Court for the Northern District of New York, overruled the Chapter 13 trustee's objection and confirmed a Chapter 13 plan based on CMI as determined by Form B22C, and not on the debtor's actual disposable income provided on the bankruptcy schedules.
The debtor's Amended Chapter 13 plan proposed to pay $800.00 for the first 4 months and $1200.00 per month for the remaining 56 months of their plan. The trustee objected claiming that the plan failed to provide all of the Debtor's "disposable income" to the payment of unsecured creditors pursuant to section 1325 (b)(1)(B).
The debtor's monthly income as provided on Form B22C was $5674.02, annualized at the rate of $68,088.00 which is over the applicable median income. Accordingly, the debtor's income was subject to the BAPCPA means test. After applying the IRS deductions and additional allowed expense deductions, the debtor's monthly "disposable income" under section 1325 (b)(2) was $157.77.
Schedules I & J stand in sharp relief to the disposable income under section 1325(b)(2). Schedules I & J provided a monthly net surplus of $3299.03. The schedules, unlike Form B22C, included the debtor's social security income. The Trustee argued that the court ought to examine Schedules I & J to determine the amount of income "projected" to be available for distribution to the unsecured creditors. The Court disagreed.
The issue boils down to whether a debtor's "projected disposable monthly income," which must be devoted to a Chapter 13 plan, is the same thing as the "disposable income" calculated based on the current monthly income.
The court held that CMI under Form B22C controls the Chapter 13 plan payments to be made to unsecured creditors. The Court parsed the statutory language and determined that "instead of using a figure based on income and expenses that existed at the time the debtor completed his/her schedules...Congress opted to use an average of a debtor's income over the six months prepetition in calculating CMI..." The court went to say that CMI, which forms the bases for calculating "disposable income" as provided in section 1325(b)(2) is defined as "the average monthly income from all sources that the debtor receives without regard to whether such income is taxable, derived during the six month period" prior to filing. BAPCPA expressly excludes social security benefits from CMI.
Section 1325(b)(1)(B) references "projected disposable income" and the BAPCPA amendments define "disposable income." The court reasoned that section 1325(b)(2) "goes on to explain what was being projected, namely, CMI received by the debtor...to the extent reasonably necessary to be expended...." The court does not agree that the projected disposable income must refer to the surplus on Schedules I & J. The court concluded that "projecting disposable income based on an average of six months' income after certain deductions and payment on secured and priority claims is no less realistic than the figures in Schedules I & J for proposing a feasible plan."
In a final parting shot, the court acknowledged that the discretion to review "the reasonableness of a debtor's expenses in calculating disposable has been curtailed, in some instances, by the new provisions that allow, whether or not intentionally, a debtor to propose a plan which provides zero payments to unsecured creditors despite having the financial wherewithal to make some payments to them." The court goes on to say that if this was not Congress' intent, then it is up Congress to resolve the situation.
There has got to be a national ruling made on this one or it will come up again and again.
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