The Ninth Circuit Rules on Chapter 13 “Projected Disposable Income” and “Applicable Commitment Period” under BAPCPA [1]
by: Alane A. Becket
Becket & Lee LLP; Malvern, Pa.
by: William A. McNeal
Becket & Lee LLP; Malvern, Pa.
A debtor's proposed chapter 13 plan may not be confirmed if a trustee or the holder of an unsecured claim objects thereto unless a debtor pays in full each allowed unsecured claim, (11 U.S.C. §1325(b)(1)(A)) or pays to his unsecured creditors under the plan all projected disposable income to be received during the applicable commitment period (11 U.S.C. §1325(b)(1)(B)) (emphasis added). Thus, upon objection, if allowed unsecured claims are not paid in full, a plan may be confirmed only if it pays all allowed unsecured claims a qualifying amount of money over a qualifying span of time.
The Bankruptcy Code explicitly defines disposable income as current monthly income, itself further defined in the Code (see 11 U.S.C. §101(10A)), less reasonably necessary expenditures for a debtor's support for a debtor's dependent's support and for other enumerated expenses not germane to this matter. 11 U.S.C. §1325(b)(2). If a debtor's current monthly income exceeds the median family income of his state, such as in the instant matter [2], the reasonableness of the expenditure amounts is determined in accordance with 11 U.S.C. §§707(b)(2)(A) and (B). 11 U.S.C. §1325(b)(3).
A different statutory definition is accorded a debtor's projected disposable income. (See 11 U.S.C. §1325(b)(1)(B).) According to a majority of courts examining this issue, by the addition of "projected," as well as the particularization of income that is "to be received in the applicable commitment period," the Code requires a determination of a debtor's anticipated income or future ability to pay. Three bankruptcy appellate panels have reviewed the issue of the distinction between "projected disposable income" and "disposable income." Each has concluded that the two are not the same. Many other courts have determined the opposite.
Recently, in the first apposite decision to issue from a court of appeals, the Ninth Circuit made its view known. Maney v. Kagenveama,(In re Kagenveama), 527 F.3d 990 (9th Cir. 2008). In Kagenveama, the debtor's Schedules I and J showed a net excess of approximately $1,500 monthly. However, because the debtor's current monthly income was above-median, the debtor also completed Official Form 22C, the result of which was a negative number. The debtor proposed a three-year plan. The trustee objected to the plan's confirmation, arguing that the debtor should be using her actual excess income as her projected disposable income. The trustee further argued that the debtor's plan was required to run for five years, because her current monthly income was above the state's median.
The Ninth Circuit found that "projected" served only to modify "disposable income," accordant with the line of cases that trace their analysis back to In re Alexander, 344 B.R. 742 (Bankr. E.D.N.C. 2006). The 2005 amendments to the Code, according to the court, changed the calculation of disposable income for above-median debtors, replacing the former "reasonably necessary" test for expenses with a formulaic approach. 11 U.S.C. §1325(b)(3). The trustee argued that when computing projected disposable income, the disposable-income figure derived from Form B22C was merely a starting point for determining projected disposable income. One could then anticipate future financial factors and could take these factors into account to calculate a more accurate projected disposable income.
The Ninth Circuit rejected the trustee's argument and the line of cases on which it relied, [3] and agreed with the debtor, holding that projected disposable income is directly linked to disposable income. More specifically, according to the court, "projecting" disposable income is merely multiplying disposable income over the applicable commitment period without taking any "anticipated" variables into account. Since the debtor had no disposable income, according to her Form 22C, she resultantly had no projected disposable income.
The second issue before the court was whether "applicable commitment period" is a period of time. The debtor proposed a three-year plan in which to pay unsecured creditors. The trustee lodged objections, based on the language of the Code, insisting that the plan must be five years in length for an above-median debtor for the plan to be confirmed by the court.
While the Ninth Circuit agreed with the trustee that the applicable commitment-period was a temporal measurement, it ruled that the applicable commitment period requirement had no application to a plan that lacked any projected disposable income. Consequently, the debtor's plan, proposing a voluntary payment to unsecured creditors for three years, was permissible.
Notably, the Kagenvaema court saw some protection for the trustee and the unsecured creditors in 11 U.S.C. §1329, holding out the option to move for the modification of a debtor's plan if a debtor's income rises after confirmation. Maney v. Kagenveama (In re Kagenveama), 527 F.3d 990 (9th Cir. 2008).
[2] A so-called "above median" debtor.
[3] The standard-bearer for this approach is the U.S. Bankruptcy Court for the Northern District of Texas, which conducted its oft-cited textual and contextual analysis of the germane statutory language and concluded that projected disposable income "necessarily refers to income that the debtor reasonably expects to receive during the term of her plan." In re Hardacre, 338 B.R. 718, 723 (Bankr. N.D. Tex. 2006).