United States Court of Appeals

For the First Circuit

No. 04-9005

IN RE MICHAEL WATSON and KATHLEEN WATSON,

Debtors,

MICHAEL WATSON and KATHLEEN WATSON,

Appellants,

v.

JOHN BOYAJIAN, Chapter 13 Trustee,

Appellee.

APPEAL FROM THE BANKRUPTCY APPELLATE PANEL

OF THE FIRST CIRCUIT

Before

 Torruella, Circuit Judge,

Campbell, Senior Circuit Judge,

and Lynch, Circuit Judge.

Christopher M. Lefebvre, with whom George M. Prescott Jr., was

on brief, for appellants.

John P. Boyajian, with whom Boyajian, Harrington & Richardson

was on brief, for appellee.

March 25, 2005
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CAMPBELL, Senior Circuit Judge. Debtors-Appellants

Michael and Kathleen Watson (the "Watsons") appeal from an order of

the bankruptcy court denying confirmation of their proposed Chapter

13 plan. The bankruptcy court denied confirmation on the ground

the Watsons failed to establish that all projected "disposable

income" received during the plan period would be applied to make

payments under the plan. See 11 U.S.C. § 1325(b)(1)(B). In

particular, the bankruptcy court determined that the cost of

sending the Watsons' two minor children to parochial school was

neither a "reasonably necessary" expense nor a "charitable

contribution" -- each of which is excluded from the definition of

"disposable income" under 11 U.S.C. § 1325(b)(2)(A). See In re

Watson, 299 B.R. 56, 58-60 (Bankr. D.R.I. 2003). The bankruptcy

appellate panel affirmed. In re Watson, 309 B.R. 652, 657 (B.A.P.

1st Cir. 2004). This appeal followed.

Although they did not make the same argument in the

bankruptcy court, the Watsons argue in this appeal that to deny

confirmation of the plan because of its provision for paying the

cost of sending the children to parochial school burdens the

protected exercise of their Catholic faith, in contradiction of the

Religious Freedom Restoration Act, as amended. See 42 U.S.C. §

2000bb-1 et seq. They also argue that the bankruptcy court erred
1The Watsons do not contend on appeal that the bankruptcy

court erred in rejecting their argument that the parochial school

tuition payments were charitable contributions within the

definition of 11 U.S.C. § 1325(b)(2)(A). We do not, therefore,

address this issue.

211 U.S.C. § 1325(b)(1)(B) provides: 

If the trustee . . . objects to the confirmation of the

plan, then the court may not approve the plan unless, as

of the effective date of the plan--(B) the plan provides

that all of the debtor’s projected disposable income to

be received in the three-year period beginning on the

date that the first payment is due under the plan will be

applied to make payments under the plan.

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in finding that the parochial school tuition payments were not

reasonably necessary.1 For reasons that follow, we affirm.

I. Background

On January 17, 2003, the Watsons filed a joint case under

Chapter 13 of the United States Bankruptcy Code. See 11 U.S.C. §

1301 et seq. Their Schedules I and J showed net monthly income of

$5,770, expenses of $4,194, and disposable income of $1,576. Their

proposed Chapter 13 plan provided for thirty-six monthly payments

of $1,576 (total $56,736), which would have paid to unsecured

creditors twenty-five percent of their claims.

The Chapter 13 trustee, John Boyajian ("Trustee"),

objected to confirmation of the plan on the ground that the Watsons

were not contributing all of their disposable income as required

under 11 U.S.C. § 1325(b)(1)(B).2 "Disposable income" is defined

as: "income which is received by the debtor and which is not

reasonably necessary to be expended–-(A) for the maintenance or
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support of the debtor or a dependent of the debtor, including

charitable contributions." 11 U.S.C. § 1325(b)(2)(A). The Trustee

objected in particular to a claimed expense of $735 per month for

parochial school tuition for the Watsons' two minor children. The

Watsons, who are Catholics, maintained that the expense is

reasonably necessary under the circumstances. The Watsons also

argued in the alternative that the expense is a "charitable

contribution," hence a reasonably necessary expense under the

amended definition of "disposable income" provided by the Religious

Liberty and Charitable Donation Act of 1998. See supra note 1.

At a hearing before the bankruptcy court, Mr. Watson

testified that he, his wife, and their two children are devout

Catholics who attend church every Sunday and during all the holy

days of obligation. Mr. Watson testified that he is actively

involved in church ministry, and that his children have been

assisting at mass since the third grade. Mr. Watson stated that he

and his wife have always sent their children to parochial schools

because they value the importance such schools place on God.

After further briefing and oral argument, the bankruptcy

court, on September 15, 2003, issued an order denying confirmation

of the plan, finding (1) that the tuition expense is not reasonably

necessary, and (2) that the tuition is not a charitable

contribution excluded under the Religious Liberty and Charitable

Donation Protection Act of 1998. In re Watson, 299 B.R. at 57.
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The bankruptcy court found that the Watsons had "claimed many

borderline and/or excessive expenses," that they were "unwilling to

extend their plan beyond three years," and that their plan

therefore failed to demonstrate good faith. Id. at 58. The order

denying confirmation of the plan provided that, in accordance with

the local bankruptcy rules, the Watsons had eleven days within

which to file an amended plan. Id. at 60.

On September 24, 2003, the Watsons appealed from the

order to the bankruptcy appellate panel ("BAP"). Thereafter, the

Watsons filed in the bankruptcy court a motion to stay pending

appeal. On October 27, 2003, the bankruptcy court entered an order

denying the stay motion and dismissing the case. The order stated

as follows:

1. The Motion for a Stay is denied and the case

dismissed.

2. For administrative purposes, the underlying case

shall remain open and the deadline contained in

Rhode Island Local Bankruptcy Rule 3015-3(e)

extended generally until 10 days after the entry of

a decision on the merits of Debtors' appeal by the

Bankruptcy Appellate Panel.

3. This order may be modified by any party in interest

upon the filing of an appropriate motion.

On May 21, 2004, the BAP issued its judgment affirming the

bankruptcy court's denial of confirmation. In re Watson, 309 B.R.

at 664. The BAP concluded that the bankruptcy court's order

denying confirmation of the plan was interlocutory and not final

because the Watsons were "free to propose an alternate plan." Id.

at 659. The BAP made no mention of the bankruptcy court's
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subsequent order denying the motion to stay pending appeal and

dismissing the case. See id. ("Here, the Bankruptcy Court did not

dismiss the case . . . ."). In spite of its determination that the

bankruptcy court's 9/15/03 order was interlocutory, the BAP

exercised jurisdiction to hear the appeal under 28 U.S.C. §

158(a)(3), providing for review of interlocutory orders, and

affirmed. Id. at 657, 659. On June 15, 2004, the Watsons appealed

to this Court.

II. Jurisdiction

We have requested the parties to brief the question

"whether the finality of the [bankruptcy court's] 10/27/03 order

dismissing the case is undercut by the order's provision that the

case 'shall remain open' and that the deadline for filing a

modified Plan shall be extended." Both parties to this appeal

contend that this Court has jurisdiction pursuant to 28 U.S.C. §

158(d) to hear this appeal. We agree.

Under 28 U.S.C. § 158(d), this Court has "jurisdiction of

appeals from all final decisions, judgments, orders, and decrees."

Although the BAP concluded that it had jurisdiction to review the

10/27/03 order even if interlocutory, this Court has jurisdiction

only if the underlying bankruptcy court order is in fact final.

See In re Flor, 79 F.3d 281, 283 (2d Cir. 1996) ("For purposes of

§ 158(d), a determination of the district court is not 'final'

unless the underlying order of the bankruptcy court is final.");
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see also In re Lievsay, 118 F.3d 661, 662 (9th Cir. 1997) ("If the

underlying bankruptcy court decision is interlocutory, the BAP

order affirming or reversing it is also interlocutory."). 

The parties concede the bankruptcy court’s 9/15/03 order

denying confirmation of the plan was not final at the time it was

issued "because the Debtors remained free to propose an alternate

plan." In re Bentley, 266 B.R. 229, 233 (B.A.P. 1st Cir. 2001);

see Bartee v. Tara Colony Homeowners Ass'n (In re Bartee), 212 F.3d

277, 283 (5th Cir. 2000) (stating, "If the order was not intended

to be final--for example, if the order addressed an issue that left

the debtor able to file an amended plan . . . appellate

jurisdiction would be lacking."). But even if the 9/15/03 order

denying confirmation of the plan was not final at the time it was

issued, the parties assert that the order became final after

October 27, 2003, when the bankruptcy court entered its order

dismissing the case. See In re Bentley, 266 B.R. at 234 (holding

that order denying confirmation of plan "became final when, upon

being notified that the Debtors did not intend to seek confirmation

of an alternate plan, the court dismissed their case").

In In re Parque Forestal, Inc., this Court held that a

district court’s appellate order was final and appealable, even

assuming the underlying bankruptcy court order was not final at the

time it was appealed, because the bankruptcy case had been
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dismissed before appeal to this Court, "making the orders below, in

effect, final." 949 F.2d 504, 508 (1st Cir. 1991).

[E]ven assuming, for purposes of argument, that the

[bankruptcy court] order then lacked finality, the

subsequent dismissal of the bankruptcy proceeding makes

this assumption largely irrelevant. The Supreme Court

has held that "the requirement of finality is to be given

a 'practical rather than a technical

construction.'" . . . Whether or not the bankruptcy

court's order was final at the time it was appealed to

the district court, there is no possibility now that

either court's order will be changed or become moot, or

that "piecemeal appeals" will waste the time of this

court or the parties.

Id. (citations omitted). See also Welch v. Cadre Capital, 923

F.2d 989, 992 (2d Cir. 1991) (holding that there was appellate

jurisdiction under principle that "a premature notice of appeal

from a nonfinal order may ripen into a valid notice of appeal if a

final judgment has been entered by the time the appeal is heard and

the appellee suffers no prejudice"), vacated on other grounds, 501

U.S. 1247 (1991); cf. Clausen v. Sea-3, Inc., 21 F.3d 1181, 1184

(1st Cir. 1994) (holding that "by virtue of Fed. R. App. P.

4(a)(2), [appellant's] premature notice of appeal ripened when the

district court certified its December 31, 1992, amended judgment

pursuant to Fed. R. Civ. P. 54(b)"). 

Here, regardless whether the bankruptcy court's September

15, 2003 order denying confirmation of the plan was final when

issued, it became final in light of the bankruptcy court's October

27, 2003 order dismissing the case and the Watsons' subsequent
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failure to file an amended plan within the limited time allowed in

that order.

To be sure, the 10/27/03 order, while dismissing the

case, also stated that, "[f]or administrative purposes," the case

"shall remain open" and that the deadline contained in Rhode Island

Local Bankruptcy Rule 3015-3(e) would be extended until ten days

after the entry of the BAP's decision in the case. Local Rule

3015-3(e) provides:

Confirmation of Plan Denied. If confirmation is denied,

the Court may enter an order dismissing the Chapter 13

case, unless, within eleven (11) days after entry of the

order denying confirmation:

(1) the debtor files a modified plan;

(2) the debtor moves to convert the case to one under

another chapter of the Code;

(3) the debtor files a motion for reconsideration;

(4) the debtor appeals the order denying confirmation; or

(5) the Court otherwise orders.

It is evident from the docket entry for the hearing on the motion

for stay that the 10/27/03 order was intended to leave the Watsons

free for ten days after the BAP's decision to file an amended plan

if the BAP affirmed the bankruptcy court's denial of confirmation.

The entry states: "Trustee suggested extending the time to file an

amended plan until 10 days after a decision on the case by the BAP.

Parties consent to this and will submit an order." The Watsons,

however, never filed an amended plan within the ten-day grace

period following the BAP's judgment which was issued on May 21,

2004. Instead, on June 15, 2004, 25 days later, they filed a

timely appeal to this Court. Their appeal had the effect of
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transferring jurisdiction here from the bankruptcy court. See

Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982)

("The filing of a notice of appeal is an event of jurisdictional

significance--it confers jurisdiction on the court of appeals and

divests the district court of its control over those aspects of the

case involved in the appeal."). By this point, the window in the

10/27/03 order was closed, and, for all practical purposes, the

9/15/03 order was final.

"[T]he requirement of finality is to be given a

'practical rather than a technical construction.'" Gillespie v.

United States Steel Corp., 379 U.S. 148, 152 (1964) (quoting Cohen

v. Beneficial Indus. Loan Corp., 337 U.S. 541, 546 (1949)). This

case, while not wholly identical, is conceptually similar to

Parque. The bankruptcy court's 10/27/03 order dismissing the case

left it open only "[f]or administrative purposes" designed to

permit the filing of an amended plan within ten days after the

BAP's decision came down. After that period had expired, the only

remaining limitation upon total dismissal was the taking of an

appeal to our court, an event which in no way compromised the

finality of the bankruptcy court's own order. Dismissal and

closure of a case are distinct events, and there is no reason why

a case cannot be dismissed but kept open for limited administrative

purposes. See Armel Laminates, Inc. v. Lomas & Nettleton Co. (In

re Income Prop. Builders, Inc.), 699 F.2d 963, 965 (9th Cir. 1982).
3To avoid future questions, we suggest that such seemingly

open-ended orders add a proviso to the effect that if the debtor

does not timely take the actions in Local Rule 3015-3(e)(1), (2) or

(3), or does not take an action under (4), then the order is final

as entered.

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We are satisfied that in the circumstances the appealed bankruptcy

court's order denying confirmation of the plan was rendered final

by the later order and occurrences. We have jurisdiction over this

appeal.3

III. Discussion

A. Religious Freedom Restoration Act

The Watsons argue on appeal that the bankruptcy court's

order denying confirmation of the plan substantially burdens the

protected exercise of their Catholic faith in violation of the

Religious Freedom Restoration Act ("RFRA"), as amended by the

Protection of Religious Exercise in Land Use and Institutionalized

Persons ("RLUIPA"). See 42 U.S.C. §§ 2000bb-1, 2000cc-2000cc-5.

This argument, however, was never made to, nor considered by, the

bankruptcy court. It is true the Watsons alluded briefly to the

RFRA in briefs submitted to the bankruptcy court and in vague

references in their second oral argument in that court. In each

instance, however, the Watsons only raised the RFRA in relation to

the argument that parochial school tuition payments constituted

charitable contributions -- an issue decided against them below and

not now appealed to this Court. See supra note 1. The bankruptcy

court did not mention the RFRA in its opinion. In a brief later
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submitted on appeal to the BAP, the Watsons discussed the RFRA,

referenced the RLUIPA by citation, and admitted that the RFRA issue

had not been "fully briefed below." In affirming the order denying

confirmation of the plan, the BAP held that the RFRA does not

afford the Watsons the right to use disposable income for parochial

school tuition. In re Watson, 309 B.R. at 663.

A party's failure to raise an issue in the bankruptcy

court forfeits its right to raise that issue for the first time on

appeal in this Court. Evergreen Credit Union v. Woodman (In re

Woodman), 379 F.3d 1, 2 (1st Cir. 2004); Gannett v. Carp (In re

Carp), 340 F.3d 15, 25-26 (1st Cir. 2003). The Watsons' brief

references below to the RFRA, made in context of their charitable

contributions argument, were not tantamount to the RFRA and RLUIPA

arguments now advanced on appeal. Cf. McCoy v. Mass. Inst. of

Tech., 950 F.2d 13, 22 (1st Cir. 1991) (refusing to address issue

where plaintiff, in the district court, "made passing mention of

the general point - a mention which, in its entirety, comprised two

sentences and one citation (to a tangentially relevant case)").

The rule that a party may not raise an argument for the first time

on appeal is elemental. In re Carp, 340 F.3d at 26. While we have

discretion in exceptional circumstances to address an issue not

raised below, no exceptional circumstances exist here. See

Sheridan v. Michels (In re Sheridan), 362 F.3d 96, 105 (1st Cir.
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2004) (noting our discretion in "rare instances" to review an issue

not raised below). 

We recognize the BAP saw fit to address the Watsons' RFRA

contention. But the BAP's action does not cure the matter from our

perspective. See In re Woodman, 379 F.3d at 3 n.1. The effective

administration of our judicial system requires that ordinarily each

and every non-jurisdictional issue to be determined be initially

presented to the nisi prius tribunal. That a separate court in the

appellate chain, for its own reasons, chose to overlook the breach

of this rule does not bind our court. As the Watsons have

forfeited the RFRA argument, we do not now consider it.

B. Reasonably Necessary Expenses

The Watsons contend that the bankruptcy court erred in

determining that parochial school tuition payments for their two

minor children are not reasonably necessary expenses within the

provisions of 11 U.S.C. § 1325(b). To qualify for confirmation,

the Chapter 13 plan must provide "that all of the debtor's

disposable income to be received in the three-year period beginning

on the date that the first payment is due under the plan will be

applied to make payment under the plan." 11 U.S.C. §

1325(b)(1)(B). "Disposable income" is defined as:

income which is received by the debtor and which is not

reasonably necessary to be expended–-

(A) for the maintenance or support of the debtor or a

dependent of the debtor, including charitable

contributions . . .
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11 U.S.C. § 1325(b)(2)(A). At issue here is whether the portion of

the Watsons' income devoted to pay parochial school tuition for

their two minor children is income "reasonably necessary" to be

expended for this purpose. In reviewing the bankruptcy court's

determination of this matter, we review for "clear error unless the

bankruptcy court's analysis was based on a mistaken view of the

legal principles involved." In re Carp, 340 F.3d at 22. Here, the

bankruptcy court's view of the guiding legal principles was not

mistaken and the court did not commit clear factual error.

We begin with the self-evident proposition that it is the

debtor who bears the burden of proving that an expense is

reasonably necessary. See, e.g., Lynch v. Tate (In re Lynch), 299

B.R. 776, 779 (W.D.N.C. 2003); In re Webb, 262 B.R. 685, 688

(Bankr. E.D. Tex. 2001). Here, the bankruptcy court concluded that

the debtors "have not shown that the public schools in their area

. . . are not adequate, and neither have they suggested any other

special need [to attend parochial school]." In re Watson, 299 B.R.

at 58. The court went on to allude to the general proposition

advanced in Webb and by other bankruptcy courts that "[i]n the

absence of some compelling circumstance . . . a private school

education is not reasonably necessary." In re Webb, 262 B.R. at

690; see, e.g., In re Jones, 55 B.R. 462, 467 (Bankr. D. Minn.

1985) ("An expensive private school education is not a basic need

of the Debtor's dependents . . . ."). The court then went on to
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distinguish the present case from other bankruptcy cases where

compelling circumstances for a private education have been found to

exist. See In re Watson, 299 B.R. at 58. It concluded, in effect,

that the Watsons had not shown any educational necessities or

special circumstances why their children needed to attend parochial

school in lieu of the available public school. The court went on

to say:

The only reason advanced by [the debtors] is

preferential, i.e., their children have always attended

parochial school because of the family's strong religious

ties. . . . Allowing these Debtors to pay parochial

school tuition which over the life of the Plan will

exceed the amount distributed to creditors, is to require

general creditors to fund the private education of the

Debtors' kids.

Id. at 58-59.

As noted above, we defer broadly to the bankruptcy

court's determinations in a matter of this type, which entail

balancing the creditors' rights against the appropriate basic needs

of the debtors and their dependents. We can find no clear error in

the balance the court struck here in its thoughtful opinion.

The Watsons complain that they were unfairly criticized

by the court for what it found was their unwillingness to forgo

certain "borderline and/or excessive expenses" while also claiming

the tuition expense. We have examined the record and see no clear

error in the court's overall assessment in this regard.

To allow the Watsons to pay parochial school tuition over

the life of the proposed plan would require already severely
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reduced creditors to fund the private education of the Watsons'

children. We can appreciate the importance attached by the Watsons

to the religious values of a parochial school education. Still, it

is not impossible to inculcate those values outside of a school,

and the court could reasonably conclude, in the circumstances

presented here, that it would be improper to impose the added

expense on the Watsons' unpaid creditors where the children's

educational needs could otherwise be met in the public schools.

There was no clear error in the bankruptcy court's determination.

IV. Conclusion

For the foregoing reasons, the order of the United States

Bankruptcy Court order denying confirmation of the plan is

affirmed.