Appearances included Trustee Lovald, Assistant U. S. Attorney Thomas A. Lloyd for RECD, and James P. Hurley for Debtors. If the trustee or an unsecured creditor files an appropriate objection, a Chapter 12 debtor's plan must include a provision for paying any disposable income during the plan term to unsecured claim holders. Payment of disposable income to unsecured claim holders is a requirement separate from the best interest of creditors test and serves a distinct purpose. Without regard to what creditors would receive in a liquidation setting, if a Chapter 12 debtor has the ability because of current income generated during the plan to pay the claims of unsecured creditors without jeopardizing his reorganization effort, the debtor should be required to do so. Otherwise, a debtor with little or no realizable equity in its assets could unjustly deprive creditors of the income enjoyed under a successful plan.
Disposable income is simply a measure of what can be done to promote fairness.
Disposable income is the difference between available income and necessary expenses during the disposable income payment period. Available income includes all non exemptible funds and is not limited to income as defined by the federal tax code. The disposable income payment period begins on the date that the first plan payment is due and ends three years later, or up to five years later if the term of the plan has been extended. If a creditor or the trustee successfully argues that a Chapter 12 debtor has not paid all disposable income due under the plan, the debtor may not receive a discharge. The debtor has the ultimate burden of persuasion to show that all payments under the plan have been made, including payments of disposable income.