Opinion ID: 171422
Heading Depth: 1
Heading Rank: 5

Heading: BAPCPA Amendments and Interpretive Judicial Decisions

Text: The issue to be resolved is whether the projected disposable income referred to in § 1325(b)(1)(B) is calculated by mechanical application of the definitions of disposable income and current monthly income set forth in §§ 1325(b)(2) and 101(10A)(A)(i), respectively, or whether it is permissible to adjust the monthly disposable income calculated on Form B22C to account for a debtor's actual ability to fund a plan as of the effective date of the plan. It is well established that when [a] statute's language is plain, the sole function of the courtsat least where the disposition required by the text is not absurdis to enforce it according to its terms. Lamie v. U.S. Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004) (quotation omitted). Here, the statutory language may be plain, but it is unclear in its meaning. Thus, before turning to an analysis of the statutory language, we briefly will review the relevant changes Congress made (and did not make) when it enacted the BAPCPA, and then consider a number of judicial decisions representative of the two methods used to calculate projected disposable income.
In passing the BAPCPA, Congress left § 1325(b)(1)(B) substantially unchanged (for present purposes), the only differences being that the pre-BAPCPA version (1) referred to a three-year period rather than the applicable commitment period as the relevant time period over which the debtor's plan must apply projected disposable income to plan payments (now three years for below-median debtors and five years for above-median debtors); and (2) required all such projected disposable income to be applied to make payments under the plan, 11 U.S.C. § 1325(b)(1)(B) (2000), rather than, more narrowly now, to make payments to the unsecured creditors. Thus, the relevant language of § 1325(b)(1)(B) is substantially the same now as it was before passage of the BAPCPA, i.e., that all projected disposable income to be received in the applicable commitment period ... will be applied to make payments. As the BAP pointed out, the pre-BAPCPA language meant that projected disposable income was the difference between a debtor's Schedule I income and her Schedule J expenses, subject to adjustment by the court if there was reason to believe that those schedules did not accurately predict a debtor's actual ability to pay. In re Lanning, 380 B.R. at 24; see also In re Nahat, 315 B.R. 368, 378-79 (Bankr.N.D.Tex.2004). Next, prior to passage of the BAPCPA, disposable income was defined as income which is received by the debtor and which is not reasonably necessary to be expended for the debtor's maintenance, support, charitable contributions, and business expenses. 11 U.S.C. § 1325(b)(2)(A) (2000). With the BAPCPA, Congress changed the definition of disposable income by tying it to a new term, current monthly income, 11 U.S.C. § 1325(b)(2), and adding the definition of current monthly income that in relevant part, as noted above, looks at the debtor's six-month pre-petition income, id. § 101(10A)(A)(i). Finally, the BAPCPA added a new clause to § 1325(b) that, for above-median debtors, requires the use of the standardized expenses and deductions calculated on Form B22C as the [a]mounts reasonably necessary to be expended under § 1325(b)(2) (with the exception of charitable contributions under (b)(2)(A)(ii)). See id. § 1325(b)(3). With this understanding of the relevant changes to the BAPCPA, we now turn to judicial decisions representative of the two interpretations of post-BAPCPA § 1325(b)(1)(B).
The first court to address the issue appears to be In re Hardacre, 338 B.R. 718 (Bankr.N.D.Tex.2006). [5] In Hardacre, the court expressed concern about the consequences when current monthly income derived from Form B22C is used as the sole determinant of the income side of the projected disposable income calculation. Id. at 722. The court reasoned that a debtor expecting a significant increase in future income would file as quickly as possible, resulting in the commitment of less money to repay unsecured creditors than the debtor would actually be capable of paying during the commitment period. Id. Conversely, the court observed that a debtor who experiences a decrease in income after filing might not be able to confirm a plan because she would be unable to commit the amount of disposable income calculated on Form B22C. Id. The Hardacre court offered three justifications in support of its conclusion that `projected disposable income' must be based upon the debtor's anticipated income during the term of the plan, not merely an average of her prepetition income. Id. First, noting the rule of statutory construction that requires a court to presume that `Congress acts intentionally when it includes particular language in one section of a statute but omits it in another,' the court reasoned that Congress must have intended `projected disposable income' to be different than `disposable income' when it chose to define only the latter term. Id. at 723 (quoting BFP v. Resolution Trust Corp., 511 U.S. 531, 537, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994)). Second, the court viewed the phrase to be received in § 1325(b)(1)(B) as an expression of congressional intent to refer to the income actually to be received by the debtor during the commitment period, rather than the prepetition average income; an alternative interpretation, the court said, would render to be received superfluous. Id. And third, the court considered § 1325(b)(1)'s prefatory languageas of the effective date of the planto be an indication that `projected disposable income'... refers to income that a debtor reasonably expects to receive during the term of her plan. Id. A number of other courts, including one circuit court recently, have applied Hardacre 's reasoning in adopting the forward-looking approach. See, e.g., Coop v. Frederickson (In re Frederickson), 545 F.3d 652, 2008 WL 4693132 (8th Cir.2008); Hildebrand v. Petro (In re Petro), 395 B.R. 369 (6th Cir. BAP 2008); Kibbe v. Sumski (In re Kibbe), 361 B.R. 302 (1st Cir.BAP2007) (per curiam); In re Watson, 366 B.R. 523 (Bankr.D.Md.2007); In re Pak, 357 B.R. 549 (Bankr.N.D.Cal.2006), aff'd, 378 B.R. 257 (9th Cir.BAP2007), abrogated by Maney v. Kagenveama (In re Kagenveama), 541 F.3d 868 (9th Cir.2008); In re Grady, 343 B.R. 747 (Bankr.N.D.Ga. 2006); and In re Jass, 340 B.R. 411 (Bankr.D.Utah 2006). Most courts applying this approach view Form B22C as presumptively correct regarding income. [6]
To date, only one circuit court (other than a BAP) has adopted the mechanical approach. See Maney v. Kagenveama (In re Kagenveama), 541 F.3d 868 (9th Cir. 2008). There the court reasoned: The substitution of any data not covered by the § 1325(b)(2) definition in the projected disposable income calculation would render as surplusage the definition of disposable income found in § 1325(b)(2). There can be no reason for § 1325(b)(2) to exist other than to define the term disposable income as used in § 1325(b)(1)(B). If `disposable income' is not linked to `projected disposable income' then it is just a floating definition with no apparent purpose. In re Alexander, 344 B.R. 742, 749 (Bankr.E.D.N.C.2006). The plain meaning of the word projected, in and of itself, does not provide a basis for including other data in the calculation because projected is simply a modifier of the defined term disposable income. Therefore, to give meaning to every word of § 1325(b), disposable income, as defined in § 1325(b)(2), must be projected in order to derive projected disposable income. Id. at 872-73. Regarding the pre-BAPCPA treatment of projected disposable income, the court concluded that [a]ny change in how projected disposable income is calculated only reflects the changes dictated by the new disposable income calculation; it does not change the relationship of projected disposable income to disposable income. Pre-BAPCPA, projected disposable income was determined by taking the debtor's disposable income, under § 1325(b)(2)(A) & (B), and projecting that amount over the applicable commitment period. Id. at 873 (footnote omitted). The court refused to read the word `projected' to be synonymous with the word `anticipated' in this context. Id. at 874. In addition to Kagenveama, a number of bankruptcy courts have adopted the mechanical approach. See, e.g., In re Austin, 372 B.R. 668 (Bankr.D.Vt.2007); In re Kolb, 366 B.R. 802 (Bankr.S.D.Ohio 2007); In re Hanks, 362 B.R. 494 (Bankr.D.Utah 2007); In re Miller, 361 B.R. 224 (Bankr. N.D.Ala.2007); In re Tranmer, 355 B.R. 234 (Bankr.D.Mont.2006); In re Alexander, 344 B.R. 742 (Bankr.E.D.N.C.2006); and In re Barr, 341 B.R. 181, 185 (Bankr. M.D.N.C.2006). Three of these cases, In re Alexander, In re Hanks, and In re Austin, discuss matters of particular note. In In re Alexander, the court observed that Congress elected to adopt the redefinition of disposable income in § 1325(b)(2) as written despite the warnings of Chapter 13 trustees that strict use of the Form B22C formula would lead to an anomalous result in some cases, namely, that some above-median debtors would pay less than they would prior to BAPCPA. 344 B.R. at 747. The trustees apparently asked that deducting expenses from current monthly income result in a minimumnot a maximumfor repayment to unsecured creditors. See id. The Alexander court reasoned that the legislature's nonresponse to this concern supported a presumption of legislative awareness and intent regarding the consequences of the language with respect to making debtors pay what they can and preventing abuse. Id. at 748. In the second case of note, In re Hanks, the court followed In re Alexander, concluding that under the BAPCPA, the new function of the word projected in § 1325(b)(1)(B) is solely to multiply the net `disposable income' figure as calculated on Form B22C by the applicable commitment period. No more, no less. 362 B.R. at 499. Hanks viewed the interpretation given to the statute by the majority line of cases to mean that post-BAPCPA, nothing had changed with regard to the calculation of projected disposable income. Id. Alternately, the court opined that the word projected could be deleted as surplusage because it is repugnant to the rest of the BAPCPA. Id. Hanks also rejected policy arguments the majority camp has relied on, such as affording bankruptcy protection and a fresh start to debtors who voluntarily and in good faith seek to repay creditors with money they have on hand. Id. at 500. The court pointed to competing policies that might have informed Congress's choice of language: It is not at all clear that Congress did not actually intend to keep people out of bankruptcy altogether if possible or perhaps to push them into individual chapter 11 cases, nor is it clear that a fresh start is still the overriding policy of the portions of the Bankruptcy Code at issue in this case. Perhaps the concept of current monthly income is an expression of Congress' intent that debtors should attempt to resolve their financial difficulties outside of bankruptcy for a period of time before filing. Indeed, this view would jibe with the new prepetition briefing requirement in [11 U.S.C.] § 109(h)(1) that contemplates meaningful credit counseling and the performance of budget analyses within six months of filing as well as the requirement in [11 U.S.C.] § 521(b)(2) that the debtor file a copy of any debt repayment plan developed during the prepetition counseling session. In re Hanks, 362 B.R. at 500. The court found statements such as the one in the Purpose and Summary section of the BAPCPA House Report expressing the view that the means testing mechanism `is intended to ensure that debtors repay creditors the maximum they can afford[,]' H.R. 109-031, Part I, Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, to be insufficient to overcome both the plain language of the statute and the statements' apparent conflict with other policies at play in the BAPCPA. Id. at 500 n. 23. The Chapter 13 Trustee quotes at length from the third case of note, In re Austin, where the debtors' Form B22C monthly disposable income was negative but their I-minus-J calculation left some excess income. The relevant point made in Austin is that, in the BAPCPA, Congress declared that the historical income data from the six months prior to the filing of the bankruptcy petition is a more reliable indicator of a debtor's future financial situation than the income on the day the debtor filed for bankruptcy relief, and has directed courts to adjust their starting point for analyzing Chapter 13 plans accordingly. 372 B.R. at 679. If this statement is accurate, then an obvious problem arises in cases like Ms. Lanning's, where the factual circumstances differ: despite the view under Austin that Ms. Lanning's pre-petition income is a more reliable indicator of her future financial situation, and hence would lead one to believe that she would be capable of paying her Form B22C disposable income to unsecured creditors, she cannot get her plan confirmed because she cannot show that she will be able to make all payments under the plan and to comply with the plan, as required for confirmation by 11 U.S.C. § 1325(a)(6).