Opinion ID: 171422
Heading Depth: 2
Heading Rank: 3

Heading: Courts adopting the mechanical approach

Text: 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).