Court Opinion

ID: 2658489
Source: CourtListenerOpinion
Date Created: 2014-03-28 18:55:35.253747+00
Date Added: 2024-06-11T12:34:38.500449
License: Public Domain

PUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                              No. 13-1445

JOE HENRY PLILER; KATHERINE MARIE PLILER,

                Debtors - Appellants,

           v.

RICHARD M. STEARNS, Trustee,

                Trustee – Appellee.

---------------------------------

NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS,

                Amicus Supporting Appellants,

ECAST SETTLEMENT CORPORATION,

                Amicus Supporting Appellee.

Appeal from the United States Bankruptcy Court for the Eastern
District of North Carolina, at Wilson.   Randy D. Doub, Chief
Bankruptcy Judge. (12-05844-8-RDD)

Argued:   December 10, 2013                 Decided:   March 28, 2014

Before DUNCAN, WYNN, and THACKER, Circuit Judges.

Affirmed and remanded by published opinion.     Judge Wynn wrote
the opinion, in which Judge Duncan and Judge Thacker joined.
ARGUED: Robert Lee Roland, IV, LAW OFFICES OF JOHN T. ORCUTT,
P.C., Raleigh, North Carolina, for Appellants.         Christopher
Scott Kirk, OFFICE OF THE BANKRUPTCY ADMINISTRATOR, Wilson,
North Carolina; Isaac Andrew Johnston, OFFICE OF THE CHAPTER 13
TRUSTEE, Greenville, North Carolina, for Appellee.       ON BRIEF:
Norma L. Hammes, NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY
ATTORNEYS, San Jose, California; Tara Twomey, NATIONAL CONSUMER
BANKRUPTCY RIGHTS CENTER, San Jose, California, for Amicus
National Association of Consumer Bankruptcy Attorneys.     William
Andrew McNeal, Gilbert B. Weisman, BECKET & LEE LLP, Malvern,
Pennsylvania, for Amicus eCAST Settlement Corporation.

                                2
WYNN, Circuit Judge:

             In   this     bankruptcy         appeal,      we    must    decide    whether

above-median-income debtors with negative disposable income are

obligated to maintain Chapter 13 bankruptcy plans that last for

five years when their unsecured creditors have not been paid in

full.       Our    examination          of    the     pertinent         bankruptcy        code

provisions,       case     law,   and        legislative        intent     leads     us    to

conclude that the answer is yes and, accordingly, to affirm the

bankruptcy court’s order.

                                              I.

     Joe Henry Pliler and Katherine Marie Pliler (the “Plilers”)

filed a voluntary petition for relief under Chapter 13 of the

Bankruptcy    Code       on   August     10,       2012.        Although    the    Plilers

calculated their household income to be above North Carolina’s

median   family      income       for    comparably-sized             households,         they

calculated their disposable income to be negative $291.20.

     Along with the Chapter 13 petition, the Plilers filed a

proposed Chapter 13 plan pursuant to 11 U.S.C. § 1321 (“Plan”).

Under the Plan, the Plilers proposed to pay $1,784 for fifteen

months, and then $1,547 for forty months.                            The total of these

payments,     $88,640,        would      pay       $3,335       in    attorneys’      fees,

$3,988.80    for     the      Trustee’s       commission,        $78,595     to    secured

creditors, and nothing to unsecured creditors.

                                              3
        The   Plilers’    proposed       Plan   contained      early    termination

language that would have allowed them to complete their Plan

within fifty-five months:

          This Chapter 13 Plan will be deemed complete and
     shall cease and a discharge shall be entered, upon
     payment to the Trustee of a sum sufficient to pay in
     full: (A) Allowed administrative priority claims,
     including   specifically    Trustee’s   commissions    and
     attorneys’ fees and expenses ordered by the Court to
     be paid to the Debtor’s Attorney, (B) allowed secured
     claims   (including   but   not   limited   to   arrearage
     claims), excepting those which are scheduled to be
     paid directly by the Debtor “outside” the plan, (C)
     Allowed unsecured priority claims, (D) Cosign protect
     consumer debt claims (only where the Debtor proposes
     such treatment), (E) Postpetition claims allowed under
     11 U.S.C. § 1305, (F) The dividend, if any, required
     to   be   paid    to  non-priority    general    unsecured
     creditors     (not    including     priority     unsecured
     creditors) pursuant to 11 U.S.C. § 1325(b)(1)(B), and
     (G) Any extra amount necessary to satisfy the
     “liquidation    test”  as   set   forth   in   11   U.S.C.
     §1325(a)(4).

J.A. 65.

     In       October    2012,    the    Trustee    filed      an   objection    to

confirmation of the Plan and a motion to dismiss for failure to

file a plan in good faith and failure to pay an amount necessary

during the applicable commitment period to comply with Section

1325.     Similar motions were filed in other cases pending in the

Eastern       District    of     North    Carolina,      and    three     different

bankruptcy      judges    in   the   district    chose    to    conduct    a   joint

hearing to consider the matters.

                                           4
     Regarding the Plilers’ case, on January 15, 2013, Chief

Bankruptcy     Judge     Randy      Doub     entered      an     order     denying      the

objection and motion to dismiss and directing the Trustee to

file a motion for confirmation of a plan requiring the Plilers

to   pay     $1,784    per   month     for       sixty    months     with      no     early

termination     language.        In    re       Pliler,    487 B.R. 682      (Bankr.

E.D.N.C. 2013).        Under the Plan as revised by Judge Doub, the

unsecured      creditors      would        receive        an     eighty-four-percent

dividend, as opposed to the zero-percent dividend in the Plan

as proposed by the Plilers.                 In ordering the revision of the

Plan, Judge Doub held, among other things, that 11 U.S.C. §

1325(b)’s      “applicable       commitment          period”       is      a     temporal

requirement mandating that an above-median-income debtor commit

to   a     sixty-month       plan     period       irrespective          of    projected

disposable income.

     This direct appeal to the Fourth Circuit ensued.                          We review

de    novo      challenged       legal          issues,        including       statutory

interpretation questions such as those before us here.                              Johnson

v. Zimmer, 686 F.3d 224, 227 (4th Cir. 2012), cert. denied, 133
S. Ct. 846 (2013).

                                            5
                                          II.

                                          A.

       In Chapter 13 reorganization proceedings, debtors commit to

a court-approved plan to repay creditors with future income.

Hamilton v. Lanning, 560 U.S. 505, 508 (2010).                  Bankruptcy Code

Section 1325 specifies circumstances under which a bankruptcy

court “shall” and “may not” confirm a Chapter 13 plan.                     Id.    See

also 11 U.S.C. § 1325(b).

       In cases where the trustee or an unsecured creditor objects

to the confirmation of a proposed Chapter 13 plan, the court may

not confirm the plan unless one of two conditions is met.                         The

second condition, at the heart of this case, is that “the plan

provides that all of the debtor’s projected disposable income to

be received in the applicable commitment period beginning on the

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

applied to make payments to unsecured creditors under the plan.”

11 U.S.C. § 1325(b)(1) (emphasis added). 1

       The statute defines “applicable commitment period” as:

       (i) 3 years; or

       (ii) not less than 5 years, if the current monthly
       income of the debtor and the debtor’s spouse combined,
       when multiplied by 12, is not less than—

       1
       The first condition, which is not in play here, is that
“the value of the property to be distributed under the plan on
account of such claim is not less than the amount of such claim.
. . .” Id.

                                           6
        * * *

        (II) in the case of a debtor in a household of 2, 3,
       or 4 individuals, the highest median family income of
       the applicable State for a family of the same number
       or fewer individuals; or

       * * *

       B) may be less than 3 or 5 years, whichever is
       applicable under subparagraph (A), but only if the
       plan provides for payment in full of all allowed
       unsecured claims over a shorter period.

11 U.S.C. § 1325(b)(4).

       In this case, the Trustee objected to the Plilers’ proposed

Plan   with     its       early     termination       provision.       Further,   it    is

undisputed that the Plilers’ proposed Plan did not “provide[]

for    payment      in     full     of    all   allowed    unsecured    claims[,]”      11

U.S.C. § 1325(b)(4); in fact, the Plan provided for no payment

to unsecured creditors.                   Thus, Section 1325(b)(4)’s exception

does not apply.                At issue, then, is whether the Plilers’ Plan

may terminate after less than five years.

                                                1.

       The    Plilers          argue     that   the   bankruptcy    court   “erred      in

holding      that     .    .    .   the    definition     of   applicable   commitment

period in 11 U.S.C. § 1325(b)(4) is a freestanding plan length

requirement.”         Appellants’ Br. at 3.             We disagree.      We, like all

the other circuits to have addressed this issue, hold that an

“applicable commitment period” is a temporal requirement.                              See

                                                7
In re Flores, 735 F.3d 855, 856 (9th Cir. 2013) (en banc); Baud

v.   Carroll,    634 F.3d 327,       338    (6th     Cir.   2011);     Whaley    v.

Tennyson,   611 F.3d 873,    880       (11th     Cir.     2010);    Coop     v.

Frederickson, 545 F.3d 652, 660 (8th Cir. 2008). 2

      As in all statutory interpretation cases, we “necessarily

begin[] with an analysis of the language of the statute.                            And,

in analyzing the meaning of a statute, we must first determine

whether   the    language     at     issue      has   a    plain   and    unambiguous

meaning.”    Holland v. Big River Minerals Corp., 181 F.3d 597,

603 (4th Cir. 1999) (quotation marks and citation omitted).                           If

it does, we look no further but simply “enforce [the statute]

according to its terms.”           Id. (quotation marks omitted).

      Applying     these      principles         to       “applicable       commitment

period,” we agree with the Eleventh Circuit that “‘applicable’

and ‘commitment’ are modifiers of the noun, the core substance

of the term, ‘period.’         The plain meaning of ‘period’ denotes a

period of time or duration.”               In re Tennyson, 611 F.3d at 877

(citation   omitted).         As    for    the    modifier       “commitment,”      that

      2
       In their briefs, the Plilers relied on In re Flores, 692
F.3d 1021 (9th Cir. 2012), and In re Kagenveama, 541 F.3d 868
(9th Cir. 2008).    In those cases, the Ninth Circuit had held
that the applicable commitment period did not constitute a
freestanding plan length requirement.     But the Ninth Circuit
overruled In re Kagenveama and vacated the In re Flores panel
decision in favor of the en banc In re Flores opinion going
precisely the opposite way on this issue.      In re Flores, 735
F.3d 855. Those earlier cases are thus no longer good law, and
the circuit split they created no longer exists.

                                           8
signifies that “‘applicable commitment period’ is a duration to

which the debtor is obligated to serve.                     Finally, the meaning of

‘applicable’        reflects     the        fact    that        there    are     alternate

‘commitment periods’ depending on the debtor’s classification as

an above median income debtor or a below median income debtor.”

Id. (citation omitted).

       Further, the statute defines applicable commitment period

in terms of duration: “3 years,” “not less than 5 years,” or

“less than 3 or 5 years,” depending on current monthly income

and whether unsecured creditors will be paid under the plan.                             11

U.S.C.      §    1325(b)(4).         Putting       it     all    together,       then,   an

“applicable commitment period” is an obligatory period of time

that may vary based on the debtor’s income and plan provisions.

Stated      differently,        it     is     a     “freestanding             plan    length

requirement.”       Appellants’ Br. at 3.

       While we find a plain reading alone sufficient to conclude

that   an       “applicable    commitment          period”      is   a    length-of-time

requirement for Chapter 13 plans, we nevertheless note that our

conclusion harmonizes with the “core purpose” underpinning the

2005     bankruptcy     code     revisions         from     which       the    “applicable

commitment        period”     provisions         hail:    “ensuring       that       debtors

devote    their     full    disposable        income      to    repaying       creditors.”

Ransom v. FIA Card Servs., N.A., 131 S. Ct. 716, 729 (2011).

See also In re Tennyson, 611 F.3d at 879 (“‘The heart of [the

                                             9
pertinent]    consumer         bankruptcy     reforms    .    .        .    is   intended     to

ensure     that    debtors        repay   creditors      the        maximum        they      can

afford.’ H.R. Rep. 109–31(I), p. 2, 2005 U.S.C.C.A.N. 88, 89.”).

This core purpose is best effectuated when Chapter 13 plans must

last for three or five years, depending on the debtors’ income,

unless all unsecured claims are fully repaid sooner.

                                            2.

     The     Plilers           nevertheless      press       that          no    “applicable

commitment period” governs their case because they have negative

disposable income.         Here, too, we disagree.

     Again,       we    “necessarily      begin[]   with          an       analysis    of    the

language of the statute.”             Holland, 181 F.3d at 603.                   As already

discussed,     a       plain    reading     leads   us       to        conclude       that    an

“applicable commitment period” is a length-of-time requirement

for Chapter 13 plans.               The time requirement is either three

years or five years, depending on the debtor’s (and the debtor’s

spouse’s) “current monthly income[.]”                    11 U.S.C. § 1325(b)(4).

The plan may be shortened, “but only if the plan provides for

payment in full of all allowed unsecured claims over a shorter

period.”     Id.       Nothing in Section 1325(b)(4) suggests that the

applicable commitment period is somehow related to, much less

dictated by, the debtor’s projected disposable income.                                See id.

And we see no indication of some special exception for above-

median-income debtors with no projected disposable income.

                                            10
        The Plilers attempt to overcome that problem by blending

Section 1325(b)(4)’s applicable commitment period with Section

1325(b)(1), which mandates that “all of the debtor’s projected

disposable income to be received in the applicable commitment

period beginning on the date that the first payment is due under

the plan will be applied to make payments to unsecured creditors

. . . .”          11 U.S.C. § 1325(b)(1).                   The Plilers argue that

because      their     monthly    disposable         income      as    calculated    on    a

bankruptcy form filed with their bankruptcy petition, Form 22C,

showed negative $291.20, no “projected disposable income” will

be received “in the applicable commitment period,” rendering the

plan length requirement senseless.

       Yet the lack of projected disposable income at the time a

plan    is   confirmed     does     not    necessarily        mean       that   additional

funds    with     which   to     satisfy    claims      will       not   later    surface.

Indeed,      as   we   recently    saw     in    Carroll      v.      Logan,    Chapter   13

debtors can and do benefit from windfalls such as inheritances

or other unforeseeable income after plan confirmation but before

their Chapter 13 proceedings are closed.                      735 F.3d 147, 152 (4th

Cir. 2013) (holding that bankruptcy code “blocks the [debtors]

from    depriving      their     creditors       a   part   of     their    windfall      [an

inheritance] acquired before their Chapter 13 case was closed”).

A five-year plan duration thus still makes sense, and may still

result in gains for creditors, even if the debtors have zero or

                                            11
negative disposable income at the time of plan confirmation.

See also, e.g., Baud, 634 F.3d at 356 (“[T]here are numerous

circumstances in which disposable income might become available

to the Appellees and to other debtors after confirmation, even

those who have zero or negative projected disposable income as

of confirmation.”).

     The Plilers also contend that the “‘applicable commitment

period’ exists solely for its function within the confines of

§ 1325(b)(1)(B)[,]”    Appellants’     Br.   at   34,   which,   again,

mandates that “all of the debtor’s projected disposable income

to be received in the applicable commitment period . . . will be

applied to make payments to unsecured creditors . . . .”              11

U.S.C. § 1325(b)(1).    The Plilers claim that Section 1325(b)(1)

“is the only relevant section of the [Bankruptcy] Code that puts

the term into action and applies it to debtors.”           Appellants’

Br. at 35.   But this contention is belied by the statute that

allows for post-confirmation plan modification: Section 1329.

     Specifically,    Section   1329    expressly   incorporates     the

applicable commitment period as a temporal limit for purposes of

plan modification.     Under Section 1329(a), a bankruptcy court

may modify a plan at any time after plan confirmation and before

the completion of plan payments.        11 U.S.C. § 1329(a).       As we

saw in Carroll, for example, Section 1329 modification may be

used to increase plan payments to creditors in the event that

                                 12
the debtors come into additional, unforeseen income.                               735 F.3d
147.       But a modified plan “may not provide for payments over a

period that expires after the applicable commitment period under

section       1325(b)(1)(B)        after    the    time     that    the    first    payment

under the original confirmed plan was due . . . .”                           11 U.S.C. §

1329(c).          The modification statute thus “defines the temporal

window within which modified payments . . . may be made by

reference to the applicable commitment period.”                            In re Flores,
735 F.3d    at    859-60.        In    other    words,     for    purposes      of   plan

modification, the applicable commitment period appears to serve

as    a    measure    of    plan    duration       wholly    unrelated      to     debtors’

disposable income.

          In sum, we hold that a plain reading of the Bankruptcy

Code, and Section 1325 in particular, mandates that an above-

median-income debtor maintain a bankruptcy plan for five years

unless      all     unsecured      creditor       claims    are     paid   in    full   and

irrespective         of    projected       disposable       income.        The     Plilers,

above-median-income debtors, are thus obligated to maintain a

five-year plan.            The bankruptcy court therefore did not err in

deeming the early termination language in the Plilers’ proposed

plan void as a matter of law and in extending the duration of

the    Plilers’      proposed      Plan     from    fifty-five       to    sixty    months,

i.e., to five years.

                                             13
                                                    B.

        With    their       next      argument,          the    Plilers       contend       that     the

bankruptcy          court    erred       by    looking          beyond        their   Form      22C’s

negative        disposable            income        calculation            to      examine      their

Schedules       I    and     J    in    evaluating             their      projected      disposable

income.

      On the one hand, we find problematic the bankruptcy court’s

broad    statement          suggesting        that       it     is   at    liberty       to   abandon

completely the Bankruptcy Code’s disposable income formula in

favor    of     Schedules         I    and    J,    at     least       when     debtors       have    no

disposable income.                 See In re Pliler, 487 B.R. at 692 (“If

disposable       income       is      zero     or    less,       the      court     must      look   to

projected disposable income based on income minus expenses from

Schedules I and J to determine what actual income or expenses

are known or virtually certain at the time of confirmation.”).

Schedules       I     and    J,       which     list       current        income      and     current

expenditures, may contain items—such as social security income—

that Congress excluded from disposable income.                                     Baud, 634 F.3d

at 345.        It is troubling to suggest that a court may “disregard”

such an exclusion “simply because there is a disparity between

the amount calculated using th[e] [disposable income] definition

and     the    debtor’s          actual       available         income        as   set     forth     on

Schedule I.”          Id.

                                                    14
       On the other hand, however, we recognize that projected

disposable      income     and    disposable    income      are,   even    simply    on

their face, not identical, with disposable income based on a

debtor’s past and projected disposable income being a “forward-

looking”     concept       that   may   account       for   “known    or   virtually

certain” changes to a debtor’s income or expenses.                     Lanning, 560
U.S. at 515.      See also Morris v. Quigley, 673 F.3d 269 (4th Cir.

2012)    (relying     on     Lanning    to     hold    that   debtor’s     projected

disposable income must reflect debtor’s intention to surrender

vehicles on which she had been making secured debt payments and

which had impacted her disposable income calculation).                         And we

do not doubt a bankruptcy court’s ability to consider Schedule

I, Schedule J, or other pertinent evidence to capture “known or

virtually certain” changes to disposable income:                     After all, the

Supreme Court itself did so in Lanning.                     Lanning, 560 U.S. at

511.

       In this case, however, the bankruptcy court relied on the

Plan payment figure the Plilers themselves had proposed.                       In the

face of negative disposable income per Form 22C, the Plilers

professed in their proposed Plan that they could make payments

of     $1,784   per    month,      at   least    for    fifteen      months.        The

bankruptcy court’s order effectively stretched that figure out

to the full five-year applicable commitment period it correctly

                                          15
deemed a requirement.           Nothing before us convinces us that the

bankruptcy court erred in so doing.

     In sum, we affirm the bankruptcy court’s order.                         However,

because the order was rendered at a joint session dealing with

other    cases   and    addressing     only      the    common   legal   issues,   it

appears    as    if   the    Plilers   did      not    receive   an   individualized

hearing with an opportunity to present evidence.                       Thus, to the

extent the Plilers have not yet been given an opportunity to

present evidence regarding, e.g., the feasibility of a $1,784-

per-month, five-year Plan (and both parties indicated at oral

argument    that      they   had   not),     that      opportunity    must   be   made

available on remand.

                                        III.

        For the foregoing reasons, we affirm the bankruptcy court’s

order and remand the case for further proceedings.

                                                            AFFIRMED AND REMANDED

                                           16