Court Opinion

ID: 3024666
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:32:03.144379+00
Date Added: 2024-06-11T11:47:42.294362
License: Public Domain

United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                 ___________

                                 No. 99-3831
                                 ___________
                                        *
In re: Gerald E. Taylor; Betty Taylor, *
                                        *
              Debtors.                  *
 ______________________________ *
                                        * Appeal from the United States
Gerald E. Taylor; Betty A. Taylor,      * District Court for the
                                        * Southern District of Iowa.
             Appellants,                *
                                        *
    v.                                  *
                                        *
United States of America,               *
                                        *
             Appellee.                  *
                                   ___________

                           Submitted: April 12, 2000
                               Filed: May 5, 2000
                                ___________

Before BOWMAN and HANSEN, Circuit Judges, and CARMAN,1 Judge.
                          ___________

HANSEN, Circuit Judge.

      1
       The Honorable Gregory W. Carman, Chief Judge, United States Court of
International Trade, sitting by designation.
        Gerald E. Taylor and Betty A. Taylor appeal the district court's2 decision
affirming the bankruptcy court's3 dismissal of their bankruptcy petition. The
bankruptcy court determined that the Taylors' petition constitutes a substantial abuse
of the bankruptcy system because the Taylors are able to pay their creditors. See 11
U.S.C. § 707(b) (authorizing dismissal upon a finding of substantial abuse of the
bankruptcy system); In re Walton, 866 F.2d 981, 982 (8th Cir. 1989) (holding that
dismissal of a bankruptcy petition pursuant to § 707(b) is appropriate when a reviewing
court finds that debtors possess the ability to pay their creditors). In reaching its
conclusion regarding the Taylors' ability to pay their creditors, the bankruptcy court
included income from Gerald Taylor's ERISA4-qualified pension in its calculation of
the Taylors' disposable income. Acting as an appellate court, the district court
reviewed the bankruptcy court's findings of fact for clear error and its conclusions of
law de novo. See In re Fairfield Pagosa, Inc., 97 F.3d 247, 252 (8th Cir. 1996)
(citations omitted). After conducting its review, the district court upheld the
bankruptcy court's findings and conclusions. (See Dist. Ct. Ord. at 5.) We conduct a
second, independent review of the bankruptcy court's decision applying the same
standards as the district court. See Fairfield Pagosa, 97 F.3d at 252.

      The question of whether a bankruptcy court may include an ERISA-qualified
pension in its calculation of a petitioner's disposable income is an issue of first
impression in this circuit. In In re Koch, 109 F.3d 1285, 1287-90 (8th Cir. 1997), we

      2
        The Honorable Robert W. Pratt, United States District Judge for the Southern
District of Iowa.
      3
      The Honorable Lee M. Jackwig, United States Bankruptcy Judge for the
Southern District of Iowa.
      4
       The Employee Retirement Income Security Act of 1974 (codified as amended
at 29 U.S.C. §§ 1001-1461 (1994 & Supp. III 1997) and in scattered sections of Title
26 U.S.C.).

                                          -2-
held that a debtor's disability payments could be considered in the disposable income
calculus even though the payments were classified as exempt from creditors under
South Dakota state law and, therefore, exempt from creditors under Chapter 7 of the
United States Bankruptcy Code. We concluded that the relevant inquiry is not whether
the payments are exempt from creditors in a Chapter 7 proceeding but whether the
challenged payments would constitute income in a hypothetical proceeding under
Chapter 13 of the United States Bankruptcy Code. See id. at 1288-89.

        Chapter 13 affords "an individual with regular income" the option of preserving
their "pre-petition assets through a three- to five-year plan funded primarily" with that
individual's regular income. Id. at 1288 (citing 11 U.S.C. § 109(e)). If, however, an
unsecured creditor or trustee objects to the confirmation of the Chapter 13 plan, the
debtor can obtain Chapter 13 relief only if the plan "provides that all of the debtor's
projected disposable income to be received [during the three-year plan] will be applied
to make payments under the plan." Id. at 1289 (quoting 11 U.S.C. § 1325(b)(1)(B)).
Disposable income is income received by the debtor that is not reasonably necessary
for support of the debtor, the debtor's dependants, or the debtor's business. Id.; 11
U.S.C. § 1325(b)(2)(A) and (B). As the bankruptcy court determined, Gerald Taylor's
ERISA-qualified pension is not reasonably necessary to support the Taylors. Hence,
it is disposable income as defined in § 1325(b)(2)(A) and (B).

      The Taylors argue that ERISA's anti-alienation provisions, see 29 U.S.C. §
1056(d)(1), exempts the pension plan from the disposable income calculation. The
Taylors base their argument on Patterson v. Shumate, 504 U.S. 753 (1992). In
Patterson, the Supreme Court held that ERISA's anti-alienation provision constituted
an enforceable transfer restriction in a proceeding instituted under 11 U.S.C. §
541(c)(2). See 504 U.S. at 760. The Taylors contend that pursuant to the Patterson
Court's interpretation of ERISA's anti-alienation provision, a bankruptcy court may not
include an ERISA-qualified pension in its calculation of disposable income. The
Taylors' reliance on Patterson is misplaced.

                                          -3-
       The fact that a pension is exempt from the reach of creditors does not preclude
a bankruptcy court from finding that the pension is also disposable income for purposes
of Chapter 13. The question of whether income from a pension is exempt from
creditors is a wholly independent inquiry from the question of whether the pension
income is reasonably necessary to support the debtor. See In re Morse, 164 B.R. 651,
656 (Bankr. E. D. Wash. 1994). The latter question is the pertinent inquiry for
purposes of Chapter 13. See Koch, 109 F.3d at 1289. In regard to the former question,
we note that nothing in the language of Chapter 13 prevents the funding of a Chapter
13 plan with exempt income. See id.; In re Hagel, 184 B.R. 793, 798 (B.A.P. 9th Cir.
1995). Hence, the question of whether a pension plan is exempt or otherwise restricted
by a federal anti-alienation provision is irrelevant in a Chapter 13 context.
Accordingly, the bankruptcy court committed no error when it included Gerald Taylor's
ERISA-qualified pension in its calculation of the Taylors' disposable income and
dismissed the Taylors' bankruptcy petition pursuant to § 707(b). We, therefore, affirm
the judgment of the district court.

        A true copy.

             Attest:

                    CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

                                          -4-