Court Opinion

ID: 9696543
Source: CourtListenerOpinion
Date Created: 2023-08-25 18:51:12.215497+00
Date Added: 2024-06-11T18:20:23.364221
License: Public Domain

FEDERMAN, Bankruptcy Judge,
dissenting.
The bankruptcy court discussed and attempted to reconcile two parts of § 1325(b)(2). The first defines disposable income, and provides that all 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.” The second provides that the applicable commitment period, which is 5 years here, may only be reduced “if the plan provides for payment in full of all unsecured claims over a shorter period.” The bankruptcy court concluded that the Debt- or’s projected disposable income over the 5 year period is less than zero, and that the Debtor therefore, in effect, owes nothing to his unsecured creditors under his plan. The plan proposed by the Debtor, and confirmed by the bankruptcy court, requires the Trustee to use payments made by the Debtor to first take care of those obligations which would continue to affect the Debtor after the bankruptcy case is over. Thus, payments to the Trustee are to be used to bring current a nondis-*836chargeable student loan, to pay off the loan on a car Debtor wants to keep, and to pay off nondischargeable tax debt. Once the Debtor takes care of the bills that would otherwise have remained enforceable after the Chapter 13 discharge was entered, the bankruptcy court reasons, he is free to wipe the slate clean on his unsecured debts, even though they have not been paid 100%, and even though he has not made payments for the applicable payment period of 5 years.2 The provision requiring the Debtor to make payments for an applicable commitment period is, under this interpretation, deemed not to be applicable. Since I conclude that this holding ignores the manner in which the Bankruptcy Code requires payments to be made in Chapter 13 cases, the intent of Congress in amending § 1325(b) and, most importantly, the language of that provision, I respectfully dissent.
The Debtor here proposes a monthly payment of $600 to the Trustee, to be distributed pursuant to the provisions of the confirmed plan. The majority opinion analyzes the split in the bankruptcy courts on the question of whether a debtor’s projected disposable income is simply based on a mathematical calculation taken from documents filed at the outset of a case, or is subject to some adjustment within the discretion of the bankruptcy court. While an important question, it is not determinative here, since the Trustee does not contend that the Debtor’s proposed payment is less than his disposable income. The issue, instead, is how many months the Debtor needs to propose that he make such payment to the Trustee.
In a typical pre-BAPCPA case, little or none of a debtor’s monthly payment to the trustee would end up being paid out to unsecured creditors. That is because the Bankruptcy Code gives first call on that payment to secured creditors, and to creditors whose claims are given priority status. In figuring out what his monthly payment needs to be under a plan, a debtor therefore would begin with the monthly payments needed to be made to those secured and priority creditors. Many of those payments would extend throughout the life of the plan. But others, either because of legal requirements or the debtor’s own wishes, might be paid off sooner. For example, if another person has co-signed a debtor’s obligation, the debtor is allowed to direct the trustee to make payments to that creditor so as to get the co-signer off the hook.3 If the debtor proposes that that creditor be paid off prior to the conclusion of the case, then the portion of the monthly payment which had been going to that creditor thereafter becomes available to unsecured creditors without priority. Or, in a more common example, the Bankruptcy Code provides for payment in full of priority claims such as attorneys’ fees,4 but does not provide that those payments be spread out over the entire length of the plan. Thus, many courts allow the debtor’s attorney’s fees to be paid on a monthly basis out of plan payments, over a shorter period than the plan length. Again, once those payments are completed, there should be additional funds available to drop down to unsecured creditors from each monthly payment. Other examples of periodic payments by a trustee which *837might be made at the beginning, but not throughout a case, include arrearages on long-term debts (which must be cured “within a reasonable time”),5 arrearages on leases and executory contracts (which must be cured “promptly”),6 and repayment of loans from certain pension and profit-sharing plans.7 Before BAPCPA, once a debtor with no projected disposable income had paid or brought current his secured and priority debts, and stayed in the case for 36 months, he was entitled to a discharge even if nothing had been paid to unsecured creditors.
BAPCPA was intended by Congress to require that higher income debtors either pay 100% of unsecured claims, or make payments for a period of 5 years. While there is scant legislative history for most of the BAPCPA provisions, the House Report on § 1325(b) makes clear that the applicable commitment period is a dura-tional requirement for the Chapter 13 plan, and not just, as the majority holds, a multiplier:
Sec. 318. Chapter 13 Plans to Have a 5-Year Duration in Certain Cases. Paragraph (1) of section 318 of the Act amends Bankruptcy Code sections 1322(d) and 1325(b) to specify that a chapter 13 plan may not provide payments over a period that is not less than five years if the current monthly income of the debtor and the debtor’s spouse combined exceeds certain monetary thresholds. If the current monthly income of the debtor and the debtor’s spouse fall below those thresholds, then the duration of the plan may not be longer than three years, unless the court, for cause approves a longer period of up to five years. The applicable commitment period may be less if the plan provides for payment in full of all allowed unsecured claims over a shorter period .... 8
The majority concludes, however, that even though the Debtor proposes not to pay his unsecured claims in full, he is free to obtain a discharge of such debts after just 48 months of payments. In so ruling, the majority ignores the portion of the statute which provides that the applicable commitment period may only be reduced “if the plan provides for payment in full of all allowed unsecured claims over a shorter period.”9
In addition, prior to BAPCPA, § 1325(b)(1)(B) provided that a debtor’s projected disposable income to be received in the three-year period must be applied “to make payments ■ under the plan.” Thus, that projected disposable income could be used, as was commonly done, to make payments to priority and secured creditors, leaving nothing for the unsecured creditors at the end of the 36-month plan. Now, however, the statute 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.”10 In thus amending § 1325(b), Congress intended to make more funds available to unsecured creditors. Yet the bankruptcy court’s interpretation would allow this Debtor and others to stop making pay*838ments as soon as the obligations they would like to see paid have been satisfied, even though they have not made payments for the applicable commitment period required by that section.
The Trustee argues that the projected disposable income requirement sets a minimum amount which a debtor must propose to pay to unsecured creditors, but that a debtor is not free to walk away from those obligations as soon as that minimum has been reached. Such an interpretation is consistent with the structure of Chapter 13. Even before BAPCPA was enacted, a debtor was required to propose payments to unsecured creditors at least equal to what those creditors would have received from the debtor’s assets in a Chapter 7 liquidation.11 But proposing to pay that amount has never meant that a debtor has fulfilled all his obligations to those unsecured creditors. Instead, it is simply one of the requirements that must be met in order to confirm a plan. I agree with the Trustee that the projected disposable income test, as revised by BAPCPA, was intended to impose another minimum requirement for confirmation. However, in addition to that minimum, Congress was careful to require that additional protections be given to unsecured creditors. One such protection is that debtors are required to stay in the case and make payments for the applicable commitment period so that, once payments are used by the trustee to satisfy priority and secured claims, payments for the rest of the five years can be paid by the trustee to unsecured creditors. In other words, if a debt- or, such as this one, needs to pay, and is able to pay, $600 to secured and priority creditors at the beginning of the ease, for whatever reason, he should be obligated to propose that payments in that amount continue throughout the applicable commitment period, unless he proposes to pay 100% of his unsecured claims in a shorter period. Since the bankruptcy court’s interpretation allows debtors to ignore both the language of the statute, and its purpose as demonstrated by the legislative history, I would reverse.

.I note that the plan does provide for payment of some of the Debtor's unsecured debt. However, it does not provide for payment of all of it. Under the bankruptcy court’s analysis, debtors such as this one would be free to propose a plan under which the unsecured debt would be paid nothing at all.

. 11 U.S.C. § 1322(b)(1).

. 11 U.S.C. § 1322(a)(2).

. 11 U.S.C. § 1322(b)(5).

. 11 U.S.C. §§ 1322(b)(7) and 365(b)(1)(A).

. 11 U.S.C. § 1322(f).

. H.R. Rep. 109-31(1), p. 79, 109th Cong. 1st Sess.2005, U.S.Code Cong. & Admin.News 2005, pp. 88, 146(emphasis added).

. 11 U.S.C. § 1325(b)(4)(B).

. 11 U.S.C. § 1325(b)(1)(B).

. 11 U.S.C. § 1325(a)(4).