Court Opinion

ID: 9521822
Source: CourtListenerOpinion
Date Created: 2023-08-07 02:12:41.561298+00
Date Added: 2024-06-11T12:51:09.659306
License: Public Domain

KLEIN, Bankruptcy Judge,
concurring:
I agree that we should affirm the dismissal of the chapter 13 ease that was based on the refusal of a debtor who could fund a $35,000 plan to propose a plan that pays more than $10,822.20. Conceding that the statute makes it impossible to articulate an indisputably correct answer, I would prefer to affirm on a different theory.
I
The chapter 13 “disposable income” objection-to-confirmation problem is a classic paradox. The emphasis in §§ 101(10A) and 1325(b) on historical income as the threshold for confirming a chapter 13 plan over an objection contradicts the basic premise embodied in §§ 1306(a) and 1322(a)(1) that chapter 13 plans are funded by future income that really exists and runs counter to the only thing that appears to be unambiguous about the 2005 consumer amendments to the Bankruptcy Code: the policy that more debtors should be diverted from chapter 7 liquidations to chapter 13 repayment plans.
A
Neither the majority’s solution of cutting the Gordian Knot by allowing present fact to trump § 1325(b)(2) “disposable income,” nor the competing solution of rigid*269ly adhering to a statutory construction of “disposable income” that ignores present fact in a manner that would bar from chapter 13 some debtors capable of paying at least as much as in chapter 7 while (as here) permitting others to pay less than what they could actually pay, is entirely satisfactory. The former, however, has the advantage of being more consistent with the policy of promoting payment through expanded use of chapter 13.
I submit there must be a better solution than cutting the Gordian Knot to achieve a practical common-sense result, instead of applying a rigidly-tunneled vision of § 1325(b) supported by invocations of “plain meaning” that serve as rhetorical devices to bolster unsatisfactory argument for an unpalatable result. In a sense, however, it is a false dilemma because the “either-or” choice does not account for other analyses. If I must choose between the two, then the Gordian Knot solution that has been applied by a substantial number of courts throughout the country fits better with the 2005 policy of increasing payments to creditors than a rigid analysis that offends the policy.
B
Any solution that will be serviceable in the long term must meet several criteria. First, it must, as in the facts of the present appeal, account for the debtor whose real income available during the life of the chapter 13 plan is greater than § 1325(b) “disposable income.” Second, it must also account for the debtor whose real income is less than § 1325(b) “disposable income” but who can pay enough to fund an otherwise confirmable plan. While this second requirement may seem counterintuitive to those who think that no trustee or unsecured creditor would raise a § 1325(b) objection (§ 1325(b) applies only if objection is made) to a plan that is going to pay more than in chapter 7, the reality is that some unsecured creditors are animated by spite or a sense that they will have greater leverage if they can force a debtor out of bankruptcy.
Finally, our legal tradition requires that a solution must be based on a plausible construction of the language of the statute.
II
If there is anything “plain” about the “disposable income” portion of the statute, it is that, in context, it is not “plain.”
Justice Thomas, writing for a unanimous Supreme Court, has given us the applicable rule of statutory construction for when one may look beyond the mere words of the statute: “The plainness or ambiguity of statutory language is determined by reference to the language itself, the specific context in which the language is used, and the broader context of the statute as a whole.” Robinson v. Shell Oil Co., 519 U.S. 337, 341, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997) (9-0 decision).
Robinson is consistent with the observation of Justice Scalia, also writing for a unanimous Supreme Court, that the interpretation of the Bankruptcy Code “is a holistic endeavor” and that “[a] provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme — because the same terminology is used elsewhere in a context that makes its meaning clear or because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law.” United Sav. Ass’n of Texas v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 371, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988) (9-0 decision).
This implicates what is known as the doctrine of “whole statute” interpretation that we recently have described in connec*270tion with a different Bankruptcy Code conundrum. Wechsler v. Macke Int'l Trade, Inc. (In re Macke Int’l Trade, Inc.), 370 B.R. 236, 252 (9th Cir. BAP 2007); 2 A Norman J. Singer, Sutherland Statutory Constr. § 46:5 (5th ed.1992).
When one considers the “whole statute,” paths toward a resolution more satisfactory to me emerge.
Ill
One solution is based on a close reading of the provisions that implicate the term “current monthly income.”
The context of § 1325(b) “disposable income” cannot be viewed in isolation from the definition of “current monthly income” at § 101(10A), and the adjustments to “current monthly income” and expenses provided by § 707(b). All three of these sections were added to the Bankruptcy Code as an integrated whole in 2005. Moreover, context requires consideration of the debtor’s duty under § 521(a)(l)(B)(ii) to file “a schedule of current income and current expenditures,” the basic requirements for chapter 13 plan confirmation under § 1325(a), and the provisions under § 1329 for modifying a plan after confirmation in order to account for changes in income.
A
“Current monthly income” is a Code-wide defined term that focuses on the average of the debtor’s income for six calendar months before bankruptcy. The definition specifically cross-references the debtor’s § 521(a)(l)(B)(ii) duty to file a “schedule of current income and current expenses,” which schedules have been required by § 521 since 1984 and are the “Schedules I and J” that figure in the § 1325(b) debate. The existence of this cross-reference is indicative of an intended interconnection between historical income and current income.
“Current monthly income” has its most prominent role at § 707(b) in connection with the statutory formula for determining whether a consumer debtor’s case under chapter 7 is an “abuse” warranting dismissal or conversion to chapter 11 or 13. An elaborate mechanism is prescribed for computing the monthly expenses to be deducted from current monthly income.
Of particular interest in the present context is the mechanism in § 707(b) for rebutting the statutory presumption by demonstrating “adjustments of current monthly income for which there is no reasonable alternative.” 11 U.S.C. § 707(b)(2)(B) (emphasis supplied). Such “adjustments of current monthly income” must be based on “special circumstances” and be “necessary and reasonable.” The critical point for present purposes, however, is that there is a mechanism for adjusting “current monthly income” to reflect current circumstances so as to avoid unjust results.
It is perhaps natural that heretofore the “special circumstances” discussion has been focused on the expense side of the equation because that is where most of the action occurs. But the phrase “adjustments of current monthly income” must mean something because we do our best to try to give effect to all language in a statute. I submit that what is contemplated is a significant and not transitory change in income. The evidence supporting my view is in the language of § 707(b)(2)(B)(i): “special circumstances, such as ... a call or order to active duty in the Armed Forces.” One need only look at the official United States military pay tables to recognize that a call to active duty precipitates a substantial reduction in income for a typical military reservist consumer.
*271Although the calculations of current monthly income and monthly expenses required by § 101(10A) and § 707(b) appear in tableau format on Form B22A for chapter 7 cases and Form B22C for chapter 13 cases, the forms do not capture “special circumstances” adjustments to income. Since all the requirements of various versions of Form 22 (known as B22 in the interim preceding the effective date of the official Forms) are imposed directly or indirectly by the statute, the statute controls whenever Form 22 diverges from the statute. Indeed, the Forms 22 resulted from the mandate in § 707(b)(2)(C) that a statement of “current monthly income” and the calculations regarding the presumption of abuse be presented in conjunction with the schedules of current income and current expenses required by § 521. Since the statute authorizes “adjustments of current monthly income,” the statement of “current monthly income” on a form that does not attempt to capture such adjustments does not mean that there cannot be “adjustments of current monthly income” to reflect reality when “special circumstances” exist.
“Current monthly income” and the § 707(b) abuse calculations spill over to the chapter 13 plan confirmation provisions under § 1325. Since 1984, a plan that satisfies the basic § 1325(a) plan confirmation standards nevertheless may not, by virtue of § 1325(b), be confirmed over objection of the chapter 13 trustee or the holder of an allowed unsecured claim unless either the objecting creditor is being paid in full or all of the debtor’s “projected disposable income” is committed to the plan for the requisite period. 11 U.S.C. § 1325(b). Also since 1984, § 1325(b) has contained a definition of “disposable income,” but until 2005 that definition focused on “income which is received by the debtor and which is not reasonably necessary to be expended” for maintenance and support. 11 U.S.C. § 1325(b)(2) (repealed 2005).
The innovation in 2005 for § 1325(b)(2) came in two parts. First, the definition of “disposable income” was revised by substituting “current monthly income” in place of “income which is received by the debt- or.” The friction generated by the introduction of this disconnect between present and past ignited the present debate that seems to be boiling down to a disagreement about whether the word “projected” is an adjective applied to a term of art (“disposable income”) or instead whether “projected” is part of an integrated term (“projected disposable income”) with a meaning different than “disposable income.”
The second facet of the 2005 revision of § 1325(b)(2) was the addition of the requirement in § 1325(b)(3) that allowable expenses under § 1325(b)(2) for over-median income debtors be “determined in accordance with subparagraphs (A) and (B) of section 707(b)(2).” Of course, § 707(b)(2)(B) is precisely the provision that authorizes “adjustments of current monthly income” based on present facts. In other words, it is at least a plausible interpretation (I do not pretend it is perfect) that “current monthly income” as used in § 1325(b) can be adjusted under the mechanism provided by § 707(b)(2)(B) to recognize substantial and non-transitory changes in income.
It is no objection that § 1325(b)(3) applies only for over-median income debtors. The language is certainly mandatory for over-median income debtors (“Amounts reasonably necessary to be expended under paragraph (2) shall be determined ...”), but a court presumably would have discretion (i.e. “may be determined”) to apply similar analysis to other debtors. The more accurate view of § 1325(b)(3) is *272that it is mandatory for over-median income debtors, but optional for under-median income debtors.
It is perhaps more of an objection that the incorporation of § 707(b)(2)(B) into § 1325(b)(3) is done in terms that refer only to the expense side of the equation. That would have some force if Congress had imported only § 707(b)(2)(A), which deals only with expenses. It loses force when one looks at the incorporation of § 707(b)(2)(B), which deals exclusively with rebutting a presumption of abuse (that can only arise after “current monthly income” netted with § 707(b)(2)(A) expenses). Since the presumption of abuse that is addressed by § 707(b)(2)(B) has literally nothing to do with chapter 13, the specific incorporation of § 707(b)(2)(B) into § 1325(b)(3) must mean that the provisions for making “adjustments” based on “special circumstances” is what is being imported without the irrelevant presumption of abuse rebuttal provisions. Congress must have meant something by specifying § 707(b)(2)(B); what else, besides “adjustment” safety valve, could it have been? It is difficult to imagine how only snippets of the special circumstances adjustments would be applicable. If this analysis were to be applied, then the problem presented by this appeal would be solved. The debt- or has had a substantial and non-transitory increase in income that necessitates a § 707(b)(2)(B) “adjustment of current monthly income” based on “special circumstances” to an amount substantially higher than the $2,666.67 upon which he relied to propose a $10,822.20 plan. Hence, the court correctly sustained the § 1325(b) objection to confirmation and correctly dismissed the case when the debtor chose not to file another plan that took into account the appropriate “adjustments of current monthly income.”
B
Further support for the construction outlined above is found at § 1329(a), which provides for modification of a plan after confirmation.
At any time between confirmation and completion of payments under a chapter 13 plan, the debtor, the trustee, or an unsecured creditor may request a plan modification that, among other possibilities, increases or reduces payments or extends or reduces the time for making payments. 11 U.S.C. § 1329(a)(1). Such modifications typically are based on changes in income.
While a modification must meet the plan confirmation requirements of § 1325(a), which is incorporated by § 1329(b)(1) (“the requirements of section 1325(a) of this title apply to any modification under subsection (a)”), it is significant that § 1325(b) does not apply to § 1329 modifications. Sunahara v. Burchard (In re Sunahara), 326 B.R. 768, 781-82 (9th Cir. BAP 2005).
In sum, the construction of the statute that discerns the ability to adjust “current monthly income” based on “special circumstances” is a plausible reading of the relevant provisions of the Bankruptcy Code and accounts for both upward and downward adjustments to “current monthly income.”
IY
An alternative basis upon which we could affirm this appeal focuses on the basic confirmation requirements specified by § 1325(a).
Accepting at face value the debtor’s argument that the $10,822.20 he proposes to pay into the plan is all that he must do under § 1325(b), the plan nevertheless must meet all confirmation requirements of § 1325(a).
Since it is apparent that the debtor actually could afford to pay about $35,000 into *273a plan during the applicable commitment period, the question becomes whether the plan has been “proposed in good faith” as required by § 1325(a)(3).
As we explained in Sunahara, the § 1325(a)(3) analysis, among other things, “necessarily requires an assessment of a debtor’s overall financial condition including, without limitation, the debtor’s current disposable income, the likelihood that the debtor’s disposable income will significantly increase due to increased income or decreased expenses over the remaining term.” Sunahara, 326 B.R. at 781-82.
When the record establishes that there is a material disparity between what would be paid into a plan and what could be paid into a plan, the question of what should be paid into a plan becomes part of the confirmation process. A tool in the toolbox for dealing with this situation is the “good faith” plan confirmation requirement.
It is credible to argue that the debtor’s plan is an intentionally passive-aggressive, “gotcha” response to the straightjaeket that was nominally imposed by the 2005 amendments. While to some it smacks of delicious irony, there is a point of degree at which a debtor’s proposed chapter 13 plan can move into the realm of overreaching that is lacking in “good faith.”
In this context, it is significant that in the 2005 amendments Congress restated the requirement that debtors file a schedule of “current income and current expenditures” in cases under all chapters. 11 U.S.C. § 521(a)(l)(B)(ii). The provision that requires additional reporting of “current monthly income” in connection with the schedule of current income and current expenses appears only in chapter 7. 11 U.S.C. § 707(b)(2)(C).
Since Congress would not have required reporting of current information regarding income and expenses if such information was intended to be irrelevant, it follows that such information may be considered in the § 1325(a) “good faith” analysis required for chapter 13 plan confirmation.
Accordingly, the bankruptcy court’s refusal to confirm the plan that would pay less then one-third of what the schedules of current income and expenses (Schedules I and J) suggest the debtor could pay, may be affirmed on the basis that the plan was not confirmable because the plan proponent did not by a preponderance of evidence establish that the plan was proposed in “good faith” as required by § 1325(a)(3).
This analysis, however, is less attractive than the analysis suggested above because it does not account for how one would deal with the debtor whose actual income has fallen below “current monthly income” in a manner that would permit an unsecured creditor animated by non-economic factors to block plan confirmation even though the debtor still has sufficient income to fund a chapter 13 plan and may desperately need to confirm such a plan in order to cure, for example, a mortgage default during the life of the plan.
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Both of these alternative theories would support affirmance and appear to me to be more firmly grounded in the language of the statute than the approach of cutting the Gordian Knot. As noted at the outset, however, if I had to choose between the majority’s approach and the alternative that “current monthly income” creates a straightjaeket in which there is no flexibility for dealing with the actual facts of a particular case, I would agree with the substantial body of cases that go with cutting the knot.
Accordingly, I concur.