Court Opinion

ID: 9630504
Source: CourtListenerOpinion
Date Created: 2023-08-22 10:12:31.409178+00
Date Added: 2024-06-11T18:07:39.193622
License: Public Domain

BEA, Circuit Judge,
concurring in part and dissenting in part:
This case deals with how long a Chapter 13, “wage-earner” debtor in bankruptcy proceedings will have to worry about whether his unpaid creditors can bring up any good changes in his fortunes, to get paid his debts to them. The majority lays down a rule: So long as the debtor can calculate no “disposable income” at the time his creditor plan is confirmed, he can rest easy. The debtor can propose as short a time period as he wants: a day, a week or a month. I dissent because Con*878gress pretty clearly stated his creditors should have up to five years to keep an eye on the debtor to perhaps share in any of his new good times. Respectfully to the majority, I think the rule they adopt creates an incentive for the picaresque, by encouraging a debtor to fiddle with his expenses and income just before he presents his creditor plan for confirmation. So long as he can push up his expenses and delay receipt of income so as to show no “disposable income” at the time of plan confirmation, he can propose such a short period of time that he can save any postponed income from the creditors’ clutches. The majority’s result is not required by a close reading of the Bankruptcy Code; indeed, quite the opposite is the correct reading. For this reason, I partially dissent from the majority opinion.
I concur in the majority opinion’s holding as to the calculation of “projected disposable income.” I agree projected disposable income in 11 U.S.C. § 1325(b)(1)(B) is calculated according to § 1325(b)(2)’s statutory definition of “disposable income”, using Form B22C — regardless the debtor’s actual disposable income on the date of plan confirmation— and then projected out over the “applicable commitment period.” Opinion at 871-76.
I also concur in the majority opinion’s holding that “applicable commitment period,” as defined in § 1325(b)(4) and used in § 1325(b)(1)(B) provides a temporal requirement for the length of a Chapter 13 Plan. Opinion at 874-76. I part company with the majority, however, in its determination the applicable commitment period is mandatory only when the debtor has projected disposable income at the time of plan confirmation. Opinion at 875-77.
Section 1325(b)(1)(B) provides:
If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan ... 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) & (b)(1)(B).
The applicable commitment period — not less than 5 years for an above median debtor, § 1325(b)(4)(A)(ii), and 3 years for a below median debtor, § 1325(b)(4)(A)(i) — can be shortened “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)(B). The majority agrees the applicable commitment provides a temporal requirement, but holds this temporal requirement should not apply to a debtor who has no projected disposable income at the commencement of the commitment period. The language of the statute provides no such exception. The statute requires a plan to “provide 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)(B) (emphasis added). Thus, even if a debtor’s projected disposable income is zero at the time he seeks plan confirmation, he must commit to pay such disposable income as he receives it — should he receive it — during the applicable commitment period. He can make such a commitment only by proposing a plan that will be in existence at that later date (or otherwise commit to pay all he owed to unsecured creditors in a shorter period of time).
Although the purpose of Chapter 13 bankruptcy is to provide debtors a second chance, it is not a pardon of debt or, at least, a pardon right away. Chapter 13 *879bankruptcy is a statutorily constructed second chance for debtors that, through the plan modification procedures in § 1329, also provides a second chance for creditors to be repaid by a bankrupt debt- or whose financial situation has improved. Section 1329 specifically allows for periodic adjustments to § 1325’s disposable income calculation. 11 U.S.C. § 1329(b) (stating § 1325’s requirements “apply to any modification under subsection (a) of [§ 1329].”). The applicable commitment period allows unsecured creditors who are otherwise not receiving payment from a debtor five years to monitor the debtor’s finances and, in the event the debtor’s disposable income increases during that time, file for plan modification under § 1329. Plan modification may occur only “after confirmation of the plan but before the completion of payments under such plan,” and a modified plan “may not provide for payments over a period that expires after the applicable commitment period under section 1325(b)(1)(B).” 11 U.S.C. § 1329(a), (c).
The majority agrees that § 1329’s provision for plan modification after confirmation is the proper way for a creditor to deal with a possible change in the debtor’s income. Opinion at 877. It then states that, because different sections of the Bankruptcy Code provide for plan modification,1 “we need not transform § 1325 into a plan modification tool.” Id. The five-year requirement of § 1325, however, is a necessary component of plan modification. If the plan is not continued for a five-year period (post-confirmation), an unsecured creditor who discovers the debt- or’s finances have dramatically improved will find that there is no extant plan to modify. 11 U.S.C. § 1329(a), (c).
Section 1325 governs plan confirmation by providing the requirements a plan must meet before it may be confirmed (when an unsecured creditor or the plan trustee has objected to confirmation of the plan). One of those plan confirmation requirements is that a plan propose an applicable commitment period of a certain length — for an above median income debtor, five years— or pay all owed to unsecured creditors in a shorter period. 11 U.S.C. § 1325(b)(4).
The majority states the duration of an above-median debtor’s plan is governed only by § 1322(d);2 it incorrectly states that to hold that § 1325(b)(4)’s applicable commitment period requirement sets the length of the plan would render § 1322(d) superfluous. Opinion at 7181. First, § 1322(d) sets the maximum length of all plans and says nothing of a minimum duration. Section 1325(b)(4)’s applicable commitment period is congruous, .rather than superfluous, to § 1322(d); section 1325(b)(4) mirrors § 1322(d)’s maximum plan length of five years for above-median debtors, but applies only to those plans where the plan trustee or an unsecured creditor has objected to the plan’s confirmation, and allows for a shorter plan period than § 1322(d)’s maximum period for above-median debtors who propose to pay all they owe to unsecured creditors in a shorter period of time. Further, the majority statement that § 1325’s applicable *880commitment period provides a temporal requirement for a debtor with projected disposable income at the time of plan confirmation is inconsistent with its later statement that reading § 1325 to require a plan length would render § 1322(d)’s maximum plan length provisions superfluous.
Under the majority’s rule, a debtor could mischievously “game the system” and avoid repaying debt to his unsecured creditors by inflating his pre-plan confirmation expenses3 and deferring income until after plan confirmation.4 That debtor could gain confirmation of his plan with a short commitment period and then reduce his actual expenses and accept his deferred income. Unsecured creditors who discover the debtor’s improved financial situation would be limited to seek modification of the debtor’s plan only within the short commitment period; indeed, a short commitment period might prevent unsecured creditors ever from receiving payment from a crafty debtor of his unsecured debt. There are many imaginable instances where a debtor’s financial situation will dramatically improve after plan confirmation — either through good fortune or clever planning. In such instances, only if a debtor is required to keep his plan active for some period of time (ie., an “applicable commitment period,” which Congress set at five years for an above-median income debtor), will unsecured creditors receive repayment of monies the debtor owes them.
Accordingly, I would hold that regardless whether an above-median debtor’s projected disposable income is zero, the debtor whose income is above-median is required to propose a five-year plan,5 unless his plan otherwise proposes to pay all he owes to unsecured creditors in a shorter period of time. In the case of an above-median debtor who has no projected disposable income, at the moment of plan confirmation, pursuant to the statutory definition of disposable income, this temporal requirement would allow unsecured creditors to monitor the debtor’s finances *881and, in the event the debtor’s disposable income increases during the five-year period, file for plan modification under § 1329, seek a recalculation of projected disposable income per Form B22C, and seek to obtain some repayment from the debtor. In the event a debtor wished to pay 100% of his unsecured debt in less than five years, there is no justification for requiring him to drag out the payment process. Obviously, creditors entitled to payment in full under the plan would rather receive such payment sooner than later.
In Kagenveama’s case, the fact the six-month period used in calculating the original projected disposable income yielded a zero does not mean that a different six-month period, some time down the five-year fine, will also yield a zero. Accordingly, I would reverse the bankruptcy judge’s order rejecting the Trustee’s objection to Kagenveama’s failure to propose a plan that either adheres to the five-year applicable commitment period or pays all she owes to unsecured creditors in a shorter period of time.

. The majority also cites 11 U.S.C. § 1323's provision for plan modification before plan confirmation. Opinion at 877. Of course, this pre confirmation modification provision has no bearing on an analysis of why Congress required a confirmed plan to last for a certain period of years.

. Under § 1322(d), if the debtor is an above-median debtor, "the plan may not provide for payments over a period that is longer than 5 years.” 11 U.S.C. § 1322(d)(1). If the debtor is a below-median debtor, "the plan may not provide for payments over a period that is longer than 3 years, unless the court, for cause, approves a longer period, but the court may not approve a period that is longer than 5 years.” 11 U.S.C. § 1322(d)(2).

.A debtor could inflate the expenses used to calculate his disposable income. Although the IRS National Standards and Local Standards — instead of the debtor's actual expenditures — sets the amount for many of an above-median income debtor's expenses {e.g., food, clothing, housing, and transportation), 11 U.S.C. § 707(b)(2)(A)(ii)(I), some expenses are not fixed by such IRS standards. Specifically, the disposable income calculation deducts from the debtor's "current monthly income" (i.e., the average monthly income from all sources the debtor received during the 6-month period before filing for bankruptcy, 11 U.S.C. § 101(10A)) his actual expenditures for, among other things: charitable contributions, childcare, dependent care, life insurance, optional telephone and telephone services, internet service. See Form B22C, http://www.uscourts.gov/rules/ BK — Forms—• 08 — Official/B—022C—0108v2.pdf (Every debtor files "Form B22C” with his Chapter 13 Plan to determine whether he is an above or below median income debtor. An above median income debtor must complete additional sections on the form to calculate his “disposable income” based on his "current monthly income” and the expenses provided for in 11 U.S.C. § 707(b)(2). 11 U.S.C. § 1325(b)(2)-(3)).

. Although Chapter 13 bankruptcy may be sought only by an "individual with regular income” (i.e., an "individual whose income is sufficiently stable and regular to enable such individual to make payments under a [Chapter 13] plan....”, 11 U.S.C. § 101(30)), a debtor could defer income until after plan confirmation the following ways: (1) the debt- or could ask his employer to defer payment of some of his expected income until after plan confirmation, perhaps receiving such payment through a post-confirmation bonus; or (2) the debtor could continue working at his current job and defer accepting a higher paying job opportunity until after plan confirmation.

. The debtor is required to provide a plant even if the plan were to show no payments planned to be made to unsecured creditors over the five-year period.