The last issue of the Bankruptcy Report introduced a few early cases addressing
the requirement for a Chapter 13 plan to devote all of a debtor's projected
disposable income to paying unsecured creditors. Since then, more decisions
have been issued, as creditors, Trustees, and courts increase their scrutiny of
debtors' plans as part of the plan confirmation process.
First, a brief review of the issue. It has always been the case that, in order
to gain confirmation of a Chapter 13 plan, a debtor must pay in full each
allowed unsecured claim or devote to the plan all "projected disposable income"
"to be received" during the plan term.
BAPCPA added to this requirement a definition of "disposable income". Since the
definition does not include the word "projected", some courts have found that
"projected disposable income" can potentially be an amount different from the
new definition of "disposable income". Others, by various devices, have not.
This, then, is the issue: whether "projected disposable income" is
distinguishable from "disposable income" for the purposes of plan confirmation.
The Bankruptcy Code explicitly defines disposable income as current monthly
income, less reasonable monthly expenses. If a debtor's current monthly income
exceeds the median family income of her state, the reasonableness of the
expenditure amounts is determined by tests set forth in 11 U.S.C. § 707(b)(2),
otherwise known as the "means test". If a debtor is below the state's median,
the debtor's expenses are examined under the standard of "reasonable and
According to some, a debtor's projected disposable income is not the
same as the debtor's "disposable income," calculated according to the formula
noted above. By the addition of the word "projected", as well as the language
"to be received", the Bankruptcy Code appears to require a determination of a
debtor's anticipated income, rather than the debtor's income determined
at the petition date and by the formula.
In the last issue, we revisited the case of In re Hardacre. In that
case, the United States Bankruptcy Court for the Northern District of Texas
concluded that projected disposable income "necessarily refers to income that
the debtor reasonably expects to receive during the term of her plan." Many
others agree. For example, the court, in In re Dew, opined that
"disposable income in § 1325(b)(2) is not necessarily the same as projected
disposable income in §1325(b)(1)(B)....To hold otherwise would assign no meaning
to the term 'projected', which would be contrary to rules of statutory
construction." Other decisions agreed, holding that Congress intended, by the
inclusion of the word "projected", a forward-looking examination of a debtor's
anticipated income, realizing that, possibly because of the circumstances that
resulted in bankruptcy, a debtors after-bankruptcy income may not be similar to
her before-bankruptcy income.
The Bankruptcy Report's last issue also reviewed In re Jass, which
focused not only on the language of the statute, but its purpose as well. Other
courts followed, using similar reasoning, including In re Grady, which
found, on the basis of the plain language of the statute and the policy goals
of the Bankruptcy Code, that determination of projected disposable income
necessarily requires a consideration of a debtor's future and historical
finances. In In re Risher, the court required that income tax refunds go
into plan payments because projected disposable income is based on anticipated
income over the term of the plan. Another case, In re Pak, declared
that, for the purposes of confirmation of a Chapter 13 plan, a determination of
projected disposable income must include a debtor's actual and anticipated
future income. In another case, In re Fuger, the court decided that the
term "projected disposable income" requires that a plan's payments be based on
disposable income as projected into the future.
Predictably, another approach denies any independent operation of the term
"projected" as used to modify "disposable income". The United States Bankruptcy
Court for the Eastern District of North Carolina held that the Code "plainly
sets forth a new definition and method for calculating disposable income," to
which projected disposable income is "linked", and that determination of
disposable income is a mathematical calculation mandated by the formula set
forth in Section 1325(b)(2). As a result, "debtors with no disposable income
under the new law have no projected disposable income." The Court noted that
there may be cases where the formula allows debtors who actually have excess
income each month to avoid paying anything to their unsecured creditors;
however, it felt that the already determined disposable income was the most
obvious interpretation of the language of the amendment. The Court did note
that, "Perhaps Congress, in an effort to make higher income debtors pay more to
their unsecured creditors, unwittingly reached the opposite result(In re
Recall that projected disposable income is a "net" figure rather than a "gross"
amount. Consequently, a few objections to confirmation have focused on the
expense side of the ledger. Thus, the issue becomes whether to use, in the
words of the United States Bankruptcy Court for the Western District of
Missouri, "historical or projected expenses to determine the amount of a
debtor's disposable income that must be devoted to a chapter 13 plan" (In re
Renicker). The Renicker court, examining statutory language that
disposable income is net of amounts reasonably necessary "to be expended",
decided that the plain language of the statute "unambiguously indicates that
prospective - not historical - expenses are to be used to calculate disposable
Following the same logic as the debate over income, a court stated that
expenses for above median income debtors cannot be what "may" occur. Instead,
expenses are limited to those disclosed on Form B22C, completed in strict
compliance with the expenses allowed under the means test (In re Guzman).
The Court admitted that "the result of such enforcement is contrary to the
popular notion that BAPCPA would require well-to-do debtors to repay as much of
their debts as possible."
The court In re Fuller ruled that "above-median debtors may not deduct
from their income their actual expenses." "Rather, they must use the specific,
standardized dollar amounts listed in certain IRS publications....It doesn't
matter if the debtor feels those amounts are unreasonably low, if the Trustee
feels those amounts are unreasonably high..." By the statute's terms, only a
below median income debtor is permitted to use "actual" expenses, subject to a
determination of reasonableness.
Clearly, "disposable income" and "projected disposable income" are grist for
much judicial consideration and perhaps apt subjects for Congressional
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