Chapter 13 cases, especially after 2005, are often a tightrope between being able to pay basic living expenses and contributing all disposable income to the plan.  Chapter 13 Trustees are often viewed as wanting to squeeze every penny from a debtor.  This case is an example of the posturing of the parties, and a victory for the debtor and her non-filing spouse.

In re Mack, Ch. 13 Case No. 10594-whd, 2012 Bankr. LEXIS 5988 (Bankr. N.D. Ga. September 11, 2012) (Drake).  The basic facts are as follows.  Debtor’s Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income (Official Form 22C) disclosed that her gross monthly income for the six month pre-petition period was $2026.00 and her non-filing spouse’s gross income was $3,918.00.  On Line 13 of Form 22C (the "Marital Adjustment"), Debtor deducted her spouse’s monthly tax withholding of $624 and his 401(k) contribution of $117.00. Because the Debtor’s Current Monthly Income ("CMI") fell below the Georgia median income for a family of four, the Debtor proposed a plan with an Applicable Commitment Period ("ACP") of only 36 months pursuant to 11 U.S.C. § 1325(b)(4)

The Chapter 13 Trustee objected and moved to dismiss. The Trustee first objected that the marital adjustment is not permitted in calculating the ACP so Debtor should propose a 60 month plan.  Second, the Trustee objected to the deductions for the spouse’s withholding taxes and 401(k) contributions.

Judge Drake overruled the Trustee’s objections and denied his Motion to Dismiss.

The question before the Court is how to calculate the income of a married debtor with a non-debtor spouse for purposes of determining the ACP. Under section 1325(b)(4), the ACP is a function of comparing "the current monthly income of the debtor and the debtor’s spouse combined, when multiplied by 12," to the applicable median income…

Section 101(10A) defines "current monthly income" as "the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor’s spouse receive) without regard to whether such income is taxable income, derived during the 6-month period" prior to the filing of the debtor’s petition "and includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents (and in a joint case the debtor’s spouse if not otherwise a dependent). . . ." 11 U.S.C. § 101(10A) (emphasis added). When the debtor is married, but the debtor’s spouse has not also filed a bankruptcy petition, the debtor’s CMI is, therefore, all income received by the debtor from any source plus any amounts "paid by" the debtor’s spouse "on a regular basis for the household expenses of the debtor or the debtor’s dependents."

Because the definition of CMI already includes the contributions to the household from the non-filing spouse, the Court followed the majority view that there is no separate CMI for the non-filing spouse.   The marital adjustment is, therefore, appropriate.  The Trustee’s position that the full gross income of the non-filing spouse should be included to determine ACP would not be appropriate as the definition of Debtor’s CMI already takes into account the spouse’s income and the Trustee’s position could lead to a duplicate assessment inconsistent with the definitions and not anticipated by Form 22C.  Debtor, therefore, appropriately proposed a 36 month plan.

The Court also overruled the Trustee’s objections to the specific deductions from the spouse’s income.  The Trustee objected to the amount of the tax withholding based on the anticipated refund, but the Court found that the Trustee incorrectly assumed that the refund or the excess funds withheld would be used to pay the "household expense of the debtor or the debtor’s dependents."  11 U.S.C. § 101(10A).   These funds are not "paid on a regular basis" for the support of Debtor or her dependents. 

Finally, the Court noted that calculation of CMI was for a specific six month period of time, and it would be inappropriate to consider income only available at a future date. 

Some questions arise from the opinion.  What if the non-filing spouse had an expensive hobby, such as flying, collecting coins or guns, or expensive hunting or fishing trips?  Setting aside the obvious poor decision making of the spouse, these funds would appear to be excluded from CMI as they were not regularly used for the support of the debtor or dependents.


Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, creditor committees, trustees, court-appointed receivers and other interested parties in bankruptcy cases and bankruptcy litigation.  For more information, click here