In In re Clemons, Chapter 13 Case No. 05-85163 (Bankr. N.D.Ga. June 1, 2006), the Chapter 13 Trustee objected to the debtors plan pursuant to section 1325(b) because the plan did not include the joint debtors’ projected disposable income. 

Here is the opinion.

Debtors’ schedules and Form B22C, and initial plan, indicated that the debtors could pay $420 a month to the trustee and pay unsecured claims in full.  However, a few weeks after the petition was filed, the wife lost her job and the plan was amended to call for payments of $213 a month and a 1% payout to creditors.  (The order is not clear about how the payout to unsecureds goes from 100% to 1%).  The trustee objected, arguing that section 1325(b) requires that debtors payments be based on projected disposable income, in turn which is based upon the income earned by them in the six months prior to filing.  See Section 101(10A)(Definition of "Current Monthly Income").  The debtors argued that "currently monthly income" is a presumptive amount that can be rebutted, similar to Section 707(b)(2)(B) ("special circumstances" for defeating presumption of abuse). 

Judge Massey ruled that the better reading of Section 1325(b), and one that is consistent with the other sections and the purpose of the BAPCPA, is that debtors may adjust current monthly income to approximate the actual income the debtor will receive during the term of the plan "to better insure that a debtor pays what the debtor is able to pay but is not required to pay what is impossible to pay."

Judge Massey’s 10 page opinion provides a good road map of analysis for all BAPCPA sections that are not crystal clear or appear to make little sense in the real world.  He starts with the rules of statutory construction, and then tries to reconcile the  actual words used in  sections 1325(b) and  101(10A), finding that  they really do not fit.  He then notes that amendments similar to the "special circumstances" provision of Section 707(b)(2)(B) were proposed for Section 1325(b) but were withdrawn.  Finally, the debtors had over $200 a month for a plan, and the intent of the BAPCPA was to force debtors to pay if they were able.  It would be inconsistent with that purpose to dismiss the case, and make these debtors wait several months to meet the means test to file a Chapter 7, thereby paying nothing to creditors.  In the meantime, they may lose their house (also contrary to Congressional policy)  and if they  had to file again,  would be  subject to the  multiple  filer stay provisions.  

It would be hard for any party to argue that this is not the correct outcome.  While Judge Massey arguably took the slightest liberty with the definition of "current monthly income," he pointed out the using the definitions in the Code really did not work.  

If a debtor’s income went up significantly just before or after filing, such that actual disposable income was higher than the pre-filing average, would a creditor or the trustee be content with the lower monthly payments? Unlikely.

Thanks to Jonathan Ginsberg for passing along this opinion.