Thursday, January 31, 2008

SD Florida Case Adopts Kibbe Approach to Projected Disposable Income

The court in In re Hughey, 380 B.R. 102 (Bkrtcy.S.D.Fla. 2007)(Hyman, C.J.) issued its opinion on what constitutes "projected disposable income" for an above-median income chapter 13 debtor. The court held that "projected disposable income" is a forward-looking concept that starts with the debtor's historically based "disposable income" as calculated on Form 22C with a consideration of the debtor's anticipated future income as reflected in his schedule I. The court further held that the expenses for an above-median income chapter 13 debtor are the expenses set forth on the Form 22C determined in accordance with section 707(b)(2)(A) and (B).

The court found that the BAPCPA does not define "projected disposable income" but does define "disposable income" in section 1325(b)(2). Section 1325(b)(2) defines "disposable income" as CMI (other than certain child support, foster care, or disability payments) less "amounts reasonably necessary to be expended" for maintenance or support of the debtor or a dependent of the debtor, for certain domestic support obligations, for certain charitable contributions, and for certain business expenditures.

The court held that the "amounts reasonably necessary to be expended" for an above-median income debtor are determined in accordance with section 707(b)(2)(A) and (B). 11 U.S.C. Section 1325(b)(3). Section 707(b)(2)(A) sets forth the means test formula used to determine a presumption of abuse for a chapter 7 debtor. The court noted that the above-median income debtor's expenses are determined using the I.R.S.'s national and local standards for most expenses, actual amount for certain expenses, and future payments contractually due on secured claims.

The court adopted the reasoning in In re Kibbe, 361 B.R. 302 (1st Cir.BAP 2007) which held that determination of the debtor's "projected disposable income" requires a look forward and must be grounded in the debtor's anticipated income. The Kibbe court held Form B22C is merely the starting point for determining the debtor's projected disposable income. The court held that "[t]o the extent that a debtor's actual anticipated future income is different than a debtor's historical current monthly income, actual anticipated future income should be used to determine a debtor's payments in order to ensure that a debtor's Chapter 13 plan is feasible and capable of completion by the debtor." In re Arsenault, 370 B.R. 845 (Bankr.M.D.Fla.2007). The court stated that the income side of the projected disposable income calculation is an "elastic concept that incorporates changes up or down in the Debtor's future income" and that expenses for an above-median income debtor are fixed and determined in accordance with section 707(b)(2)(A) and (B).

However, the court noted that one cannot always rely on the income figure set forth in Schedule I to determine the income side of the equation as CMI excludes social security benefits and certain other income. That is, it would be "in appropriate to rely entirely on Schedule 'I' to determine the income side of a debtor's projected disposable income if Schedule 'I' included income derived from a source that 11 U.S.C. section 101(10A)(B) specifically excludes."
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