Tuesday, October 1, 2013

"Projected Disposable Income" of Above-Median Income Chapter 13 Debtor Based on Mechanical Test

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.  www.bublicklaw.com

The court in In re Petro, ___ B.R. ___, 2008 WL 204670 (Bkrtcy.M.D.Tenn. January 23, 2008)(Paine, J.) was faced with the issue whether the calculation of the over-median income debtors' projected disposable income is to be done by the strict mathematical formula set added by BAPCPA or whether schedule I and J can be referred to in setting disposable income. The debtors' Form 22C showed a negative amount but the debtors' schedules I and J showed a positive net monthly income of $1,386.33. One reason for the discrepancy was that the debtor wife had recently obtained employment. The chapter 13 trustee argued that projected disposable income is a forward-looking concept and that the disposable income figure determined pursuant to section 1325(b)(2) is merely the starting point in determining the debtor's projected disposable income. The debtors contended that section 1325 mandates the use of the new mathematical formula to calculate the debtors' projected disposable income.

The court held that "projected disposable income" for an over-median income chapter 13 debtor is not a forward-looking concept, but is simply the debtor's disposable income projected over the debtor's applicable commitment period. 11 U.S.C. section 1325(b)(1)(B), (b)(2). The court further held that the "projected disposable income" for an over-median income debtor is based on the "means test" calculation and not on the expenses listed in schedule J. The court noted that just as CMI may not represent a debtor's actual income, the expenses set forth in section 707(b)(2)(A) are not derived from a debtor's actual expenses but are based in large part on predetermined standards. The court agreed with the courts, including the court in In re Musselman, ___ B.R. ___, 2007 W 4357161 (Bankr.E.D.N.C., Nov. 30, 2007) and In re Kolb, 366 B.R. 802, (Bankr.S.D.Ohio 2007) and held that the term "projected disposable income" as used in section 1325(b)(1)(B) and the term "disposable income" as defined in section 1325(b)(2) have the same meaning as to above-median income debtor. The computation of "disposable income" is simply projected over the time of the applicable commitment period. The court stated that although the adoption of such a mechanical test may lead to impractical results, that is was beyond the province of the court to rescue Congress from its drafting errors.

The court also rejected the trustee's argument that the debtors' plan was not in good faith as that pursuant to the debtors' chapter 13 plan payment and the net income per the debtors' schedule I and J, the debtors were proposing to retain a substantial amount of net income during the plan. The court rejected the trustee's argument and found that if the debtor's plan met BAPCPA's "projected disposable income" requirement, he could not be required to contribute any more to pay unsecured creditors on a theory that a failure to do so would not be in "good faith."