Expenses based on IRS Collection StandardsOn May 9, 2014, the U.S. District Court of the Southern District of Florida issued its decision in In re Claudio Lorenzo, Case No. 13-23100 (S.D. Florida 2013) which affirmed the Bankruptcy Court's order in Case No. 09-28532. The issue in this case involved what expense standards applied in a modification of a chapter 13 plan. The Court upheld the Bankruptcy Court's ruling that 11 U.S.C. §1329 incorporates the requirements of section 1325(a) but not the requirements of section 1325(a), which incorporates the provisions of section 707(b)(2)(A) [the standardized IRS collection standard expense]. The Court agreed with other courts that have held that section 1325(b) only comes into effect in the confirmation of a plan, but not in the modification of a plan.
District Court found that the "plain meaning" of section 1329 of the Bankruptcy Code supported the Bankruptcy Court's finding that Section 1329 only incorporates four specific four statutory provisions and "implicitly excluded other provisions" ("expressio unius est exclusio alterius") - that is, it included Section 1325(a), but not 1325(b) [which mandates the use of the expense amounts set forth by the IRS collection standards used in the "means test"). The Court favorably cited the case of In re David, 439 BR 863 (Bankr. N.D. Ill. 2010).
Different Processes: Confirmation - Modification
The Court explained that modification is not a type of confirmation, but is instead "a process that takes place after confirmation." The Court cited In re Sunahara, 326 B.R. 768, 781 (BAP 9th Cir. 2005) where the Court held that "[s]ection 1329 (b) expressly applies certain specific Code sections to plan modifications but does not apply §1325(b). Period."
Judges Lundin & Brown: Varying Positions
The treatise Keith M. Lundin & William H. Brown, Chapter 13 Bankruptcy, 4th Edition, §255.1 states that the Bankruptcy Code is "unclear whether the disposable income 1325 (b) applies at modification, that different rules of statutory construction lead to contrary results and that the legislative history is not illustrative. Judge Lundin opines that the language of sections 1329 and 1325 "somewhat favors" the interpretation that section 1325(b) applies at plan modification as well as plan confirmation. But Judge Lundin further noted that some courts hedge the application of section 1325(b) to only "egregious" or "extraordinary" facts.