Keywords: Projected disposable income . Chapter 13 . Form 22C . Hamilton v Lanning . Lanning .
Chapter 13 > Projected Disposable Income Chapter 13: How is "Projected Disposable Income" Calculated for Above Median Income Debtors91 Cases , IssueID 8 |
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Ch 7 Means Test |
Ch 13 Means Test |
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Topic Description:U.S. Supreme court finally resolves this question choosing to follow the line of cases started by In re Nowlin (type C) in this outline. Lines of Cases:
Topic Background / Overview:Before the 2005 bankruptcy law amendments (BAPCPA), the trustee and judge used Form 6, Schedule I (income) and Form 6, Schedule J (expenses) to determine a debtor's likelehood of succeeding in a chapter 13 plan. |
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U.S. Supreme court finally resolves this question choosing to follow the line of cases started by In re Nowlin (type C) in this outline.
Held: When a bankruptcy court calculates a debtor's projected disposable income, the court may account for changes in the debtor's income or expenses that are known or virtually certain at the time of confirmation.
Throughout its discussion the court seemed to agree with the "Type C" cases listed here that use form 22C as the standard for what expenses are and are not allowed, but these amounts can be adjusted if changes in the debtor's income or expenses "are known or virtually certain at the time of confirmation." Note that's a pretty high bar.
Note also that the court says you should keep the formula from Form 22C but adjust it based on facts. It does not say to throw out 22C and rely on Schedules I and J.
The court found that refinancing a purchase money loan did not change its purchase money status, and that the negative equity was not included in the creditor's PMSI. The court applied "'the dual status rule,' which recognizes that the secured obligation in the newly acquired vehicle may be fractionalized, with one part being secured by a purchase money security interest and another part secured by a standard security interest."
All but dismisses Kavengeama as "dicta"
Calls Kavengeama mostly 'Dicta"
Ninth Circuit case that runs counter to many in holding that Chapter 13 projected income is a automatic muliplier of 6-month CMI at time of filing.
The debtors earned above median income for their applicable family size in Wisconsin during the six months before filing. However, they have experienced a significant drop in income, and their disposable income will be calculated based on their ability to pay over their proposed 60 month plan. See In re Hilton, 395 B.R. 433 (Bankr.E.D.Wis.2008).
court refused to confirm plan "because, at [that] time, there [was] insufficient evidence to calculate [the debtors'] anticipated or projected disposable income" and required the debtors to "present specific evidence to show that the numbers reflected on form [B]22C are inaccurate projections of their future finances"
Court must look forward. Debtor failed to properly amortize court-ordered support payments that were due to expire on the 24th month of his plan. Debtor required to amortize court ordered payments
over a 60 month period. Section 707(b)(2)(A)(iv)
absent evidence of a change in circumstances, court will not adjust "projected disposable income" simply because payments seen beyond debtors' reasonable needs
The court ruled that debtors get a full standard vehicle deduction, and that the court should treat the full-vehicle deduction as the presumptive vehicle ownership cost.
The court rejected the holding in In re Strickland (Bankr. M.D. Ala. 2001), that a debtor's use of the vehicle ownership deduction is inconsistent with the forward-looking nature of projected disposable income used to determine the adequacy of a Chapter 13 plan.
Court held that the standards of the means test should be applied in determining what expenses are allowed or not, while still allowing the court to look at changed circumstances -- as long as the standards applied don't change.
reaffirming decision in Frederickson
totality of circumstances support granting debtors motion to be excused from filing Schedule I, and reset the applicable six month period for calculating current monthly income.
adjust for reasonably certain changes
ORDER EXCUSING DEBTORS FROM FILING REQUIRED SCHEDULE "I" AND SETTING ALTERNATIVE DATE FOR DETERMINING CURRENT MONTHLY INCOME
Debtor brought a motion to excuse filing of schedule I and to set an alternative date for calculating current monthly income. Court agreed.
"A debtor must supplement Official Form 22C with a statement of changes to 'current monthly income' as reported in the form, and any changes in the expenses allowed, anticipated to take place during the applicable commitment period."
Petition for cert granted. Pending in Supreme Court. to be decided this year. -
Unusual case in that debtor would benefit from NOT using CMI multiplier. In this case, her changed circumstance was lower wages. In most cases, debtor's attorneys hope to lock in lower wages using CMI. This case presents a reverse fact pattern, where using a CMI mulitplier woulld hurt the debtor. (Debtor should have just waited longer to file so her six-month lookback would not include a one time bounus distributed in the fith and sixth months prior to her bankruptcy filing. Court said her lower income going forward should be taken into account in determining the "projected disposable income" for Chapter 13 plan, and that means test CMI can be rebutted for purposes of establishing projected income going forward..
"projected disposable income" is presumed to be the number calculated on a debtor's Form B22C. If a debtor, unsecured creditor or trustee can rebut that presumption, the court will consider all of the relevant facts and circumstances necessary to calculate the projected disposable income that the debtor expects to receive during the applicable commitment period.
"The primary issue is whether the amount of 401(k) loan payments that are completed before the chapter 13 plan term ends must be added, for confirmation purposes, to the disposable income to be paid under the terms of the plan."
Held: "The completion of payments to the 401(k) plan does not simply free that money for discretionary application but should shift to creditors, at least in significant part, and result in repayment of the people Debtor owes. To propose nothing further to them, especially with an initial one percent dividend, is not a good faith effort."
The "special circumstances" analysis is applicable to Chapter 13 cases as a separate defense to a Section 1325(b) objection.
Schedules I and J no longer determine plan payments for above-median income debtors; they do not conclusively establish net monthly income even though they may constitute the debtor's best estimates of future income and expenses
debtors are not obligated to pay more than the disposable income calculated on Form 22C
Form B22C can not be determinative of the debtor's "projected disposable income" because it does not take into account the debtor's circumstances as of the petition date or foreseeable changes in circumstances in income during the plan commitment period.
Form 22C is determinative of projected disposable income and that taxes on Form 22C should therefore be calculated based on the income earned in the six months prior to the bankruptcy filing, and not based on future income
"[e]liminating flexibility was the point: the obligations of chapter 13 debtors would be subject to 'clear, defined standards,' no longer left 'to the whim of a judicial proceeding.' "
BAPCPA prevents court from looking at anything other than the income six months prior to filing when confirming a Chapter 13 plan
Tax refund to be recieved during plan must be included as as part of projected disposable income.
U.S. Supreme court finally resolves this question choosing to follow the line of cases started by In re Nowlin (type C) in this outline.
Held: When a bankruptcy court calculates a debtor's projected disposable income, the court may account for changes in the debtor's income or expenses that are known or virtually certain at the time of confirmation.
Throughout its discussion the court seemed to agree with the "Type C" cases listed here that use form 22C as the standard for what expenses are and are not allowed, but these amounts can be adjusted if changes in the debtor's income or expenses "are known or virtually certain at the time of confirmation." Note that's a pretty high bar.
Note also that the court says you should keep the formula from Form 22C but adjust it based on facts. It does not say to throw out 22C and rely on Schedules I and J.
The court found that refinancing a purchase money loan did not change its purchase money status, and that the negative equity was not included in the creditor's PMSI. The court applied "'the dual status rule,' which recognizes that the secured obligation in the newly acquired vehicle may be fractionalized, with one part being secured by a purchase money security interest and another part secured by a standard security interest."
absent evidence of a change in circumstances, court will not adjust "projected disposable income" simply because payments seen beyond debtors' reasonable needs
All but dismisses Kavengeama as "dicta"
Calls Kavengeama mostly 'Dicta"
The court ruled that debtors get a full standard vehicle deduction, and that the court should treat the full-vehicle deduction as the presumptive vehicle ownership cost.
The court rejected the holding in In re Strickland (Bankr. M.D. Ala. 2001), that a debtor's use of the vehicle ownership deduction is inconsistent with the forward-looking nature of projected disposable income used to determine the adequacy of a Chapter 13 plan.
Court held that the standards of the means test should be applied in determining what expenses are allowed or not, while still allowing the court to look at changed circumstances -- as long as the standards applied don't change.
reaffirming decision in Frederickson
totality of circumstances support granting debtors motion to be excused from filing Schedule I, and reset the applicable six month period for calculating current monthly income.
adjust for reasonably certain changes
ORDER EXCUSING DEBTORS FROM FILING REQUIRED SCHEDULE "I" AND SETTING ALTERNATIVE DATE FOR DETERMINING CURRENT MONTHLY INCOME
Debtor brought a motion to excuse filing of schedule I and to set an alternative date for calculating current monthly income. Court agreed.
"A debtor must supplement Official Form 22C with a statement of changes to 'current monthly income' as reported in the form, and any changes in the expenses allowed, anticipated to take place during the applicable commitment period."
Petition for cert granted. Pending in Supreme Court. to be decided this year. -
Unusual case in that debtor would benefit from NOT using CMI multiplier. In this case, her changed circumstance was lower wages. In most cases, debtor's attorneys hope to lock in lower wages using CMI. This case presents a reverse fact pattern, where using a CMI mulitplier woulld hurt the debtor. (Debtor should have just waited longer to file so her six-month lookback would not include a one time bounus distributed in the fith and sixth months prior to her bankruptcy filing. Court said her lower income going forward should be taken into account in determining the "projected disposable income" for Chapter 13 plan, and that means test CMI can be rebutted for purposes of establishing projected income going forward..
"projected disposable income" is presumed to be the number calculated on a debtor's Form B22C. If a debtor, unsecured creditor or trustee can rebut that presumption, the court will consider all of the relevant facts and circumstances necessary to calculate the projected disposable income that the debtor expects to receive during the applicable commitment period.
Ninth Circuit case that runs counter to many in holding that Chapter 13 projected income is a automatic muliplier of 6-month CMI at time of filing.
"The primary issue is whether the amount of 401(k) loan payments that are completed before the chapter 13 plan term ends must be added, for confirmation purposes, to the disposable income to be paid under the terms of the plan."
Held: "The completion of payments to the 401(k) plan does not simply free that money for discretionary application but should shift to creditors, at least in significant part, and result in repayment of the people Debtor owes. To propose nothing further to them, especially with an initial one percent dividend, is not a good faith effort."
The "special circumstances" analysis is applicable to Chapter 13 cases as a separate defense to a Section 1325(b) objection.
Schedules I and J no longer determine plan payments for above-median income debtors; they do not conclusively establish net monthly income even though they may constitute the debtor's best estimates of future income and expenses
debtors are not obligated to pay more than the disposable income calculated on Form 22C
Form B22C can not be determinative of the debtor's "projected disposable income" because it does not take into account the debtor's circumstances as of the petition date or foreseeable changes in circumstances in income during the plan commitment period.
Form 22C is determinative of projected disposable income and that taxes on Form 22C should therefore be calculated based on the income earned in the six months prior to the bankruptcy filing, and not based on future income
The debtors earned above median income for their applicable family size in Wisconsin during the six months before filing. However, they have experienced a significant drop in income, and their disposable income will be calculated based on their ability to pay over their proposed 60 month plan. See In re Hilton, 395 B.R. 433 (Bankr.E.D.Wis.2008).
court refused to confirm plan "because, at [that] time, there [was] insufficient evidence to calculate [the debtors'] anticipated or projected disposable income" and required the debtors to "present specific evidence to show that the numbers reflected on form [B]22C are inaccurate projections of their future finances"
Court must look forward. Debtor failed to properly amortize court-ordered support payments that were due to expire on the 24th month of his plan. Debtor required to amortize court ordered payments
over a 60 month period. Section 707(b)(2)(A)(iv)
"[e]liminating flexibility was the point: the obligations of chapter 13 debtors would be subject to 'clear, defined standards,' no longer left 'to the whim of a judicial proceeding.' "
BAPCPA prevents court from looking at anything other than the income six months prior to filing when confirming a Chapter 13 plan
Tax refund to be recieved during plan must be included as as part of projected disposable income.
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