By John Gustafson, Chapter 13 Trustee, Northern District of Ohio, Western Division

NOTE: You can find all of the previous “Means Test” articles in the Toolbox/Means Test or just click here.

Line 59. Monthly Disposable Income Under §1325(b)(2). Subtract Line 58 from Line 53 and enter the result.

Line 59 is a very important number for courts that use the Form 22C to calculate the minimum Chapter 13 Plan payment for over-the-median debtors.  But, for many courts, it is not the minimum Chapter 13 Plan payment, as discussed in In re Grabarczyk, 2012 Bankr. LEXIS 1435 at *14-*23 (Bankr. N.D. Ohio March 15, 2012):

The Trustee also asserts that the deductions taken by Debtors on lines 49 and 50 of Form B22C for payments on priority claims and Chapter 13 administrative expenses should be added back into Debtors’ monthly disposable income figure calculated on line 59 in determining whether the monthly plan payments proposed in their Amended Plan are sufficient to meet the requirement under §1325(b)(1)(B) that all of their projected disposable income be applied to make payments to “unsecured creditors.”  The Trustee’s argument requires the court to determine whether payments on priority claims and for Chapter 13 administrative  expenses deducted from CMI under the means test constitute payments to “unsecured creditors” within the meaning of §1325(b)(1)(B).  For the reasons that follow, the court agrees that in order to satisfy the disposable income requirement of §1325(b)(1)(B), Debtors’ monthly plan payments must include not only projected disposable income, which is presumptively the line 59 amount, but also the priority claims and Chapter 13 expenses deducted on lines 49 and 50.

The starting point in construing a statute is always the existing statutory text, with the court’s function to enforce the statute according to its terms. Lamie v. United States Trustee, 540 U.S. 526, 534, 124 S. Ct. 1023, 157 L. Ed. 2d 1024 (2004); Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6, 120 S. Ct. 1942, 147 L. Ed. 2d 1 (2000).  “The court must look beyond the language of the statute, however, when the text is ambiguous or when, although the statute is facially clear, a literal interpretation would lead to internal inconsistencies, an absurd result, or an interpretation inconsistent with the intent of Congress.”  Vergos v. Gregg’s Enters., Inc., 159 F.3d 989, 990 (6th Cir.1998); see United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 242-43, 109 S. Ct. 1026, 103 L. Ed. 2d 290 (1989) (stating that in the “‘rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters’ . . . the intention of the drafters, rather than the strict language, controls.”).  In determining whether the statutory language is clear, the court must take a holistic approach.  Koons Buick Pontiac GMC, Inc. v. Nigh, 543 U.S. 50, 60, 125 S. Ct. 460, 160 L. Ed. 2d 389 (2004).  “A provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme—because the same terminology is used elsewhere in a context that makes its meaning clear, or because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law.” Id.

On its face, the term “unsecured creditors” in §1325(b)(1)(B) is not ambiguous.  An unsecured creditor is simply a creditor that does not have collateral for the debt.  See 11 U.S.C. §506(a).  The statute does not qualify or distinguish the term.  A literal interpretation of the statute would thus permit Debtors to use their disposable income to pay both priority unsecured creditors, the claims for which a deduction has been taken in calculating their disposable income, as well as general unsecured creditors.  However, courts that have addressed the application of §1325(b)(1)(B) under circumstances similar to those presented in this case have persuasively concluded that priority claims and Chapter 13 administrative expenses deducted from CMI on Form B22C cannot be paid from the pot of funds that constitute a debtor’s disposable income.  See, e.g. In re Wilbur, 344 B.R. 650 (Bankr. D. Utah 2006); In re McDonald, 361 B.R. 527 (Bankr. D. Mont. 2007); In re Amato, 366 B.R. 348 (Bankr. D.N.J. 2007); In re Echeman, 378 B.R. 177 (Bankr. S.D. Ohio 2007); In re Puetz, 370 B.R. 386 (Bankr. D. Kan. 2007); In re Williams, 394 B.R. 550 (Bankr. D. Colo. 2008); In re Renteria, 420 B.R. 526 (Bankr. S.D. Cal. 2009); In re Johnson, 408 B.R. 811 (Bankr. W.D. Mo. 2009).  Although the analyses in these cases differ somewhat, these courts have generally found that a literal application of the statute would be at odds with the manifest intent of Congress and/or that it would produce an absurd result.  This court agrees.

Congressional intent relating to the meaning of “unsecured creditors” as used in §1325(b)(1)(B) is demonstrated by examining the entire statute.  Disposable income, which, under §1325(b)(1)(B), is to be paid to unsecured creditors, is defined in §1325(b)(2) as “current monthly income received by the debtor. . . less amounts reasonably necessary to be expended. . . .”  For above-median income debtors, as Debtors are in this case, §1325(b)(3) directs that “amounts reasonably necessary to be expended” be determined in accordance with § 707(b)(2).  Among the deductions allowed under 707(b)(2)(A) are deductions for a debtor’s payments on prepetition priority unsecured claims and for Chapter 13 administrative expenses. See 11 U.S.C. §707(b)(2)(A)(ii)(III) and (iv). Because this calculation yields the presumptive projected disposable income of the debtor to be applied to payment of unsecured creditors, courts have generally concluded that the only reasonable interpretation of this process is that it is designed to determine the amount available to pay nonpriority unsecured creditors and, thus, that Congress intended the term “unsecured creditors” in §1325(b)(1)(B) to refer to nonpriority unsecured creditors only.  See, e.g., In re Wilbur, 344 B.R. at 654 (observing that “the deductions allowed under Form B22C track the considerations that a debtor had to make pre-BAPCPA before paying non-priority unsecured creditors”); In re Johnson, 408 B.R. at 816 (concluding that “[t]he plain language of the statute, considered in context, has only one permissible interpretation-the term ‘unsecured creditors’ refers to only non-priority unsecured creditors”); In re Renteria, 420 B.R. at 530 (stating that “given the carveout afforded to Debtors in calculating ‘disposable income,’. . . the language of Section 1325(b)(1)(B), when read in context, makes it clear that the resulting projected disposable income is intended to be paid only to nonpriority unsecured creditors”).

Further support for this conclusion is found in §1322(a)(2), which requires that a Chapter 13 plan “provide for the full payment, in deferred cash payments, of all claims entitled to priority. . . .”  As one court stated, “[i]f a debtor is required to pay his priority claims in full, it would be illogical, if not contradictory, to read §1325(b)(1)(B) as permitting a debtor to pay only a portion of his priority claims, provided he devotes all of his disposable income to the plan.”  In re Johnson, 408 B.R. at 815.

Courts addressing the issue in cases where the debtor is an above-median income debtor have also found that an interpretation of §1325(b)(1)(B) that includes priority creditors in the definition of “unsecured creditors” who must be paid from projected disposable income “obtains an absurd result.”  In re Echeman, 378 B.R. at 181 (citing In re Wilbur, 344 B.R. at 654). As explained in In re Echeman:

[I]f a debtor is allowed to deduct priority unsecured claims before reaching the calculation of disposable income and then pay priority unsecured claims out of projected disposable income under § 1325(b)(1)(B), the debtor would in effect be allowed to “double-count” or deduct the same priority claims twice before paying nonpriority unsecured creditors. As noted by the bankruptcy court in Wilbur, “[a]llowing the debtor to double-count in this fashion would undermine the purpose and efficacy of § 707(b)(2) and Form B22C … [t]his would be an absurd result.”

Id. (internal citations omitted); accord In re Johnson, 408 B.R. at 815.

Nevertheless, the §707(b)(2) expense deductions used in calculating disposable income, which include prepetition priority claims and projected Chapter 13 administrative expenses, only apply to above-median income debtors.  In In re Williams, the court noted that below-median income debtors calculate their disposable income by subtracting their Schedule J expenses from their CMI and that Schedule J does not include lines for deducting payments to priority unsecured creditors and for Chapter 13 administrative expenses.  In re Williams, 394 B.R. at 564.  Thus, interpreting the term “unsecured creditors” in §1325(b)(1)(B) to categorically exclude priority unsecured claims would leave below-median income debtors’ with no funds to pay those creditors. Addressing this dilemma, in In re Echeman, the court suggested that:

[T]o avoid the dueling absurd results of either allowing above-median family income debtors to double-count their priority unsecured claim before paying nonpriority unsecured claims or making below-median family income debtors plans unfeasible because they have no source of income besides “disposable income” from which to pay priority unsecured claims . . . the effective result [should be] the same for all debtors—priority unsecured claims can be counted once, no more, no less, in determining which funds are left for nonpriority unsecured creditors.

In re Echeman, 378 B.R. at 182, n.7.  Similarly, in In re Puetz, the court concluded that it should “logically and, in fact, plainly, read ‘unsecured creditors’ in § 1325(b)(1)(B) as a catchall phrase to address creditors not specifically referenced elsewhere.”  In re Puetz, 370 B.R. at 392.  The court in In re Williams agreed and found that interpreting the term “unsecured creditors” in this manner gives meaning to the term without making Chapter 13 unworkable for below-median income debtors.  In re Williams, 394 B.R. at 564-65.

This court finds the reasoning in these decisions persuasive. It thus finds that the only reasonable interpretation of the term “unsecured creditors,” as used in § 1325(b)(1)(B), is one that refers to all unsecured creditors for whose claims the debtor has not included an expense deduction in calculating disposable income.  Only if payments on an unsecured creditor’s claim are not deducted as an expense in calculating projected disposable income may such claims be paid from projected disposable income.

In this case, Debtors deducted from CMI on Form B22C their monthly payment on prepetition priority claims in the amount of $314.31 and projected average monthly Chapter 13 administrative expenses in the amount of $20.70. Since projected disposable income may not be used to pay these expenses, they must add these amounts to their projected disposable income in determining their Chapter 13 plan payment.

See also, In re Grandizio, 2010 Bankr. LEXIS 2130 at *10-*11 (Bankr. E.D. Va. June 28, 2010)(in discussing the amount deducted for “cure” on Line 48 – “what the projected disposable income test fixes is not the minimum plan payment, but rather the minimum amount that must be applied to the payment of unsecured claims. Desgrosseilliers, 2008 Bankr. LEXIS 2017 [at *11-*12], 2008 WL 2725808 at *3.  Thus, in order to satisfy the test, the payment into the plan must be sufficient, after deduction of the trustee’s commission (which is already accounted for in the means test computation), to pay at least $401 per month to the unsecured creditors.  Since the present plan does not do so, the trustee’s objection will be sustained.”).

A similar “add-back” needs to be made to calculate the Chapter 13 Plan payment when the debtor proposes to pay secured debt – deducted on Line 47 – through the Chapter 13 Plan distributions.  If Line 59 reflects $500 that should go to unsecured creditors, a debtor cannot propose a $500 a month payment, with $250 a month of that payment going to pay off an auto loan.  For example, the Spurgeon court stated:

The plan provides for payments to the trustee of $125 per week.  That works out to $541.67 per calendar month, assuming the debtor is paid for 52 weeks of work.  This amount is more than the projected disposable income of $344.07 per month.  Projected disposable income, however, is supposed to measure the amount of income the debtor will have available during performance of the plan for payments on unsecured claims after making payments on secured debts.  Official Form B22C, Lines 25B, 28, 29, 57, 57, 58; 2 Keith M. Lundin, Chapter 13 Bankruptcy §163.1 (3rd ed. 2006).  Thus, Mr. Spurgeon should have the $344.07 per month available for payments on unsecured debts.  Most of Mr. Spurgeon’s proposed payments — $421 per month — will be used to pay secured debts.  That will leave about $120 per month for payment of unsecured claims.  Thus, the proposed plan does not devote all of Mr. Spurgeon’s projected disposable income to payments under the plan.

In re Spurgeon, 378 B.R. 197, 206 (Bankr. E.D. Tenn. 2007).

Some cases do hold that “unsecured debt” can include priority debt (thereby allowing a “double-dip” for priority claims on Line 49, with the disposable income – net of priority claims expenses – being used to pay both priority claims and unsecured creditors.  However, there appear to be no cases in which courts have held that secured debts can be paid through the Chapter 13 Plan distributions using Line 59 as the minimum monthly payment.

And, where there are secured arrearages – previously deducted on Line 48 in arriving at the Line 59 number – that deduction also has to be “added back” to the number on Line 59 in arriving at the minimum Chapter 13 Plan payment based the number listed on Line 59 that must go to unsecured creditors.

Part VI: ADDITIONAL EXPENSE CLAIMS

Line 60. Other Expenses. List and describe any monthly expenses, not otherwise stated in this form, that are required for the health and welfare of you and your family and that you contend should be an additional deduction from your current monthly income under §707(b)(2)(A)(ii)(I).  If necessary, list additional sources on a separate page. All figures should reflect your average monthly expense for each item.  Total the expenses.

Expense Description                                       Monthly Amount

a.                                                                     $____________

b.                                                                     $____________

c.                                                                     $____________

Total:  Add Lines a, b, and c   $____________

“Line 60 as a catchall for monthly expenses not included on the form.”  In re Johnson, 2011 Bankr. LEXIS at *7 4636 (Bankr. E.D.N.C. July 21, 2011); In re Robinson, 449 B.R. 473, 484 (Bankr. E.D. Va. 2011)(“if these and the other expense exceptions built into form B22C prove to be insufficient to account for the Debtor’s true economic needs, Line 60 of form B22C allows a debtor to list and describe any other monthly expenses not already included on the form. This line would be the appropriate place for dealing with any other fixed expenses the Debtor might routinely incur that are not otherwise captured in the household size allowance for his atypical household.”).

Because Line 60 comes after Line 59, items deducted on Line 60 will not reduce the amount on Line 59.  It may cause a Chapter 13 trustee (or a creditor) not to object if the debtor is proposing a Chapter 13 Plan payment that would pay unsecured creditors less than the amount computed on Line 59.

Part VII: VERIFICATION

I declare under penalty of perjury that the information provided in this statement is true and correct.  (If this is a joint case, both debtors must sign.)

Date: ________________________ Signature: ________________________

(Debtor)

Date: ________________________ Signature: ________________________

(Joint Debtor, if any)

Yes, Chapter 13 debtors are required to sign the Form 22C Means Test, even though there is not a chance in hell that they will actually understand it.