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October 2, 2007

8th Circuit BAP rules on "Committment Period"

This is a victory for "above-median" debtors. The same issue is pending before the Ninth Circuit. 

In re Frederickson,  --- B.R. ---, (8th Cir. BAP September, 2007)
Issue:   Must an above median chapter 13 debtor propose a five year plan when the B22C net is a negative number?                

Holding:   No

Judge Mahoney  (Judge Federman dissenting)
The debtor filed chapter 13.  He is an over the median debtor whose B22C shows a negative $95 per month.  The opinion doesn’t set forth his I and J numbers.  He proposed a plan with a monthly payment of $600 for 48 months.  This plan pays 75% of his unsecured creditors.  The trustee objected saying the plan had to be 60 months.  The trustee argued that since the B22C amount was negative, the debtor had to use the I and J net for five years.  The bankruptcy court disagreed and confirmed the plan. 

The BAP affirmed.  1325(b)(4) says “for purposes of this subsection” and therefore since the B22C net is a negative amount, 1325(b) doesn’t apply including the requirement of the applicable commitment period.   “[T]he Court finds that ‘projected’ merely explains the treatment of ‘disposable income.’”  Looking to the dictionary definition of “projected,” they concluded, “Thus, under § 1325(b)(1)(B), a debtor's disposable income is calculated, according to the statutory definition, and then projected or extrapolated over the plan's term of years.”   Looking to chapter 11, they said, “§ 1129(a)(15)(B) certainly suggests that 'disposable income' in § 1325(b)(2) and 'projected disposable income' in § 1325(b)(1)(B) were regarded by Congress as the same concept."

The BAP concluded, “Contrary to the position taken by the Trustee, we find that the definition of ‘applicable commitment period’ in § 1325(b)(4) as five years for an above- median debtor does not refer to a minimum plan duration.  It refers, instead, to the time during which the debtor must pay projected disposable income to the Trustee for payment to unsecured creditors.  Another statutory provision, § 1322(d), discusses the length of the plan related to above-median income debtors. Section 1322(d) would be superfluous if § 1325(b)(4) set the length of the plan.”

The BAP majority added, “If the disposable income is negative, there is no applicable commitment period and a debtor is not required to propose a plan that calculates payments to unsecured creditors in the same manner as plan payments to all creditors were calculated pre-BAPCPA.”
The dissent compared the amendments to pre BAPCPA law and said “BAPCPA was intended by Congress to require that higher income debtors either pay 100% of unsecured claims, or make payments for a period of 5 years.  While there is scant legislative history for most of the BAPCPA provisions, the House Report on § 1325(b) makes clear that the applicable commitment period is a durational requirement for the Chapter 13 plan, and not just, as the majority holds, a multiplier.”   


October 2, 2007 in Other Circuit Briefs | Permalink


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