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May 1, 2008

9th Circuit BAP Rules on "Applicable Commitment Period" When Debtor is Self-Employed

Drummond v. Weigand (In re Weigand),  --- B.R. ---  (9th Cir. BAP Apr, 2008)

Issue:   Is the “applicable commitment period” determined by a self-employed person’s gross income, i.e., gross receipts, or net income, i.e., net business income?         

Holding:      Gross income      

Judge Ralph Kirscher, Montana
Jury, Pappas, Dunn
Opinion by Jury

The debtor is self-employed.  His gross income makes him an “above-median” debtor.  When business expenses are deducted, he is below-median.  He proposed a three year chapter 13 plan and the trustee objected to the length.  The bankruptcy court confirmed the plan over the objection. 

The BAP reversed.  The code defines CMI as all income whether or not it is taxable.  CMI determines the applicable commitment period, i.e., the length of the plan.  As to disposable income, i.e., the amount of the plan payment, the code “provides that business deductions are taken from the debtor’s current monthly income to arrive at disposable income under § 1325(b)(2)[(B)].”  “We start with the plain meaning rule and examine the statutory language in §§ 101(10A) and 1325(b)(2).  If the statutory language is clear, we must apply it by its terms unless to do so would lead to absurd results.”  CMI includes all income and “If business expenses are deducted from gross receipts to determine a chapter 13 debtor’s current monthly income, then there would be no need for § 1325(b)(2)(B), which provides for the same deductions.  We conclude that § 1325(b)(2) plainly and unambiguously requires a debtor to deduct business expenses from current monthly income [when computing disposable income only].” 

Note:  The B22C form instructs the debtor to deduct business expenses from current monthly income or "above the line."  The BAP said that is wrong and the form will have to be changed. 

May 1, 2008 in 9th Circuit Briefs | Permalink

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