9th Circuit Sets Chapter 13 Plans on Their Head - In re Kagenveama

Maney v. Kagenveama (In re Kagenveama), ---- F. 3d ----, 2008 WL 2278681  (9th Cir. June 2008)

Issue:   Where an above-median chapter 13 debtor has negative “disposable income” per the means test but $1,500 per month per schedules I and J, is the debtor required to propose a five year plan and must the plan payment be based on actual income and expenses or may it be based on the means test calculations? 

Holding:   A five-year plan under these facts is not required nor must the plan payment be based on actual ability to pay. 

appeal (direct) from the Bankruptcy Court Arizona

Judge Siler for the majority,
Judge Carlos Bea, concurring and dissenting

The debtor, an above-median debtor, proposed a chapter 13 plan offering to pay $1,000 per month for 36 months.  Her net “I and J income,” i.e., real net income, was $1,524 per month.  Her “means test” net income was minus $4.  The proposed plan would “yield” some $9,000 to the unsecured creditors.  The trustee objected to the 36 month proposed length.  The bankruptcy court confirmed the plan. 

The 9th Circuit affirmed. The code says that “the plan [must pay] all of the debtor’s ‘projected disposable income’ received during the ‘applicable commitment period.’”  Section 1325(b)(1).  “Disposable income” is defined in Section 1325(b)(2) but “projected disposable income” is not.  “There can be no reason for § 1325(b)(2) to exist other than to define the term ‘disposable income’ as used in § 1325(b)(1)(B).  ‘If ‘disposable income’ is not linked to ‘projected disposable income’ then it is just a floating definition with no apparent purpose.”  “The plain meaning of the word ‘projected,’ in and of itself, does not provide a basis for including other data in the calculation because ‘projected’ is simply a modifier of the defined term ‘disposable income.’” 

Also according to the panel, “projected disposable income” has always been linked to "disposable income."  “To get from the statutorily defined ‘disposable income’ to ‘projected disposable income,’ ‘one simply takes the calculation . . . and does the math.” In re Alexander, 344 B.R. at 749.  Further, this does not lead to an absurd result.  The fact that it reaches a different result than pre-BAPCPA practice doesn’t matter.  “We ‘will not override the definition and process for calculating disposable income under § 1325(b)(2)-(3) as being absurd simply because it leads to results that are not aligned with the old law.” In re Alexander, 344 B.R. at 747.  “Furthermore, we will not de-couple ‘disposable income’ from the ‘projected disposable income’ calculation simply to arrive at a more favorable result for unsecured creditors, especially when the plain text and precedent dictate the linkage of the two terms.”  “While the new law may produce less favorable results for unsecured creditors when applied to above-median income Chapter 13 debtors, it is far from absurd to hold that debtors with no ‘disposable income’ have no ‘projected disposable income.’”

As to applicable commitment period, the “applicable commitment period” requirement is inapplicable to a plan submitted voluntarily by a debtor with no “projected disposable income.”  “Thus, only ‘projected disposable income’ is subject to the ‘applicable commitment period’ requirement. Id.”  “Any money other than ‘projected disposable income’ that the debtor proposes to pay does not have to be paid out over the ‘applicable commitment period.’”  “When there is no ‘projected disposable income,’ there is no ‘applicable commitment period.’”

The opinion adds, “We stress that nothing in our opinion prevents the debtor, the trustee, or the holder of an allowed unsecured claim to request modification of the plan after confirmation pursuant to § 1329.”

The dissent argues that the debtor should be required to propose a five-year plan but otherwise he agreed with the majority. “The applicable commitment period allows unsecured creditors who are otherwise not receiving payment from a debtor five years to monitor the debtor’s finances and, in the event the debtor’s disposable income increases during that time, file for plan modification under § 1329."