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January 25, 2009

9th Circuit Rules on CMI - Income Which is Not Income is Included in CMI

Blausey v. U.S. Trustee (In re Blausey), ---- F. 3d ----, 2008 WL -------- (9th Cir. January 2009)

Issue:   Are receipts from a private disability insurance policy “income” for CMI purposes?   

Holding:   Yes, even though the receipts are not income under the IRC. 
Direct appeal from bankruptcy court, Alan Jaroslovsky

Per curiam, dissent from Judge Gorsuch
The debtor was receiving $4,000 per month from a private disability policy she had previously purchased.  “[T]hey did not include these benefits in their calculation of CMI.”  The UST moved to dismiss under 707(b)(1) or (b)(2).  Including the income caused the debtors to fail means test.  The bankruptcy judge granted the UST motion and the case was dismissed.  The court then certified the matter for direct appeal to the court of appeals.

The court of appeals affirmed.  “The Blauseys’ chief argument is that ‘income’ in the definition of CMI should be interpreted as consistent with ‘gross income’ as defined in the Internal Revenue Code.”  “The plain language of the Bankruptcy Code, however, does not support this interpretation.”  “The phrase ‘without regard to whether such income is taxable income’ in 11 U.S.C. § 101(10A)(A) reflects Congress’ judgment that the Internal Revenue Code’s method of determining taxable income does not apply to the Bankruptcy Code’s calculation of CMI.”  “In addition, the statute specifically excludes certain payments, such as Social Security payments and payments to victims of war crimes and terrorism, from CMI. 11 U.S.C. § 101(10A)(B).  The general rule of statutory construction is that the enumeration of specific exclusions from the operation of a statute is an indication that the statute should apply to all cases not specifically excluded.”  The debtors also argued that various dictionaries established that income does not include these benefits.  The court rejected those arguments.  “The purpose of the means test is to ‘help the courts determine who can and who cannot repay their debts and, perhaps most importantly, how much they can afford to pay.”

The dissent dealt with whether the debtors had properly perfected their direct appeal to the court of appeals.  When the bankruptcy judge certified the direct appeal, the debtors were required to file “a petition requesting permission to appeal” within 10 days which they did not do.  The majority was prepared to ignore that shortcoming.   

January 25, 2009 in 9th Circuit Briefs | Permalink

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