Opinion
CASE NO. 01-5257-AJM-13
April 12, 2001
Steven K. Dick, Counsel for Debtor.
Karl T. Ryan, Counsel for American Express Travel Related Services, Inc.
Background
The Debtors filed their voluntary petition under chapter 13 of the Bankruptcy Code on April 12, 2001 and filed their chapter 13 plan on that date. The chapter 13 plan was subsequently amended (the "Amended Plan") on June 26, 2001. Creditor American Express Travel Related Services Company, Inc. ("American Express") filed its objection (the "Objection") to the Amended Plan on July 19, 2001 and the objection was recorded on the case docket on July 23, 2001. Also on July 23, 2001, with no knowledge of the Objection, and in apparent reliance upon the Chapter 13 Trustee's favorable report recommending confirmation, the Court confirmed the Amended Plan (the "Confirmation Order").
Hearing on American Express's objection was held on September 18, 2001 wherein the Debtor appeared in person and by counsel, Steven Dick; American Express appeared by counsel, Karl Ryan. The Court took ruling on the matter under advisement at the conclusion of the hearing.
This is a "contested matter" pursuant to Rule 9014 of the Federal Rules of Bankruptcy Procedure ("F.R. Bankr. P. ") and therefore F. R. Bankr. P. 7052 applies. This order constitutes findings and conclusions as required by F. R. Bankr. P. 7052.
The Debtor's budget (Schedules I and J) filed on the Petition Date reveal that the Debtor has monthly income of $6668 and monthly expenses of $4771, leaving "disposable income" of $1897. The Amended Plan provides that the Debtor pay to the Trustee $1,685.00 per month for each of the sixty (60) months. The sixty month plan is necessary to satisfy priority claims that are owed to the Internal Revenue Service and the Indiana Department of Revenue, sums which could not be paid by the Debtor within a three year time period.
Under § 1322, a chapter 13 plan shall provide for payment in full of all tax claims that are entitled to priority status under 11 U.S.C. § 507(a)(8).
Although the Debtor's schedules I and J indicate monthly disposable income in the amount of $1,897.00, the Debtor is paying only $1,685.00 to the chapter 13 trustee. American Express objects to confirmation of the Amended Plan for three reasons: (1) the Debtor is not submitting all of his "disposable income" into his proposed five-year Chapter 13 plan as required by Bankruptcy Code § 1325(b)(1)(B); (2) some of the expenditures listed on the Debtor's budget are excessive and are not reasonably necessary to be expended for the Debtor's maintenance or support under Bankruptcy Code § 1325(b)(2)(A) and therefore, should be included in the "disposable income" figure available to be paid into the plan; and (3) the Amended Plan does not comply with the applicable provisions of the Bankruptcy Code and therefore, under § 1325(a)(1), the Amended Plan cannot be confirmed.
All section references shall be to the Bankruptcy Code (Title 11, United States Code) unless otherwise specified.
Discussion § 1325(b)(1)(B) — Application of "Disposable Income" to Plan Payments
The prerequisites to confirmation of a chapter 13 plan, and how a chapter 13 plan can be confirmed over the objection of an unsecured creditor, are set forth in § 1325. § 1325(b)(1)(B) provides that
if . . . the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan . . . the plan provides for all of the debtor's projected disposable income to be received in the three year period beginning on the date that the first payment is due under the plan will be applied to make payments under the plan.
Thus, to confirm a chapter 13 plan over the objection of an unsecured creditor, the plan must provide for full payment of unsecured claims or all of the debtor's projected disposable income must be committed to the plan for at least a three-year period. § 1325(b)(1); In re McNichols, 249 B.R. 160, 168 (Bankr.N.D.Ill. 2000). The chapter 13 plan may not provide for payments over a period that is longer than three (3) years, unless the court, for cause, approves a longer period, but the Court may not approve a period that is longer than five (5) years. § 1322(d).
The Debtor has argued that, in cases where the Court has approved a five year plan, § 1325(b)(1)(B) does not require that a debtor devote his entire disposable income over all five years of the plan but only for the first three years of the plan. With respect to the Debtor's Amended Plan here, the Debtor proposes to submit all of his disposable income for the first three years, but not for the last two. Rather, payments during the last two years under the Amended Plan will be only in an amount sufficient to satisfy the priority claims that are owed to the Indiana Department of Revenue and the Internal Revenue Service. After figuring his disposable income over the first three years and coupling that with the amount necessary to satisfy his priority claims, the average amount necessary to be paid over the life of the plan is the sum of $1,685.00 which is the amount the Debtor has set forth in his plan.
The facts of this case are directly on point with the facts in the case of In re Norris, 165 B.R. 515 (Bankr.M.D.Fla. 1994). There, the debtors proposed a 60-month plan where $835.79 was to be paid over the first 36 months, and $740.05 over months 37 through 60. The priority and secured claims were to be paid throughout the entire plan, as opposed to the unsecured claims which were to be paid only during the first 36 months. Allowed unsecured claims were not to be paid in full under the Amended Plan. The reason for extending the three year plan to a five year plan — Interestingly, like the case at bar — was to pay priority tax claims in full.
The chapter 13 trustee and an unsecured creditor objected to the confirmation of debtors' plan in Norris because the debtors were not committing all their disposable income to fund the proposed plan for the full 60 months of the plan. The debtors — as the Debtor here — argued that Section § 1325(b)(1)(B) only required them to commit all their disposable income for the first three years to the plan and not for the full 60 months. The Norris court disagreed.
First, the Norris court noted that the usual Chapter 13 plan is of a 36 month duration and may not, in any case, be extended to more than 60 months. For the court to extend the plan to more than 36 months, cause must be shown and, in any event, the plan cannot be extended to more than 60 months. The debtors' inability to pay priority claims within the 36 months constituted good cause to extend the plan for the 60 months. However, while the Court found that § 1322(d)'s "cause" requirement was met, § 1322(d) did not nullify the other requisites to confirmation — namely § 1325(b)(1)(B)'s requirement that a plan either pay unsecured claims 100% or that the debtor submit all of his disposable income to fund the plan. 165 B.R. at 517.
Therefore, the Norris court ultimately found that the debtors were required to commit all of their disposable income to fund the plan for the full 60 months of the plan, not just the first 36 months. The Court reasoned that, because § 1322(d) created the 36 month standard time period for a Chapter 13 plan and allowed for a longer period only under unusual circumstances, the reference to only a three year period in § 1325(b)(1)(B) was not exclusive of plans longer than 36 months. Rather, § 1325 (b)(1)(B) required the use of all disposable income to fund the plan regardless of the duration of the plan. The quid pro quo of the debtors receiving the grant of additional time to pay off their priority and secured debts was their acceptance of the burden of committing all their disposable income to fund the plan for its full duration. 165 B.R. at 518.
In essence, the Debtor here has proposed to do exactly what the Debtors in Norris proposed, differing in only that the Debtor here averaged the plan payments rather than varying the plan payments as the Debtors did in Norris. This Court concurs with the finding in Norris and finds that the Debtor must commit his disposable income for not only the first 36 months of the plan, but for the full 60 months of the plan.
What is to be included in "Disposable Income" under § 1325(b)(2)(A)?
Now that the Court has established that the Debtor must submit all of his disposable income to plan payments for the entire 60-month duration of the Amended Plan, what is the Debtor's monthly disposable income and what should the monthly plan payments be?
§ 1325(b)(2)(A) defines "disposable income" and means income which is received by the debtor and which is not reasonably necessary to be spent for the maintenance or support of the debtor or the debtor's dependents, including certain qualified charitable contributions. § 1325(b)(2)(A). That which must be submitted to the plan must be all of the debtor's "surplus" income left after paying those expenses which are reasonably necessary for the debtor and the debtor's dependents to live, focusing on
the eternally recurring expenses that confront everyone who lives in [twentieth century] America. These expenses represent the myriad of different obligations which must be paid in order to keep a roof over your head, food on the table and a shirt on your back . . . By limiting them to the expenses that are "reasonably necessary". . . .for the maintenance or support of the debtor or a dependent of the debtor" . . . § 1325(b) allows a debtor to maintain a reasonable lifestyle while simultaneously insuring that it makes a serious effort to fulfill its obligations to creditors by eliminating unnecessary or unreasonable expenses . . . If a debtor is not willing to make this type of commitment, it must either forego bankruptcy relief, or, subject to the limitations of § 707(b), seek relief under Chapter 7.
Matter of Jones, 119 B.R. 996, 1000-1001 (Bankr.N.D.Ind. 1990).
The Court agrees with American Express that certain budget items appear to be excessive and should be reduced to a reasonable amount such as to increase disposable income available for plan payments. American Express takes issue with four specific items on the Debtor's budget, claiming as to each that the monthly expense is not reasonably necessary to be expended for the Debtor's and his dependents' maintenance or support:
Telephone $145.00
Automobile installment $350.00
Alimony $1109.00
Alimony Arrears $250.00
Although the Court is loathe to establish a budget for debtors given the fact that the debtors are in the best position to know what they need to live on, there are cases that set parameters for certain common monthly expenses germane to the majority of debtors. In In re Cohen, 246 B.R. 658, 667 (Bankr.D.Colo. 2000), the Court held that a $150.00 telephone expense for personal phone calls was excessive, and reduced that amount by $75.00, finding that $75.00 a month for a personal telephone expense was reasonable. See also, In re Williams, 201 B.R. 579, 581 (Bankr.M.D.Fla. 1996). In the absence of evidence why $145 is a necessary monthly telephone expense, the Court likewise finds that the Debtor's monthly telephone expense should not exceed $75.00, and therefore, an additional $70 should be included in monthly disposable income and applied to plan payments.
The Debtor has budgeted $250 a month to pay an alimony arrearage of $2750.00. Given these figures, this budget item will be paid in full in month 11 of the plan. It is the Debtor's contention that once this item is paid, he need only continue to pay the $250 until the 36th month of the plan. However, there is no evidence to suggest that the Debtor's monthly income will be reduced, and therefore, the Debtor will continue to have this $250 available as disposable income to him even after the 36th month of the plan. Given this Court's pronouncement that all disposable income be submitted to plan payments during the entire life of the Amended Plan, the Debtor shall continue to pay this $250 for the Amended Plan's duration.
With respect to the alimony payments, the Debtor's Schedule J indicates that the Debtor is paying a monthly alimony payment of $1,109.00. Since there is no indication as to how long these alimony payments will be paid, the Debtor must supply proof as to the duration of said payments. If the alimony payments will end before the completion of the 5 year plan, this $1109.00 amount should be added to plan payments for the number of remaining months under the Amended Plan.
The final challenge raised by American Express with respect to budget items is the monthly $350 automobile payment. American Express has calculated that the secured automobile debt will be paid in full in approximately month 53 of the 60 month plan, and therefore, the Debtor should contribute this $350 for the remaining seven months of the Amended Plan. The Court will not order the automobile payments to be added to the Amended Plan for the last 7 months as this amount might be needed at that time for the purchase of a new automobile.
§ 1325(a)(1) — Compliance with Provisions of Chapter 13
The first condition of confirmation of a chapter 13 plan appears in § 1325(a)(1) and provides that the plan must comply with all of the provisions of chapter 13 and the other applicable provisions of the Bankruptcy Code. A bankruptcy court does not have discretion to confirm a plan over objection if the plan does not meet this basic requirement. See, In re Barnes, 32 F.3d 405 (9th CIr. 1994). Since the Amended Plan does not comply with § 1325(b)(1)(B), it cannot be confirmed.
Order
ACCORDINGLY, the Court hereby:
(1) VACATES the July 23, 2001 Confirmation Order;
(2) SUSTAINS American Express's objection to confirmation of the Debtor's Amended Plan; and
(3) ORDERS the Debtor, within thirty (30) days of the date of this entry, to file a second amended plan consistent with the findings in this Entry.
The Court trusts that, in the unlikely event the Debtor fails to file the Second Amended Plan within the time specified, American Express will continue to vigilantly monitor this case and file whatever motion is appropriate.