Baud v. Carroll

415 B.R. 291

Richard L. BAUD & Marlene Baud, Appellants, v. Krispen S. CARROLL, Appellee.

No. 09-10673.

United States District Court, E.D. Michigan, Southern Division.

September 3, 2009.

COPYRIGHT MATERIAL OMITTED

OPINION AND ORDER REVERSING BANKRUPTCY COURT'S FEBRUARY 14, 2009 ORDER CONFIRMING PLAN

NANCY G. EDMUNDS, District Judge.

This is an appeal from the Bankruptcy Court's February 14, 2009 order confirming Richard and Marlene Baud's amended Chapter 13 plan. For the reasons set forth below, the Bankruptcy Court's order is REVERSED.

I. Facts and Procedural Background

The parties do not dispute the facts relevant to this appeal. On September 26, 2008, Debtors Richard and Marlene Baud filed a joint petition for relief under Chapter 13 of the Bankruptcy Code. On October 13, 2008, they filed Schedules I and J showing their current monthly income and expenses. Schedule I listed a combined average monthly gross income of $9115.63, comprised of the debtor's salary and the debtor spouse's social security income, and a monthly income of $5348.73 after payroll deductions. Schedule J listed monthly expenses of $4946.41. Subtracting total monthly expenses from monthly income left Debtors with a monthly net income of $402.32. Debtors also filed Form 22C, which required them to calculate their average monthly income for the six months preceding the filing of their bankruptcy petition. Form 22C shows an average monthly income of $7086.72 and an annualized income of $85,040.64.

Because Debtors' annual income exceeded the state median income for a family of two, Debtors checked the box on Form 22C indicating that their applicable commitment period is 5 years. As above-median debtors, they were required pursuant to 11 U.S.C. § 1325(b)(2) and (3), to calculate their monthly disposable income according to 11 U.S.C. § 707(b)(2)(A) and (B) by subtracting standard IRS expense deductions from their average monthly income received during the six months prior to the filing of their petition. After taking allowed deductions, Debtors' monthly disposable income on Form 22C was negative $1203.55.

Debtors submitted a Chapter 13 plan, which provided for monthly payments for 36 months. The payments would increase based on the cessation of 401(k) payments, and would consist of monthly payments of $402.32 for the first seven months, monthly payments of $881.18 for the next two months, and monthly payments of $1,178.43 for the following twenty-seven months. Under this plan, general unsecured creditors were to receive $30,321.65. (Appellants' Br., at 3.)

The Trustee objected to confirmation of Debtors' proposed plan on the grounds that the plan, which does not offer payment in full to unsecured creditors, should be extended to 60 months because the applicable commitment period pursuant to 11 U.S.C. § 1325(b)(4) for above-median debtors is five years. (R. at 28.) On December 16, 2009, the Bankruptcy Court held a confirmation hearing and heard oral argument regarding this issue. The Bankruptcy Court adjourned the hearing until January 27, 2009 to allow the parties to submit briefing on the issues. At the January 27, 2009 hearing, the Bankruptcy Court sustained the Trustee's objections to confirmation, stating that the Court was not persuaded by the Debtors' additional case law to overrule its previous decision interpreting the "applicable commitment period," In re Davis, 348 B.R. 449 (Bankr. E.D.Mich.2006), and that the Court found two recent opinions of the Eighth Circuit Court of Appeals and the Sixth Circuit Bankruptcy Appellate Panel persuasive. (Appellants' Ex. E, at 6.) The Bankruptcy Court adjourned the hearing to allow Debtors to file an amended Chapter 13 plan.

Debtors submitted an amended Chapter 13 plan, which provided for monthly payments for 60 months. The payments would consist of monthly payments of $402.32 for the first seven months, monthly payments of $881.18 for the next two months, and monthly payments of $1,178.43 for the following fifty-one months. Under this plan, general unsecured creditors would receive $58,603.97. (Appellants' Br. at 3.) On February 5, 2009, Debtors filed objections to their own amended plan. (R. at 45.) On February 14, 2009, the Bankruptcy Court issued an order confirming Debtors' amended plan over Debtors' objections. (R. at 47.) The Debtors' timely appeal of the Bankruptcy Court's order is now before the Court.

II. Jurisdiction

Appellate jurisdiction is conferred on this Court by 28 U.S.C. § 158(a)(1), which provides that "[t]he district courts of the United States shall have jurisdiction to hear appeals (1) from final judgments, orders, decrees . . . of bankruptcy judges . . . under Section 157 of this title." This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2).

III. Standard of Review

This appeal raises solely questions of law, which this Court reviews de novo. WesBanco Bank Barnesville v. Rafoth (In re Baker & Getty Fin. Serv., Inc.), 106 F.3d 1255, 1259 (6th Cir.1997).

IV. Analysis

This appeal concerns the interpretation of Section 1325 of the Bankruptcy Code, as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). 11 U.S.C. § 1325(b) (1), as amended by BAPCPA, provides in relevant part:

(b) (1) If the trustee or 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—

(A) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or

(B) the plan provides that all of the debtor's projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.

(2) For purposes of this subsection, the term "disposable income" means current monthly income received by the debtor (other than child support payments, foster care payments, or disability payments for a dependent child made in accordance with applicable nonbankruptcy law to the extent reasonably necessary to be expended for such child) less amounts reasonably necessary to be expended—

(A) (i) for the maintenance or support of the debtor or a dependent of the debtor, or for a domestic support obligations, that first becomes payable after the date the petition is filed; and

(ii) for charitable contributions . . .; and;

(B) If the debtor is engaged in business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business.

(3) Amounts reasonably necessary to be expended under paragraph (2), other than subparagraph (A)(ii) of paragraph (2), shall be determined in accordance with subparagraphs (A) and (B) of section 707(b)(2), if the debtor has current monthly income, when multiplied by 12, greater than—

* * *

(B) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or

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(4) For purposes of this subsection, the "applicable commitment period" —

(A) subject to subparagraph (B), shall be —

(i) 3 years; or

(ii) not less than 5 years, if the current monthly income of the debtor and the debtor's spouse combined, when multiplied by 12, is not less than —

* * *

(II) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or

* * *

(B) may be less than 3 or 5 years, whichever is applicable under subparagraph (A), but only if the plan provides for payment in full of all allowed secured claims over a shorter period.

The phrase "current monthly income" in § 1325(b)(2) is defined as the average monthly income of the debtor from all sources during the six-month period preceding the filing of the petition. 11 U.S.C. § 101(10A).

Debtors contend that the Bankruptcy Court erred by concluding that: (1) the "applicable commitment period" under 11 U.S.C. § 1325(b)(1)(B) determines the length of a Chapter 13 plan rather than the dollar amount to be paid to unsecured creditors; and that (2) the "applicable commitment period" applies to Chapter 13 debtors with no "projected disposable income." The Trustee responds that: (1) this Court lacks jurisdiction because Debtors do not have standing to appeal confirmation of their own amended plan; and that (2) the "applicable commitment period" dictates a plan length of 60 months for the above-median Debtors who, contrary to their assertions, do have "projected disposable income."

The Court begins with the threshold question of whether the Debtors have standing to appeal the Bankruptcy Court's confirmation of their own amended plan. The Sixth Circuit has noted that "[a]ppellate standing in bankruptcy cases is more limited than Article III standing or the prudential requirements associated therewith." In re Troutman Enters., Inc., 286 F.3d 359, 364 (6th Cir.2002). An appellant has standing to appeal a bankruptcy court order if he was "`directly and adversely affected pecuniarily by the order.'" Id. (quoting Fidelity Bank, Nat'l Ass'n v. M.M. Group, Inc., 77 F.3d 880, 882 (6th Cir.1996)). Under the "`person aggrieved' doctrine" standing is limited to "`persons with a financial stake in the bankruptcy court's order.'" Id. (internal citations omitted). "[A] person may only appeal a bankruptcy court order when it diminishes their property, increases their burdens, or impairs their rights." Id.

In In re Zahn, 526 F.3d 1140 (8th Cir. 2008), the Eighth Circuit held that a debtor had standing to appeal confirmation of her own amended Chapter 13 plan. Upon the Trustee's objection, the debtor in Zahn filed an amended plan increasing her total monthly income and, thereby, extending the plan length. Id. at 1141-42. The Eighth Circuit explained:

Zahn was forced, over...