Dehart v. Isaacs (In re Isaacs)

605 B.R. 669

IN RE: Tina M. ISAACS, Frederick S. Isaacs, Debtors

Charles J. DeHart, III, Standing Chapter 13 Trustee, Movant

v.Tina M. Isaacs, Frederick S. Isaacs, Respondents

Case No. 1:18-bk-01651-HWV

United States Bankruptcy Court, M.D. Pennsylvania.

Entered: August 26, 2019

Kara Katherine Gendron, Dorothy L. Mott, Mott & Gendron Law, Harrisburg, PA, Sean Patrick Quinlan, Quinlan Law Office, Camphill, PA, for Debtors.

Opinion

Judge Henry W. Van Eck

This case involves Chapter 13 debtors whose combined income exceeds the applicable median income. Because of this the court may not approve their chapter 13 plan over the objection of the chapter 13 trustee unless the plan pays 100% of all allowed unsecured claims or it pays all the Debtors' "projected disposable income" to unsecured creditors. The Debtors are not proposing a 100% plan. Therefore, the Debtors must devote all their projected disposable income to the payment of their unsecured creditors pursuant to 11 U.S.C. § 1325(b)(1)(B)¹ for their plan to be confirmable over the objection of the Trustee. Importantly, the Code excludes "benefits received under the Social Security Act" from the calculation of disposable income. In this case the Debtors argue that payments they receive under the Adoption Assistance and Child Welfare Act of 1980 (the "Act of 1980") are benefits received under the Social Security Act and should therefore be excluded from their calculation of disposable income. The Chapter 13 Trustee disputes this and has objected to confirmation of the Debtors' proposed plan.

I. Jurisdiction

This court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A). Venue is proper in this district pursuant to 28 U.S.C. § 1408.

II. Factual Background and Procedural History

The facts of this case are not complicated and are not in dispute. According to a stipulation of facts jointly filed by the parties, the Debtors receive $2,325.00 per month in adoption assistance payments (the "Adoption Assistance Payments") under the Act of 1980. The Act of 1980 establishes a program of federal payments to participating states to provide funds for financial assistance to families adopting special needs children from foster care (the "Adoption Assistance Program"). See 42 U.S.C. §§ 670 – 76. Pursuant to the Adoption Assistance Program, Pennsylvania receives funds from the federal government under Title IV–E of the Social Security Act ("SSA"). Each year, the U.S. Department of Health and Human Services calculates the Federal Medical Assistance Percentage ("FMAP"). The FMAP is used to determine the amount of federal matching funds provided to various subsidy programs, including the Adoption Assistance Program. The Adoption Assistance Payments are then paid from a pool of federal funds allocated to Pennsylvania to pay individuals who qualify under the Adoption Assistance Program. See Pa. Code §§ 3140.201–3140.210. In this case, the money allocated to fund the Debtors' Adoption Assistance Payments, as well as all other individuals receiving the same benefits, were comprised of 51.82% federal funding, 38.54% state funding, and 9.64% county funding. The Debtors' payments under the Adoption Assistance Program are paid directly by Cambria County Children and Youth Services, not by the federal government.

The Debtors filed a chapter 13 petition on April 22, 2018. They disclosed the Adoption Assistance Payments but took the position that those payments were not included in their disposable income calculation on their form 122C (the "Means Test"). They have proposed a chapter 13 plan with a monthly payment of $548.00, which according to the claims register will pay approximately 21% to unsecured non-priority creditors.² Charles J. DeHart, III, the standing chapter 13 trustee, objected to confirmation of the plan contending that it was improper to exclude the Adoption Assistance Payments from the Debtors' disposable income when calculating their plan payments.

Argument on this matter was heard on March 7, 2019, at which time a briefing schedule was set. The parties have submitted their briefs and this matter is now ripe for a decision.

III. Discussion

The issue here is whether the Adoption Assistance Payments received by the Debtors are "benefits received under the Social Security Act" within the meaning of § 101(10A)(B) and are thus excludable from the calculation of the Debtors' "current monthly income." If they are, then they are likewise excludable from the calculation of the Debtors' "disposable income" under § 1325(b)(2) and the Debtors' "projected disposable income" for purposes of § 1325(b)(1)(B). Under § 1325(b)(2), the term "disposable income" means "current monthly income" received by the debtor, less certain expenses detailed in § 1325(b)(2)(A) and (B). See 11 U.S.C. § 1325(b)(2). Section 101(10A)(B), in turn, defines "current monthly income" as "the average monthly income from all sources that the debtor receives" during a specified time period, but specifically "excludes benefits received under the Social Security Act" (the "SSA Exclusion"). 11 U.S.C. § 101(10A)(B). Finally, although "projected disposable income" is not defined by the Code, it is generally understood to mean "disposable income" multiplied by the "applicable commitment period," both of which are defined by the Code, and adjusted for any "known or virtually certain" changes to a debtor's income or expenses over the same period. See §§ 1325(2) and 1325(b)(4) ; see also Hamilton v. Lanning , 560 U.S. 505, 517, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010). Each of the above definitions provide a critical context for the following analysis.

The first canon of statutory interpretation is that a court must begin, and where appropriate end, with the statutory language. "Courts must presume that a legislature says in a statute what it means and means in a statute what it says there." In re Philadelphia Newspapers, LLC , 599 F.3d 298, 304 (3d Cir. 2010) (citing Conn. Nat'l Bank v. Germain , 503 U.S. 249, 253–54, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992) (internal citations and quotations omitted). When the words of a statute are unambiguous, then this first canon is also the last: judicial inquiry is complete." Id. Where a "statute's language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms." Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A. , 530 U.S. 1, 6, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000) (internal quotations omitted). To determine whether language is unambiguous, courts should "read the statute in its ordinary and natural sense." Id. (citing Harvard Secured Creditors Liquidation Trust v. I.R.S. , 568 F.3d 444, 451 (3d Cir. 2009). A statutory provision is ambiguous only where the disputed language is "reasonably susceptible of different interpretations." Id. (citing Dobrek v. Phelan , 419 F.3d 259, 264 (3d Cir. 2005) (quoting Nat'l R.R. Passenger Corp. v. Atchinson Topeka & Santa Fe Ry. Co ., 470 U.S. 451, 473 n. 27, 105 S.Ct. 1441, 84 L.Ed.2d 432 (1985) )).

Courts have construed the SSA Exclusion in different ways. The United States Bankruptcy Court for the District of Massachusetts, for example, has held that unemployment compensation is excluded from current monthly income because unemployment compensation is a benefit received under the Social Security Act. In re Munger, 370 B.R. 21, 23–26 (Bankr. D.Mass. 2007). The United States Bankruptcy Court for the Southern District of Ohio came to the same conclusion, noting that § 101(10A) "does not speak of ‘payments,’ direct, indirect, or otherwise, but instead contains the unambiguously broader term ‘benefits.’ " In re Sorrell, 359 B.R. 167, 180–81 (Bankr. S.D. Oh. 2007) (citing 11 U.S.C. § 101(10A) ). These decisions stand in contrast with a previous decision of this court holding that unemployment compensation is not excluded from a debtor's current monthly income because unemployment compensation is not a "benefit" received under the Social Security Act, but is received instead under a state-run program. DeHart v. Baden (In re Baden), 396 B.R. 617, 621–23 (Bankr. M.D. Pa. 2008). Likewise, the United States Bankruptcy Court for the Central District of Illinois has held that unemployment compensation is not excluded from current monthly income, stating that § 101(10A)(B) "is ambiguous on its face, as it is amenable to two conflicting interpretations." In re Kucharz, 418 B.R. 635, 640–43 (Bankr. C.D. Ill. 2009).

These cases, however, do not deal directly with the Adoption Assistance Program at issue here and the court is therefore not persuaded by their holdings. The decision most directly on point, and the one adopted by the court here, is In re Adinolfi , 543 B.R. 612 (9th Cir. BAP 2016). In Adinolfi , the debtor filed a voluntary chapter 13 bankruptcy petition at a time when she received $1,422.00 each month in adoption assistance payments under the Act of 1980. She disclosed the payments but took the position that they were excludable from her calculation of disposable income. Consequently, the debtor in Adinolfi proposed a chapter 13 plan that provided no distribution to her unsecured non-priority creditors. The chapter 13 trustee objected to confirmation of the debtor's proposed plan contending that it was improper to exclude the adoption assistance payments from her income when calculating her plan payments. The United States Bankruptcy Court for the Eastern District of California sustained the objection of the chapter 13 trustee, concluding that the adoption assistance payments should have been included in the debtor's calculation of disposable income. The debtor timely appealed the bankruptcy court order denying confirmation of her plan to the Bankruptcy Appellate Panel ("BAP") for the Ninth Circuit. The BAP reversed the bankruptcy court's order and remanded the case for further proceedings.

The...