Feagan v. Townson

572 B.R. 785

In re: Brian Keith FEAGAN, Debtor, Appellee,

v.Mary Ida TOWNSON, Trustee, Appellant.

CIVIL ACTION NO. 4:16–CV–00108–HLM

United States District Court, N.D. Georgia, Rome Division.

Signed September 6, 2016

Jennifer K. McKay, W. Jeremy Salter, Salter & Salter, P.C., Rome, GA, for Debtor, Appellee.

Brandi Lynn Kirkland, Office of Mary Ida Townson, Atlanta, GA, for Trustee, Appellant.

ORDER

Harold L. Murphy, UNITED STATES DISTRICT JUDGE

This case is before the Court on the Chapter 13 Trustee's Notice of Appeal claiming error of the Bankruptcy Court for the Northern District of Georgia, Rome Division's (the "Bankruptcy Court") order confirming the Debtor's Chapter 13 plan [1].

I. Standard of Review

The Court reviews the Bankruptcy Court's legal conclusions de novo. Hemar Ins. Corp. of Am., III. Student Assistance Comm'n v. Cox (In re Cox), 338 F.3d 1238, 1241 (11th Cir. 2003). The Court may not disturb the Bankruptcy Court's factual findings, however, unless such findings are clearly erroneous. Fed. R. Bankr. P. 8013. "A factual finding is not clearly erroneous unless ‘this court, after reviewing all of the evidence, [is] left with the definite and firm conviction that a mistake has been committed.’ " IBT Int., Inc. v. Northern (In re Int. Admin. Servs., Inc.), 408 F.3d 689, 698 (11th Cir. 2005) (quoting Lykes Bros., Inc. v. United States Army Corps of Engr's, 64 F.3d 630, 634 (11th Cir.1995) ). "Equitable determinations by a bankruptcy court are subject to review under an abuse of discretion standard." In re General Dev. Corp., 84 F.3d 1364, 1367 (11th Cir.1996). As this matter is a review of the legal determination of the Bankruptcy Court, it is reviewed de novo.

II. Discussion

The issue in this case is whether the Bankruptcy Court erred in ruling that an "above-median" Chapter 13 debtor with car payments on account of a nonpurchase-money security interest may deduct the "Ownership Costs" allowance for purposes of calculating his projected disposable income under 11 U.S.C. § 1325(b). The Court concludes that the Bankruptcy Court erred, and that in calculating disposable income pursuant to 11 U.S.C. § 1325(b), an above median Chapter 13 debtor may not deduct from projected disposable income the Ownership Costs allowance for a vehicle encumbered solely by a nonpurchase-money security interest.

A. Background

The debtor in this case, Brian Keith Feagan (the "Appellee"), filed his initial petition for Chapter 13 relief and protection on April 10, 2015. (Bankr. Docket Entry No. 1 (Docket Entry No. 2–2).) He filed his Second Amended Plan on May 19, 2016. (Bankr. Docket Entry No. 26 (Docket Entry No. 2–6).) Mary Ida Townson ("Trustee") timely objected to confirmation of the Chapter 13 Plan, taking issue with a deduction Appellee claimed on line 13a of Form 22C–2. (Bankr. Docket Entry No. 33 (Docket Entry No. 2–8).) The deduction Appellee claimed was the Ownership Costs allowance for a title pawn on his otherwise unencumbered 2004 Ford Escape. (Bankr. Docket Entry No. 27 (Docket Entry No. 2–7).) The issue was briefed, and the Bankruptcy Court overruled Trustee's objection on April 8, 2016. (Bankr. Order of Apr. 8, 2016 (Bankr. Docket Entry No. 38 (Docket Entry No. 2–12)).) The Bankruptcy Court confirmed the Chapter 13 Plan on April 11, 2016. (Bankr. Order of Apr. 11, 2016 (Bankr. Docket Entry No. 39 (Docket Entry No. 2–13)).)

Section 1325(b) of the Code provides that "[i]f the trustee ... objects to the confirmation of the plan, then the court may not approve the plan unless ... the plan provides that all of the debtor's projected disposable income ... will be applied to make payments to unsecured creditors under the plan." 11 U.S.C. § 1325(b)(1). Because the Second Amended Chapter 13 Plan of Appellee does not provide for full payment of unsecured creditors, and Trustee objected to confirmation of the plan, Appellee must apply all of his projected disposable income to make payments to unsecured creditors. (Bankr. Docket Entry Nos. 26 and 33 (Docket Entry Nos. 2–6 and 2–8).) In the Chapter 13 context, projected disposable income is a result of a debtor's current monthly income less certain "reasonably necessary" expenses. 11 U.S.C. § 1325(b)(2).

Appellee's current monthly income, which is $3,898.00, exceeds the median family income in Georgia for a household of the same size as his. (Bankr. Docket Entry No. 27 (Docket Entry No. 2–7)); 11 U.S.C. § 101(1OA) ; Census Bureau Median Family Income By Family Size, for cases filed between April 1, 2015 and May 14, 2015, available at https://www.justice.gov/ust/eo/bapcpa/20150401/bci_data/median_income_table.htm. Because Appellee is an above median debtor, his applicable commitment period for his Chapter 13 plan is 60 months. 11 U.S.C. § 1325(b)(4). And in addition, he must calculate his projected disposable income in accordance with the means test standards of 11 U.S.C. § 707(b)(2)(A) and (B). 11 U.S.C. § 1325(b)(3).

Section 707(b)(2)(A) permits certain deductions from a debtor's projected disposable income. 11 U.S.C. § 707(b)(2)(A). And Section 707(b)(2)(A)(ii)(I) leads to the deduction at issue in this case. Deductions from projected disposable income lessen the amount of a debtor's projected disposable income, and thus lessen the amount of money paid back to unsecured creditors. Section 707(b)(2)(A)(ii)(I) permits the deduction of "applicable monthly expense amounts specified under the National Standards and Local Standards ... issued by the Internal Revenue Service for the area in which the debtor resides." 11 U.S.C. § 707(b)(2) A(ii)(I). The National and Local Standards "are tables that the IRS prepares listing standardized expense amounts for basic necessities." Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 66, 131 S.Ct. 716, 178 L.Ed.2d 603 (2011). The IRS Local Standards for the time period in which this matter was filed allows a debtor to deduct an Ownership Costs allowance of $517.00.¹ The other category within the National and Local Standards is the "Operation Costs" category, which encompasses costs such as "maintenance, repairs, insurance, fuel, registrations, licenses, inspections, parking and tolls."²

But for a title pawn on his 2004 Ford Escape in the amount of $3,086.00, Appellee would own his vehicle free and clear. (Bankr. Docket Entry Nos. 26 and 27 (Docket Entry Nos. 2–6 and 2–7).) The title pawn constitutes a nonpurchase-money security interest on the vehicle. It is for this transaction that Appellee claims the $517.00 Ownership Costs allowance. Id.

In order to retain his car, Appellee's plan must provide a $51.43 monthly payment to National Title Pawn. (Bankr. Docket Entry No. 27 (Docket Entry No. 2–7)); (Bankr. Order of Apr. 8, 2016 at 3 (Bankr. Docket Entry No. 38 (Docket Entry No. 2–12)).) As a separate matter, Appellee is entitled to deduct this amount as the average monthly payment on account of a secured debt under§ 707(b)(2)(A)(iii). See 11 U.S.C. § 707(b)(2)(A)(i) (permitting deduction of amounts determined under § 707(b)(2)(A)(iii) ). "Because § 707(b)(2)(A)(iii), which permits the Ownership Costs deduction, does not permit a deduction for payments for debt, and to avoid duplicative deductions, [Appellee] must reduce the Ownership Costs deduction by the amount of the secured debt payment." (Bankr. Order of Apr. 8, 2016 at 3 (Bankr. Docket Entry No. 38 (Docket Entry No. 2–12)).) As a result, Appellee's projected disposable income is reduced by $465.57 ($517.00 - $51.43 = $465.57).

Factoring this number in with the rest of the allowed deductions has the effect of reducing Appellee's projected disposable income to $153.63. (Bankr. Docket Entry No. 27 (Docket Entry No. 2–7).) This number, multiplied by the 60 month applicable commitment period, pays general, unsecured creditors a minimal dividend of $9,217.80. Appellee's Second Amended Plan provides for a payment of $9,250.00 to general unsecured creditors. (Bankr. Docket Entry No. 26 (Docket Entry No. 2–6).)

If Appellee is unable to deduct the Ownership Costs allowance, his projected disposable income would rise by $465.57. This would result in a total monthly projected disposable income of $619.20 ($153.63 + $465.57 = $619.20).

B. Ransom

Although not answering the precise question in this case, the Supreme Court addressed the Ownership Costs allowance in Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 131 S.Ct. 716, 178 L.Ed.2d 603 (2011). There, the debtor claimed the deduction for a car he owned free and clear. 562 U.S. at 61–62, 131 S.Ct. 716. The Court ultimately denied the debtor a deduction for Ownership Costs and held that "[a] debtor who does not make loan or lease payments may not take the car-ownership deduction." 562 U.S. at 64, 131 S.Ct. 716. The Supreme Court also identified several policy considerations relevant to deciding the case before the Court today.

First, the Supreme Court noted that because Congress meant "the means test to approximate the debtor's reasonable expenditures on essential items, a debtor should be required to qualify for a deduction by actually incurring an expense in the relevant category." 562 U.S. at 70, 131 S.Ct. 716 (emphasis added). Thus, a debtor has to actually incur an expense under the Ownership Costs category in order to take that deduction and for it to be "applicable" to him under§ 707(b)(2)(A)(ii)(I). The Court then went on to ask "[w]hat expenses does the vehicle-ownership category cover?" 562 U.S. at 71, 131 S.Ct. 716. The Court answered that question by stating that "[t]he ownership category encompasses the costs of a car loan or lease and nothing more." Id.

Importantly, in reaching this conclusion, the Court noted that the purpose of Congress in enacting the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was "to ensure that [debtors] repay creditors the maximum they can afford." 562 U.S. at 71, 131 S.Ct. 716 (internal quotation marks omitted). In other words, the statute is meant "to help ensure that debtors who can pay...