In re Anderson, Case No. 18-43360-MXM

604 B.R. 717

IN RE: Ckurtis Ah-Maad ANDERSON and Naomi Renee Anderson, Debtors.

Case No. 18-43360-MXM

United States Bankruptcy Court, N.D. Texas, Fort Worth Division.

Signed August 9, 2019

Daniel S. Wright, Machi & Associates, P.C., Arlington, TX, for Debtors.

Pam Bassel, North Richland Hills, TX, pro se.

MEMORANDUM OPINION AND ORDER SUSTAINING IN PART AND OVERRULING IN PART THE TRUSTEE'S OBJECTION TO CONFIRMATION OF DEBTORS' CHAPTER 13 PLAN

[ RELATES TO ECF NOS. 24 and 27]

Mark X. Mullin, United States Bankruptcy Judge

Before the Court is confirmation of the Debtors' Plan.¹ The Trustee filed an Objection² to confirmation, asserting that the Debtors' Plan fails to satisfy (i) the "disposable income" requirement of 11 U.S.C. § 1325(b)(1)(B), and (ii) the "best interest of creditors" test of 11 U.S.C. § 1325(a)(4).³ After considering the Plan, the Objection, the Trustee's Brief,⁴ the Debtors' Response Brief,⁵ the Trustee's Reply Brief,⁶ the testimony of witnesses, the exhibits admitted into evidence, other pleadings filed in this case as referenced herein, and the arguments of counsel, the Court finds and concludes that the Trustee's Objection should be sustained in part and overruled in part as detailed below.

I. OVERVIEW

The Trustee raises three arguments in support of her Objection, two of which are resolved.⁷ The remaining issue is a dispute over the Debtors' monthly deduction for "transportation ownership cost" when calculating the Debtors' projected "disposable income" under 11 U.S.C. § 1325(b). The Trustee argues that the Debtors are entitled to deduct only their actual monthly transportation ownership cost of $65.38,⁸ while the Debtors argue that they are entitled to deduct the full allowance of $497.00⁹ listed on the applicable table of the "Local Standards" issued by the Internal Revenue Service ("IRS ").

The Trustee's position is that the applicable "Local Standards" are comprised of not only the figures listed in the applicable tables issued by the IRS, but also the supplemental guidelines that accompany the tables. Those guidelines arguably limit the Debtors' Local Standards transportation ownership cost deduction to the lesser of (i) the amount provided in the applicable table, or (ii) the Debtors' actual expense. The Debtors' position, on the other hand, is that the supplemental guidelines are not binding and that the Debtors are entitled to deduct the full transportation ownership cost allowance provided in the applicable Local Standards table, even if their actual transportation ownership cost is less.

For all the reasons detailed below, the Court overrules the Trustee's objection regarding transportation ownership cost. The Court concludes that, based on the facts of this case, when calculating their monthly "disposable income" under § 1325(b), the Debtors are entitled to (i) a net monthly deduction of $431.62 as their transportation ownership cost under the Local Standards incorporated in § 707(b)(2)(A)(ii)(I), and (ii) a monthly debt payment deduction of $65.38 under § 707(b)(2)(A)(iii).

II. FACTS

The relevant facts in this matter are simple and undisputed. The Debtors filed their joint Chapter 13 Voluntary Petition on August 31, 2018.¹⁰ Listed on the Debtors' schedules is a 2012 Chrysler 300 (the "Vehicle ") with a remaining outstanding purchase money secured debt of $3,922.88 owed to Wells Fargo Dealer Services.¹¹

The Debtors' Form 122C-1 reveals that they are above-median income earners,¹² and Form 122C-2 reflects that their asserted monthly disposable income is $115.58,¹³ with a resulting unsecured creditors' pool of $6,934.80. Both of those figures are carried over and reflected in the Debtors' Plan.¹⁴

The Trustee argues that the Plan violates the "disposable income" requirement of § 1325(b)(1)(B).¹⁵ According to the Trustee, the Debtors understated their projected disposable income because they deducted the full transportation ownership cost of $497.00 listed in the Local Standards table, as opposed to limiting their deduction to their actual monthly transportation ownership cost of $65.38. This alleged $431.62¹⁶ overstatement of allowable monthly transportation ownership cost resulted in a corresponding understatement of the Debtors' monthly disposable income, in turn causing a $25,897.20 understatement of the required unsecured creditor pool in the Plan.¹⁷

III. LEGAL ANALYSIS

Although the legal question before the Court appears simple and straight forward – the answer, not so much. As detailed in the Trustee's and Debtors' extensive briefs,¹⁸ the parties cited over eighty court opinions along with many other secondary sources to support their respective positions. Rather than diving into the maze of differing analyses performed by other courts and commentators, this Court will begin by reviewing the relevant Bankruptcy Code sections.¹⁹

A. APPLICABLE BANKRUPTCY CODE SECTIONS

The Bankruptcy Code sections relevant in this dispute are §§ 1325(b) and 707(b)(2)(A), which were enacted in 2005 as part of BAPCPA.²⁰

1. 11 U.S.C. § 1325(b)

The analysis begins with § 1325(b)(1)(B), which provides:

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— ... (B) the plan provides that all of the debtor's projected disposable income to be received in the applicable commitment period ... will be applied to make payments to unsecured creditors under the plan.²¹

Section 1325(b)(2) defines "disposable income" in relevant part as "current monthly income received by the debtor ... less amounts reasonably necessary to be expended ... for the maintenance or support of the debtor or a dependent of the debtor ...."²² Section 1325(b)(3) then directs that, for above-median-income debtors, the "amounts reasonably necessary to be expended ... shall be determined in accordance with subparagraphs (A) and (B) of section 707(b)(2)."²³ Therefore, § 1325(b)(3) incorporates the means test for determining the allowable expense deductions when calculating "disposable income" for above-median-income debtors.

2. 11 U.S.C. § 707(b)(2)(A)

Section 707(b)(2)(A) sets out the means test for presumed abuse in filing a Chapter 7 petition. The means test requires consideration of "the debtor's current monthly income reduced by the amounts determined under clauses (ii), (iii) , and (iv), and multiplied by 60."²⁴ Amounts determined under clause (ii) are set out in the IRS standards, whereas amounts determined under clause (iii) are payments on secured debts. Amounts determined under clause (iv) are expenses for priority claims, which are not relevant here. Read together, the amounts determined under clauses (ii), (iii), and (iv) "allow a debtor to deduct from current monthly income those expenses set out in the IRS standards, and also any payments on secured debt that will come due in the sixty months after the petition date."²⁵ Each of these clauses authorizes a deduction as "a stand-alone expense."²⁶

i. Clause (ii)

Section 707(b)(2)(A)(ii)(I) provides, in pertinent part:

The debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the National Standards and Local Standards , and the debtor's actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides, as in effect on the date of the order for relief , for the debtor .... Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.²⁷

The specific "monthly expense" at issue under clause (ii) is the Debtors' transportation "ownership cost," which falls within the "Local Standards" issued by the IRS.²⁸ Because the Debtors' Vehicle was subject to an outstanding purchase money secured debt on the date of their bankruptcy filing, the Debtors are entitled to a deduction for transportation "ownership cost" under the Local Standards.²⁹ The Court's analysis of the allowed amount of the deduction under clause (ii) in this case is addressed in Section III. B of this Memorandum Opinion and Order.

ii. Clause (iii)

Section 707(b)(2)(A)(iii), on the other hand, provides in pertinent part:

The debtor's average monthly payments on account of secured debts shall be calculated as the sum of –

(I) The total of all amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the filing of the petition; and

(II) Any additional payments to secured creditors necessary for the debtor, in filing a plan under chapter 13 of this title, to maintain possession of the debtor's ... motor vehicle ... necessary for the support of the debtor and the debtor's dependents, that serves as collateral for secured debts;

divided by 60.³⁰

Pursuant to clause (iii), the Debtors' allowed deduction for their "average monthly payments" on account of the Vehicle's secured debt is $65.38.³¹

B. § 707(b)(2)(A)(ii)(I) - "LOCAL STANDARDS" ISSUED BY THE IRS

1. The Allowable Expense Tables constitute the "Local Standards" issued by the IRS

Although neither the Bankruptcy Code nor the IRS defines the term "Local Standards," the United States Supreme Court in Ransom concluded:

The National and Local Standards referenced in [707(b)(2)(A)(ii)(I) ] are tables that the IRS prepares listing standardized expense amounts for basic necessities.(footnote omitted) The IRS uses the Standards to help calculate taxpayers' ability to pay overdue taxes. See 26 U.S.C. § 7122(d)(2). The IRS also prepares supplemental guidelines known as the Collection Financial Standards, which describe how to use the tables and what the amounts listed in them mean.

....

... Although the statute does not incorporate the IRS's guidelines , courts may consult this material in interpreting the National and Local Standards; ... The guidelines of course cannot control if they are at odds with the statutory

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