In re Baker

580 B.R. 662

IN RE: Marian Leah BAKER, Debtor.

Case No. 17–32061–KLP

United States Bankruptcy Court, E.D. Virginia, Richmond Division.

Signed November 8, 2017

Jacqueline W. Sharman, Bowen Ten Cardani, P.C., Richmond, VA, for Debtor.

Susan Hope Call, Chapter 13 Trustee's Office, Richmond, VA, for Trustee.

MEMORANDUM OPINION

Keith L. Phillips, United States Bankruptcy Judge

The chapter 13 trustee (the "Trustee") has objected to confirmation of the chapter 13 plan (the "Plan") filed by Debtor Marian Leah Baker (the "Debtor"). The Trustee's objection (the "Objection") claims that the Plan fails to provide that "all of the Debtor's projected disposable income ... will be applied to make payments to unsecured creditors under the plan," as required by § 1325(b)(1)(B) of the Bankruptcy Code, 11 U.S.C. § 1325(b)(1)(B).¹

The issue before the Court is what portion of the income of the Debtor's non-filing spouse (the "Spouse") should be included in Debtor's projected disposable income and used to make payments to unsecured creditors. Specifically, the Court must determine the extent to which the Debtor is entitled to claim a "marital adjustment" on line 13 of Official Form 122C–1 ("Form 122C–1").

The Trustee asserts that the Debtor has improperly reduced her projected disposable income by using the marital adjustment to exclude amounts paid by the Spouse on (1) a mortgage for which he solely is liable, and (2) other debts owed only by the Spouse. Although the mortgage debt is an obligation of the Spouse only, the Debtor and her dependent reside with the Spouse in the property securing the mortgage indebtedness. In response to the Objection, the Debtor has agreed to forego a portion of the disputed marital adjustment but disagrees with the Trustee's assertion that she may not exclude the amounts representing her Spouse's mortgage payments.²

Findings of Fact

The parties have elected to submit stipulations of fact in lieu of conducting an evidentiary hearing. The stipulations are as follows:

1. The income is correct on lines 2, 4, and 9 of form 22C³ for Debtor and non-filing spouse.

2. The Household size consists of 3 individuals.

3. The debtor and non-filing spouse were married to each other in 2010.

4. Debtor's child is not the biological child of the non-filing spouse.

5. The Non-filing spouse purchased the residential home, in 2005, prior to the marriage with the debtor.

6. The Non-filing spouse's first and second mortgages are in nonfiling spouse's name only and were incurred in 2005.

7. Only the Non-filing spouse's name is on the deed of the residential home.

8. The Debtor and her child reside in the non-filing spouse's home along with nonfiling spouse.

9. The residence is the debtor's and her child's only place of residence and shelter.

10. The Debtor's non-filing spouse has two vehicles.

11. The Debtor and her child ride in non-filing spouse's vehicle and Debtor drives one vehicle.

12. The Debtor has no vehicle in her name.

13. The Debtor has no vehicle loan in her name.

14. The Debtor's non-filing spouse has debt, credit cards, etc, that are in his name only.

15. Debtor's non-filing spouse used that debt in part for household needs and things for the benefit of debtor and her dependent.

16. The Debtor and non-filing spouse file joint taxes.

17. The Debtor and non-filing spouse pool money and use it to pay bills and fund household.

18. The Debtor and non-filing spouse have a joint checking account.

Conclusions of Law

This Court has jurisdiction pursuant to 28 U.S.C. § 1334 and the Order of Reference of the U.S. District Court for the Eastern District of Virginia dated August 15, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(L).⁴

Section 1325(b)(1)(B) of the Bankruptcy Code states that if the trustee or an unsecured creditor objects to confirmation, a chapter 13 plan must provide that all of a debtor's projected disposable income be used to pay unsecured creditors.⁵ "Disposable income" (which largely determines "projected disposable income")⁶ is calculated after ascertaining the debtor's Current Monthly Income ("CMI") and adjusting it by certain amounts not at issue here. 11 U.S.C. § 1325(b)(2). CMI is calculated by using a two-part formula found in § 101(10A) of the Bankruptcy Code. The first component of CMI includes income received by the debtor and, in a joint case, the debtor's spouse.⁷ The second component of CMI includes any amount "paid by any entity other than the debtor ... on a regular basis for the household expenses of the debtor or the debtor's dependents ...."⁸ Thus, a non-filing spouse's income is included in CMI only to the extent it is paid for the household expenses of the debtor and the debtor's dependents.

Form 122C–1, entitled "Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period," implements the language of § 101(10A) by permitting a debtor to take a "marital adjustment" if the debtor is married and the debtor's spouse is not a joint debtor in the case. Line 13 of Form 122C–1 instructs a debtor who is married and filing individually to designate the amount of the non-filing spouse's income "that was NOT regularly paid for the household expenses of [the debtor] or [the debtor's] dependents ...." That amount constitutes the marital adjustment that, when applied, reduces a debtor's CMI. In the present case, the Debtor claimed a marital adjustment of $1200 for her "[h]usband's First and Second Mortgage."

A marital adjustment reduces the amount of a debtor's CMI and is significant in a chapter 13 bankruptcy case for two primary reasons. The term of a debtor's plan is determined by comparing CMI to the median family income in the debtor's state of residence. If CMI multiplied by twelve equals or exceeds the median family income for the state, the debtor's plan must be for a term of five years.⁹ In addition, if CMI multiplied by twelve equals or exceeds the median family income for the state, the debtor must complete Official Form 122C–2, "Calculation of Your Disposable Income" ("Form 122C–2").¹⁰ That form modifies CMI by, among other things, adjusting a debtor's expenses through the application of the Internal Revenue Service's national and local standards, as required by Bankruptcy Code § 707(b)(2)(A) and (B).

Here, the Debtor has not attempted to qualify for a commitment period of less than five years;¹¹ rather, she is apparently excluding a portion of her Spouse's income from her calculation of CMI solely to avoid having her disposable income determined under § 707(b)(2)(A) and (B).¹² Be that as it may, the Court will confine its ruling to the issue presented; i.e., whether the adjustment on line 13 of Form 122C–1 for her Spouse's mortgage payments is proper.

When interpreting a provision of the Bankruptcy Code, the Court must first look to the language of the statute itself. Ransom v. FIA Card Services, N.A. , 562 U.S. 61, 69, 131 S.Ct. 716, 178 L.Ed.2d 603 (2011). The statutory language at issue is § 101(10A)(B)'s provision that CMI includes amounts "paid by any entity other than the debtor ... on a regular basis for the household expenses of the debtor or the debtor's dependents ...." Under the plain language of the statute, if the Spouse's mortgage payment is either not a "household expense" or is not an expense "of the debtor or the debtor's dependents," the payment may properly be excluded from the Debtor's CMI.

At least one court has pointed out that "expenses" for purposes of § 101(10A)(B) does not include payments on debts because the language of § 707(b)(2)(A) specifically distinguishes "expenses" from "payments on debts." In In re Hall , 559 B.R. 463 (Bankr. S.D. Tex. 2016), the court stated that " § 707(b)(2)(A)(ii) is unequivocal that monthly expenses of the debtor shall not include any payments for debts." Id. at 470.¹³ . The court noted that while payments made on secured debts are a deduction from CMI pursuant to § 707(b)(2)(A)(iii), they are "a deduction that is distinct from the deduction of household expenses." Id. After concluding that future payments made on secured debts are not "expenses" and thus cannot be "household expenses" to which a non-filing spouse is contributing, the court held that the debt payments could be deducted as a marital adjustment. Id.¹⁴

In Hall , the disputed payments were made on vehicles titled only in the non-filing spouse's name. This prompted the court to consider the possibility of "double dipping," i.e. allowing the debtor to claim both a marital adjustment for a payment made by her non-filing spouse and an ownership/secured debt payment deduction. The court held that the debtor would not be entitled to claim ownership and secured debt payment deductions on Form 122C because "she makes no monthly payments on debt secured by vehicles she does not own." Id. at 471 (citing § 707(b)(2)(A)(iii) ). Similarly, in this case, the Debtor cannot "double dip" by claiming both the marital adjustment and secured debt payment deductions because she has no secured debt obligation in connection with the Spouse's mortgage debt. This Court adopts the rationale of Hall , both its conclusion that "payments toward debts are not expenses as contemplated by § 101(10A)" and its double dip analysis.

Alternatively, even if the Spouse's mortgage payments were to be considered "household expenses," the marital adjustment would still be allowed because the mortgage payment expenses are not expenses "of the debtor or the debtor's dependents." The Spouse purchased the residential home before marrying the Debtor, the residence is owned solely by the Spouse, and only he is obligated to make payments on the mortgage indebtedness.

A number of courts, after determining that mortgage expenses are "household expenses" under § 101(10A), have considered whether those mortgage payments constitute expenses "of the debtor or the debtor's dependents" and may thus be excluded from a debtor's CMI when, as here, the debtor's non-filing spouse is the only one liable on...