In re Currie

537 B.R. 884

In re Patricia A. Currie, Debtor.

Case No. 14–71331

United States Bankruptcy Court, C.D. Illinois.

Signed September 17, 2015

Jay Barr, Decatur, IL, pro se.

OPINION

Mary P. Gorman, United States Chief Bankruptcy Judge

The Debtor's First Amended Chapter 13 Plan is before the Court for confirmation. The Chapter 13 Trustee has objected to confirmation, asserting that because the Debtor is not proposing to pay her unsecured creditors in full, she must devote all disposable income she expects to receive during the plan term to the payment of her unsecured creditors. The Chapter 13 Trustee claims that the Debtor has miscalculated her disposable income because she has taken a deduction in her calculation for a housing allowance to which she is not entitled. Both the Debtor and the United States Trustee argue, to the contrary, that the Debtor is entitled to the housing deduction included in her disposable income calculation. Because this Court finds that the Debtor is entitled to the deduction, the Trustee's objection to confirmation will be overruled.

I. Factual and Procedural Background

Patricia A. Currie (“Debtor”) filed her voluntary petition under Chapter 13 on July 22, 2014. On her Schedule A—Real Property, she disclosed ownership of a modest home in which she resides in Decatur, Illinois, valued at $16,000. On her Schedule J—Expenses, she listed monthly expenses related to her home of $48.33 for insurance, $50 for maintenance and repairs, and a combined $252 for electricity, heat, natural gas, water, sewer, and garbage. The Debtor has no mortgage indebtedness associated with her home.

On her initial Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income (“B22C”), the Debtor deducted $437 at line 25A for Local Standards: Housing and Utilities; non–mortgage expense. She also deducted $651 on line 25B for Local Standards: Housing and Utilities; mortgage/rent expense. The Debtor's disposable income shown on line 59 of her B22C was negative $146.85.

The Debtor's initial Chapter 13 Plan (“Plan”) proposed that she would make $176 per month payments for sixty months for a total of $10,560. From that amount, the Chapter 13 Trustee (“Trustee”) was directed to pay his own commission, fees to the Debtor's attorney of $2929, and a priority claim of the Internal Revenue Service (“IRS”) in the amount of $6451. The Plan provided that any funds remaining after the specifically identified payments were made should be distributed to unsecured creditors pro rata.

The IRS objected to the Plan asserting that its priority claim should be paid in the amount of $11,133.87 rather than the lower sum suggested by the Debtor. Although the Debtor initially objected to the IRS's claim, she later withdrew the objection and filed an Amended Plan. In her Amended Plan, the Debtor proposed payments of $176 for four months and $267 for an additional fifty–six months for a total of $15,656. The Amended Plan increased the proposed distribution to the IRS to $11,133.87 but in other respects is virtually identical to the original Plan.

After the Amended Plan was filed, the Trustee filed an objection to the Debtor's B22C. The Trustee claimed that the Debtor had improperly deducted the $651 Local Standard for mortgage/rent expense and he asserted that she was not entitled to the deduction because she had no mortgage indebtedness related to her home. The Trustee also asserted that there were other errors on the B22C—some of which, if corrected, would actually work to the Debtor's benefit—and calculated that the Debtor's monthly disposable income was actually $572.95 rather than the negative $146.85 she had calculated. The Trustee also filed an objection to confirmation of the Amended Plan and, relying on his objection to the B22C, argued that confirmation should be denied because the Debtor was not committing all of her projected disposable income to the payment of her unsecured creditors.

The Debtor subsequently filed an Amended Schedule J adding a $50.33 per month expense for real estate taxes and reducing her combined utilities to $234 per month. The Debtor's expenses for insurance and repairs and maintenance remained the same. The Debtor also filed an Amended B22C incorporating some of the changes suggested by the Trustee but continuing to claim the $651 mortgage/rent deduction.¹ On her Amended B22C, the Debtor calculated her disposable income as negative $78.05.

At an initial hearing, the parties agreed that the issue of applicability of the mortgage/rent deduction was a legal issue and a briefing schedule was set. After the initial briefs were filed, this Court decided that further briefing would be helpful on the issue of whether the division of the IRS Local Standard for Housing and Utilities on the B22C form into two subcategories when the IRS Local Standard itself makes no such division was consistent with the Code. The Debtor had raised the issue in her final brief but the Trustee had not fully addressed the issue in his brief. In an order requesting supplemental briefing, the Court invited the United States Trustee (“UST”) to participate in addressing the pending issues.

The UST filed a brief on the issue joining the Debtor in arguing that the mortgage/rent deduction was properly taken by the Debtor on her B22C. The Trustee filed a supplemental brief maintaining that the deduction should not be allowed. The issue is ready for decision.

II. Jurisdiction

This Court has jurisdiction over the issues before it pursuant to 28 U.S.C. § 1334. All bankruptcy cases and proceedings filed in the Central District of Illinois have been referred by the District Court to the bankruptcy judges.

CDIL–LR 4.1 ; 28 U.S.C. § 157(a). Determination of whether a plan should be confirmed is a core proceeding. 28 U.S.C. § 157(b)(2)(L). The issue of plan confirmation also “stems from the bankruptcy itself” and arises specifically under the provisions of the Code and therefore may be constitutionally decided by a bankruptcy judge. Stern v. Marshall, –––U.S. ––––, 131 S.Ct. 2594, 2618, 180 L.Ed.2d 475 (2011).

III. Legal Analysis

Generally, if an objection has been filed, a Chapter 13 plan must provide for contribution of all of a debtor's projected disposable income for the applicable commitment period to the payment of unsecured creditors. See 11 U.S.C. § 1325(b)(1)(B). The term “disposable income” is defined, in part, as a debtor's current monthly income “less amounts reasonably necessary to be expended” for the current maintenance and support of the debtor and the debtor's dependents. 11 U.S.C. § 1325(b)(2)(A)(i). For above–median income debtors, the “amounts reasonably necessary to be expended” are “determined in accordance with subparagraphs (A) and (B) of section 707(b)(2).” 11 U.S.C. § 1325(b)(3). There is apparently no dispute here that the Debtor has above–median income and is subject to the statutory formula for calculation of her allowable expenses.

The provisions of § 707(b) are commonly known as the “means test” and are also used to determine a debtor's eligibility for Chapter 7 relief. Section 707(b)(2)(A)(ii) provides, in part:

(ii) (I) 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, the dependents of the debtor, and the spouse of a debtor in a joint case, if the spouse is not otherwise a dependent.... Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.

11 U.S.C. § 707(b)(2)(A)(ii)(I).

According to the IRS's website, the Local Standards: Housing and Utilities are derived from data from the U.S. Census Bureau to create a single standard deduction for individuals, based on their county of residence and household size. IRS Collection Financial Standards, http://www.irs.gov/Individuals/Collection–Financial–Standards (last visited Sept. 15, 2015). Taking the Debtor's circumstances here as an example, the allowance for housing and utilities for a household of one in Macon County, Illinois, at the time of the case filing was $1088. Illinois—Local Standards: Housing and Utilities, http://www.irs.gov/Businesses/Small–Businesses–&–Self–Employed/Illinois–Local–Standards–Housing–and–Utilities (last visited Sept. 15, 2015). According to the IRS, the Local Standards: Housing and Utilities “include mortgage or rent, property taxes, interest, insurance, maintenance, repairs, gas, electric, water, heating oil, garbage collection, residential telephone service, cell phone service, cable television, and internet service.” IRS Collection Financial Standards, http://www.irs.gov/Individuals/Collection–Financial–Standards (last visited Sept. 15, 2015).

Notwithstanding the IRS's issuance of one Local Standard for Housing and Utilities, the Official Forms required for calculating a Chapter 13 debtor's disposable income draw a distinction between mortgage/rent expenses and other housing related expenses. The B22C, completed by the Debtor at the time she filed her petition, separates Local Standards: Housing and Utilities into “non–mortgage expenses” on line 25A and a “mortgage/rent expense” on line 25B. Official Form 22C–2, implemented later in 2014 and completed by the Debtor in amending her disposable income calculation, separates the Local Standard: Housing and Utilities into “Insurance and operating expenses” on line 8 and “Mortgage or rent expenses” on line 9. Neither form provides an explanation of the specific expenses intended to be included on each line, but both forms refer debtors to the U.S. Trustee Program's website for more information.

In the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPC...