In re Dumas

608 B.R. 902

IN RE: Jacob Benjamin DUMAS, Debtor.

CASE NO. 18-62934-JWC

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

Signed September 30, 2019

Filed October 1, 2019

Jeffrey B. Kelly, Law Office of Jeffrey B. Kelly, P.C., Rome, GA, for Debtor.

Julie M. Anania, Nancy J. Whaley, Standing Chapter 13 Trustee, Atlanta, GA, for Trustee.

MEMORANDUM OPINION

Jeffery W. Cavender, U.S. Bankruptcy Court Judge

THIS MATTER is before the Court on confirmation of the Chapter 13 Plan (as modified at Doc. No. 29, the "Plan") filed by Jacob Benjamin Dumas ("Debtor"). Nancy J. Whaley, Standing Chapter 13 Trustee ("Trustee") filed objections to confirmation of the Plan at docket numbers 17 and 23. The Court held a confirmation hearing on March 12, 2019. At the hearing, Trustee announced that all objections to the Plan had been resolved except one. The sole remaining issue is whether Debtor may deduct his attorney's fees in calculating the minimum payment to nonpriority unsecured creditors under 11 U.S.C. § 1325(b).¹ Debtor argues that he may. Trustee argues that he may not. The Court allowed the parties to submit additional briefs in support of their positions, which both parties did at docket numbers 35 and 36. The Court has considered the Plan, the record in Debtor's case, the arguments at the confirmation hearing, the briefs submitted by counsel, and the arguments and authority therein. For the following reasons, the Court will overrule Trustee's objection and confirm the Plan.

I. JURISDICTION

The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334. Confirmation of a plan is a core matter pursuant to 28 U.S.C. § 157(b)(2)(L). Venue is proper pursuant to 28 U.S.C. § 1409.

II. INTRODUCTION

To confirm a chapter 13 plan, all chapter 13 debtors must satisfy the requirements of § 1325. At issue in this case are the requirements found in § 1325(b), which provides that, upon objection by the trustee or an unsecured creditor, the court may not confirm a plan unless, as of the effective date of the plan, (1) unsecured creditors will be paid in full or (2) "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." Code § 1325(b)(1). Trustee objected to the Plan and argues Debtor satisfies neither provision. There is no dispute the Plan does not satisfy the first option as Debtor is not paying unsecured creditors in full. Debtor argues he satisfies option 2—the projected disposable income test (or "PDI Test").

The PDI Test "establishes a minimum amount to be paid to unsecured creditors based on a debtor's income and expenditures." Drake, Bonapfel, Goodman, Chapter 13 Practice and Procedure § 8:1 (2019 Ed.). The test has three basic elements: (1) calculation of projected disposable income ("PDI"); (2) determination of the applicable commitment period ("ACP"); and (3) payment of all PDI received during the ACP to "unsecured creditors." The question before the Court is whether Debtor may deduct his attorney's fees in calculating the minimum payment to nonpriority unsecured creditors under the Plan. Debtor offers two theories allowing him to do so. First, he argues he may deduct his attorney's fees in calculating his PDI. Second, he argues that even if he may not deduct the fees in calculating PDI, his attorney is an "unsecured creditor" whose fees may be paid from PDI before nonpriority unsecured creditors. If he is correct on either theory, the Plan is confirmable.

III. BACKGROUND

The facts are not in dispute. Debtor filed a voluntary petition under chapter 13 of the Bankruptcy Code on August 4, 2018 (the "Petition Date"). Before filing, Debtor hired the Law Office of Jeffrey B. Kelly, P.C. ("Attorney") to represent him in his bankruptcy case. Debtor agreed to pay his Attorney $4,500 (the "Attorney's Fees") for such representation. The amount and reasonableness of the Attorney's Fees are not in dispute. Debtor treats the Attorney's Fees in § 4.3 of the Plan. Upon confirmation, the Attorney's Fees will be an allowed administrative expense under § 503(b) to the extent set forth in this Court's General Order 22-2017 and will be entitled to priority pursuant to § 507(a)(2). Trustee will pay the Attorney's Fees pursuant to the Plan and the General Order, which generally provide that the Attorney's Fees will be paid before any other claims except Trustee's fees and unpaid preconfirmation adequate protection payments. The sole source of funding for the Attorney's Fees will be Debtor's Plan payments.

Debtor is an "above-median" debtor. The term "above-median" is not found in the Code, but, in simplified terms, it means Debtor has more current monthly income than the median income of families sharing Debtor's household size and state of residence. See Code § 1325(b)(3). Debtor is a resident of Georgia, has a one-person household, and filed his case on August 4, 2018. The median family income as of August 4, 2018 for a household with one earner in the State of Georgia was $46,104.² Debtor's income is more than $46,104; Debtor is "above-median." Any debtor who has less income than the applicable median family income is "below-median." The difference is significant because the Code requires above-median debtors to calculate PDI differently than below-median debtors.

All debtors must first look to § 1325(b)(2) to calculate PDI. That section defines "disposable income" 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 ...." Code § 1325(b)(2). Debtor's current monthly income is not in dispute. The parties' main dispute is whether Debtor's Attorney's Fees fall within "amounts reasonably necessary to be expended." The Code prescribes nothing further for below-median debtors, and the determination of "amounts reasonably necessary to be expended" is left to debtors, trustees, creditors, and courts to determine on a case-by-case basis. For above-median debtors, however, the Code prescribes that "amounts reasonably necessary to be expended ... shall be determined in accordance with subparagraphs (A) and (B) of section 707(b)(2)." Code § 1325(b)(3). Subparagraphs (A) and (B) of § 707(b)(2), in turn, spell out what is commonly called the "means test."

The means test and its incorporation into the PDI Test for above-median debtors were added to the Code by The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA").³ The means test is the "heart" of BAPCPA and is designed to ensure that debtors who can pay their debts do so.⁴ Subparagraphs (A)(ii), (iii), and (iv) of the means test detail a list of expenses above-median debtors may deduct from current monthly income to calculate monthly disposable income. The only deduction under the means test at issue in this case is found at § 707(b)(2)(A)(iv). That section allows a deduction for "debtor's expenses for payment of all priority claims (including priority child support and alimony claims) [which] shall be calculated as the total amount of debts entitled to priority, divided by 60." Code § 707(b)(2)(A)(iv). Debtor's primary argument is that his Attorney's Fees are a priority claim deductible under this provision of the means test. The Court refers to this proposed deduction as the "means test deduction."

Debtor accomplishes the means test deduction by including his Attorney's Fees as a line item deduction on his amended Official Form 122C-2, Chapter 13 Calculation of Your Disposable Income ("Form 122C-2") filed at docket number 28. Bankruptcy Rule 1007(b)(6) requires above-median debtors to file "a calculation of disposable income made in accordance with § 1325(b)(3), prepared as prescribed by the appropriate Official Form." Fed. R. Bankr. P. 1007(b)(6). Form 122C-2 is the appropriate Official Form for above-median debtors to take applicable deductions under the means test and is designed to track the deductions listed in § 707(b)(2)(A).⁵

Line 35 of Form 122C-2 provides a deduction for "priority claims – such as a priority tax, child support, or alimony – that are past due as of the filing of the bankruptcy case." Line 35 of Debtor's amended Form 122C-2 takes a deduction of $7,651, which includes $3,151⁶ for two priority tax claims and $4,500 for the Attorney's Fees. With the Attorney's Fees included in the deduction, Debtor calculates his monthly disposable income at $639.49. Debtor multiplies this monthly income by 60 (his ACP) to get a total PDI of $38,360.40, which Debtor proposes to pay to nonpriority unsecured creditors under the Plan.

Trustee's only objection is that Debtor may not include the Attorney's Fees in line 35 or anywhere else in Form 122C-2. Trustee contends that neither Form 122C-2 nor the Code allow any deduction for attorney's fees when calculating disposable income. Trustee is correct that line 35 of Form 122C-2 excludes chapter 13 attorney's fees, as the Committee Notes make clear:

Priority debt, deductible pursuant to § 707(b)(2)(A)(iv), is treated on a single entry line, also requiring division by 60. The instruction for this line makes clear that only past due priority debt—not anticipated debts—should be included. Thus, future support or tax obligations, and future fees that might be payable to a Chapter 13 debtor's attorney, are not included.

Official Form 122 (Committee Note C.2). If Attorney's Fees are excluded from the deduction, Debtor's monthly disposable income becomes $714.49, which Trustee multiplies by 60 to get a total PDI of $42,869.40. Thus, deducting the Attorney's Fees in line 35 results in a dollar-for-dollar reduction of total PDI.

In response, Debtor argues that even if Trustee is correct that Form 122C-2 and § 707(b)(2)(A)(iv) do not allow the means test deduction, he may treat his Attorney as an "unsecured creditor" under § 1325(b)(1)(B) and pay the...