In re Everhart

607 B.R. 565

IN RE: Michael P. EVERHART and Melissa A. Everhart, Debtors.

Case No. 18-41896-mxn

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

Signed September 17, 2019

Richard M. Weaver, Richard M. Weaver & Associates, Fort Worth, TX, for Debtors.

Pam Bassel, North Richland Hills, TX, for Trustee.

MEMORANDUM OPINION AND ORDER REGARDING THE TRUSTEE'S OBJECTION TO CONFIRMATION OF DEBTORS' CHAPTER 13 PLAN

[ RELATES TO ECF NOS. 20 and 43]

Mark X. Mullin, United States Bankruptcy Judge

Before the Court is confirmation of the Debtors' Plan.¹ The Trustee² filed an Objection³ to confirmation asserting that the Debtors' Plan fails to satisfy the "disposable income" requirement of 11 U.S.C. § 1325(b)(1)(B).⁴ After considering the Plan, the Objection, the Trustee's Brief,⁵ the Debtors' Response Brief,⁶ the Trustee's Reply Brief,⁷ the testimony of witnesses, the exhibits admitted into evidence, other pleadings filed in this case, and the arguments of counsel, the Court finds and concludes that the Trustee's Objection is sustained in part and overruled in part.

I. OVERVIEW

The Trustee asserts that "the Plan fails to meet the ‘disposable income’ requirements of 11 U.S.C. § 1325(b)(1)(B) since the Plan does not propose to pay all of the Debtors' disposable income for the applicable commitment period to the Debtors' unsecured creditors."⁸ The Debtors assert that the Plan should be amended to reduce their monthly disposable income to $234.15, resulting in a reduced unsecured creditors' pool of $14,049.00.⁹ The Trustee, on the other hand, argues that the Debtors' revised monthly disposable income calculation is understated by $1,994.47. Specifically, the Trustee asserts that the following line-item expense deductions on the Debtors' amended Form 122C-2¹⁰ are overstated by the following amounts:

   i.     Line 16 — Taxes:                             $  246.92
   ii.    Line 23 — Optional Telephone Expense:        $   50.00
   iii.   Line 33A — Home Mortgage:                    $1,053.45
   iv.    Line 33B — Vehicle Payment:                  $   23.54
   v.     Line 43 — Special Circumstances Expenses:    $  620.5611 _________
          Total overstatement of expenses              $1,994.47

[Editor’s Note: The preceding image contains the reference for footnote¹¹ ]

II. FACTS

The Debtors filed bankruptcy on May 10, 2018.¹² The Debtors' original Form 122C-1¹³ reveals that they are above-median income earners, and their original Form 122C-2¹⁴ reflected that their monthly disposable income was $436.26, with a resulting unsecured creditors' pool of $26,175.60.¹⁵ Both of those figures are carried over and reflected in the Debtors' Plan.

Shortly before the Plan confirmation hearing, however, the Debtors amended their Schedules I & J¹⁶ and Forms 122C-1 and 122C-2,¹⁷ asserting that their monthly disposable income should be reduced to $234.15.¹⁸ This reduction in monthly income reduced the required unsecured creditors' pool to $14,049.00. In response to the Debtors' amended Form 122C-2,¹⁹ the Trustee's Objection asserts that the Debtors' revised monthly disposable income figure should be increased by $1,994.47, with a corresponding increase in the required unsecured creditors' pool.²⁰

The Debtors financed the purchase of their homestead (the "Home ") over twelve years ago with a first-lien mortgage owed to Wells Fargo Home Mortgage and a second-lien mortgage owed to Citimortgage, both of which liens remain outstanding.²¹ In addition, the Debtors own a 2005 Jeep Wrangler free and clear and a 2017 Jeep Grand Cherokee (the "Vehicle "), which is subject to an outstanding purchase-money lien held by Suntrust Bank.²² Finally, the Debtors also list a 403(b) retirement account in the amount of $26,217.00 (the "403(b) Retirement Account "), but the Debtors' schedules do not list any outstanding loan associated with the 403(b) Retirement Account.²³

III. LEGAL ANALYSIS

As detailed in the Trustee's and the Debtors' extensive briefs,²⁴ the parties cite over sixty court opinions along with several 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 Bankruptcy Code sections relevant to the issues in dispute.²⁵

A. APPLICABLE BANKRUPTCY CODE SECTIONS

The Bankruptcy Code sections relevant in this dispute are §§ 1325(b), 707(b)(2)(A), and 707(b)(2)(B), all of which were enacted in 2005 as part of BAPCPA.²⁶

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.²⁷

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 ...."²⁸ 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)."²⁹ 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 ...."³⁰ 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."³¹ Each of these clauses authorizes a deduction as "a stand-alone expense."³²

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.³³

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

In addition, the debtor's monthly expenses may include an allowance for housing and utilities, in excess of the allowance specified by the Local Standards for housing and utilities issued by the Internal Revenue Service, based on the actual expenses for home energy costs if the debtor provides documentation of such actual expenses and demonstrates that such actual expenses are reasonable and necessary.³⁴

The Debtors' potential monthly deductions under the means test that fall within § 707(b)(2)(A)(ii) are the Debtors' housing and utility expenses and the Debtors' vehicle ownership and operation expenses, all of which are covered in the "Local Standards"³⁵ issued by the IRS. In addition, the Debtors' actual monthly expenses for certain other expenses, including taxes and telephone expenses, are covered within the "Other Necessary Expenses"³⁶ issued by the IRS.

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 60.³⁷

The Debtors' potential deductions under the means test that fall within § 707(b)(2)(A)(iii) are the Debtors' "average monthly payments" on account of their Home mortgage debt and Vehicle secured debt.

3. 11 U.S.C. § 707(b)(2)(B)

The final Bankruptcy Code section relevant in this case is § 707(b)(2)(B), which provides in pertinent part:

(i) In any proceeding brought under this subsection, the presumption of abuse may only be rebutted by demonstrating special circumstances, such as a serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative.

(ii) In order to establish special circumstances, the debtor shall be required to itemize each additional expense or adjustment of income and to provide –

(I) documentation for such expense or adjustment to income; and

(II) a detailed explanation of the special circumstances that make such expenses or adjustment to income necessary and reasonable.

(iii) The debtor shall attest under oath to the accuracy of any information provided to demonstrate that additional expenses or adjustments to income are required.³⁸

The Debtors' potential deductions under...