In re Garcia

1

In re: FRANK JESUS GARCIA, Debtor.

No. 22-19725-RAM

United States Bankruptcy Court, S.D. Florida, Miami Division

November 27, 2023

Chapter 13

Michael A. Frank, Esq.

Law Offices of Michael A. Frank and Rodolfo H. De La Guardia, Jr.

(Counsel for Debtor)

Nancy K. Neidich, Esq.

Standing Chapter 13 Trustee

ORDER SUSTAINING TRUSTEE'S OBJECTION TO CONFIRMATION

Robert A. Mark, Judge

The debtor in this chapter 13 case owns two vehicles. He valued and stripped down the secured debt on one vehicle and his plan includes a substantial reduction in the interest rate for both vehicle debts. As a result, his plan provides for monthly payments to both lenders that are less than half of what he was obligated to pay on the petition date under the loan agreements. The chapter 13 trustee objects to confirmation of the debtor's plan. To rule on the objection, the Court must answer the following question: In calculating projected disposable income, may an above-median income chapter 13 debtor deduct from current monthly income (a) the average future monthly payments to the secured creditors based upon the original, unmodified contract, or (b) the greater of the IRS Local Standard and the amount that the debtor is paying on the reduced secured debt in his plan?

The answer affects this debtor's projected disposable income and, therefore, the amount he must pay to general unsecured creditors under § 1325(b)(1)(B) of the Bankruptcy Code. This sounds easy, right? The debtor's reduced expenses should be the relevant figures because the reduction in his actual vehicle expenses will increase his actual projected disposable income for the benefit of his unsecured creditors. Not so fast. Determining the debtor's allowable vehicle expenses requires an analysis of several provisions added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). This exercise may be likened to driving a car with four different-sized tires. Whichever road you choose will be bumpy, so buckle up.

Factual and Procedural Background

The Court conducted a hearing on July 18, 2023 to consider confirmation of the Third Amended Chapter 13 Plan of Reorganization [DE #90] filed by Frank Jesus Garcia (the "Debtor"). The chapter 13 trustee (the "Trustee") raised several objections to confirmation in the Trustee's Notice of Deficiency for Confirmation and Recommendation [DE #95]; however, the Trustee limited her argument at the July 18th hearing to the legal issue described in the introduction to this Order.^[1] Restating the issue: In calculating projected disposable income, is the Debtor entitled to deduct vehicle payments in the amount of the monthly contractual payment in effect on the petition date, or must he limit his deduction to the lower monthly payments he proposes to pay in his plan? The Court ordered briefing on the legal issue and has reviewed the memoranda filed by the Debtor and the Trustee. See DE #103 and 104. On July 25, 2023, the Debtor filed his Fourth Amended Chapter 13 Plan of Reorganization [DE #100] (the "Plan") and the Trustee filed the Trustee's Notice of Deficiency and Recommendation [DE #105]. The Court held a further hearing on August 15, 2023 to consider confirmation of the Plan and took this matter under advisement.

Here are the additional facts relating to the two vehicles: On December 21, 2022 (the "Petition Date"), the Debtor filed a voluntary chapter 13 petition. On June 14, 2023, the Debtor filed an Amended Official Form 122C-1 Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period [DE #75] ("Form 122C-1"), which calculated the Debtor's current monthly income, as averaged from the six-month period prior to the Petition Date, at $9, 100.00 per month. Because that amount, multiplied by twelve, is greater than the median family income for the state of Florida for a family of five, the Debtor's disposable income is determined in accordance with § 707(b)(2) of the Bankruptcy Code (otherwise known as the means test) and the applicable plan commitment period is five (5) years. See 11 U.S.C. §§ 1325(b)(3)-(4). Also on June 14, 2023, the Debtor filed an Amended Official Form 122C-2 Calculation of Your Disposable Income [DE #76] ("Form 122C-2"), which calculated his monthly disposable income at negative $118.00. To arrive at that figure, the Debtor subtracted total monthly deductions in the amount of $9, 218.00 from his $9, 100.00 in current monthly income. The Trustee objects to the Debtor's calculations used to arrive at his total monthly deductions, most importantly, his vehicle expenses.

Under the Plan, the Debtor proposes to pay $598.63 per month for months 37 through 60 to general unsecured creditors, for a total of $14, 367.12. According to the Trustee, the total amount of allowed general unsecured claims totals $41, 209.26. As noted in the introduction, the Trustee objects to confirmation of the Plan arguing that the Debtor may only deduct from current monthly income the actual vehicle expenses he is paying in the Plan, thereby increasing the amount available to pay to unsecured creditors. The objectionable vehicle expenses relate to a 2016 Cadillac Escalade and a 2015 Ford F150.

2016 Cadillac Escalade

American Credit Acceptance, LLC ("American Credit") filed proof of claim no. 8 in the amount of $28, 663.43 secured by a 2016 Cadillac Escalade (the "Cadillac"). The proof of claim asserts that the value of the Cadillac, and the amount of American Credit's secured claim, is $28, 633.43. The proof of claim asserts an annual interest rate of 24.10%. However, pursuant to the Court's Order Sustaining Debtor's Objection to Claim No. 8 Filed by American Credit Acceptance, LLC [DE #59], the Court allowed American Credit's secured claim in the amount of $28, 633.43 but reduced the annual interest rate to 6.25% "for a total amount of $33, 413.46, to be paid over the life of the Plan." See DE #59 at ¶ 1. The Plan provides for payment of this amount over 60 months, at $556.90 per month. Because the Debtor was able to substantially reduce the interest rate, the monthly Plan payment is less than one-half of the monthly contract payment of $1, 194.68 in effect on the Petition Date. As of the Petition Date, there were only 48 payments remaining under the contract.

On Form 122C-2 [DE #76], the Debtor deducts the contract payment of $1, 200 per month for the Cadillac. He argues that the full amount of the payment under the loan agreement, $1, 194.00 per month, may be deducted from his current monthly income pursuant to § 707(b)(2)(A)(iii)(I). As stated earlier, in the Plan, the Debtor is paying the full amount of the secured claim as filed but at a reduced interest rate of 6.25%. The reduced interest rate results in monthly payments of only $556.90 for 60 months. Therefore, using the contract rate substantially reduces the projected disposable income yielding a number more than $600 per month lower than his actual income.

The Trustee argues that the Debtor is only permitted to deduct the IRS standard deduction of $588.00 per month for the Cadillac pursuant to § 707(b)(2)(A)(ii)(I). Therefore, the Trustee argues that the Debtor is deducting an additional $612.00 per month from his disposable income ($1, 200 - $588 = $612).

Alternatively, the Trustee argues that the Debtor may only deduct the actual payments on the secured claim as provided in the Plan from his monthly disposable income and, therefore, the Debtor is only permitted to deduct $556.90 per month for the Cadillac pursuant to § 707(b)(2)(A)(iii)(I). If this number is used, the Debtor is deducting an additional $643.10 per month from his disposable income than he is actually paying for the Cadillac through the Plan ($1, 200 - $556.90 = $643.10).

The Trustee also argues that, even if the Court finds that the Debtor may deduct the contract payment from his monthly disposable income pursuant to § 707(b)(2)(A)(iii)(I) despite the lower, actual monthly payment proposed in the Plan, the Debtor is still deducting the incorrect amount from his monthly disposable income based upon the number of post-petition payments remaining on the loan. This alternative argument is discussed in further detail later in this Order.

2015 Ford F150

Westlake Services, LLC ("Westlake") filed proof of claim no 6 in the amount of $43, 650.15 partially secured by a 2015 Ford F150 (the "Ford"). The proof of claim asserts that the value of the Ford, and the amount of Westlake's secured claim, is $21, 440, leaving an unsecured balance of $22, 210.15. The proof of claim asserts an annual interest rate of 22.29%. The monthly contract payment was $832.75 beginning September 20, 2018 through September 20, 2024. As of the Petition Date, there were only 20 payments remaining under the contract.

On Form 122C-2 [DE #76], the Debtor deducts the contract payment of $832 per month for the Ford from his current monthly income pursuant to § 707(b)(2)(A)(iii)(I). However, in the Plan, the Debtor provides that the value of the Ford, and the amount of Westlake's secured claim, is $20, 000 with an interest rate of 6.25%.^[2] The Plan, therefore, provides that the total amount of this secured claim to be paid through the Plan is $23, 339.40, with monthly payments of only $388.99 for 60 months.

The Trustee argues that the Debtor is only permitted to deduct the IRS standard deduction of $588.00 per month for the Ford pursuant to § 707(b)(2)(A)(ii)(I). Therefore, the Trustee argues that the Debtor is deducting an additional $244.00 per month from his disposable income ($832 - $588 = $244).

Alternatively the Trustee argues that the Debtor may only deduct the actual payments on the secured claim as provided in the Plan from his...