In re Gonzalez

Page 292

388 B.R. 292

In re Jorge Luis GONZALEZ; aka George Gonzalez, Sandra Gonzalez; fka Sandra Perez, Debtors.

No. 07-36802.

United States Bankruptcy Court, S.D. Texas, Houston Division.

July 3, 2008.

COPYRIGHT MATERIAL OMITTED

William David Weber, Weber Law Firm, Houston, TX, for Debtors.

Richard W. Aurich, Jr., Office of David G. Peake, Ch. 13 Trustee, Houston, TX, for Trustee.

AMENDED MEMORANDUM OPINION

MARVIN ISGUR, Bankruptcy Judge.

Summary

Jorge and Sandra Gonzalez filed their third chapter 13 petition on October 1, 2007. The Gonzalezes timely filed a chapter 13 plan on October 16, 2007. The Gonzalezes' plan proposed to cure payment arrearages on their home in Tomball, Texas. About one month later, the Gonzalezes decided to surrender their Tomball home. Nevertheless, the Gonzalezes' projected disposable income analysis included payments on the home. The Bankruptcy Code requires debtors to devote their projected disposable income to their chapter 13 plan. 11 U.S.C. § 1325(b).

The Gonzalezes and David Peake, the chapter 13 trustee, dispute how the Court should consider future payments contractually due on the to-be-surrendered home when the Court determines the Gonzalezes' projected disposable income. Because the Gonzalezes have income that is above the median income for the state of Texas, the Court must resolve the dispute under § 1325(b)(1)-(3).

Trustee Peake contends that, as a matter of law, the Court should not consider the future payments. Rather, the Court should consider the Gonzalezes' circumstances as of the plan confirmation date and allow only those payments being made on the confirmation date. The Gonzalezes contend that, as a matter of law, the Court must consider the future payments. Under the Gonzalezes' view, the Court must allow all payments contractually due on the petition date.

Essentially, both parties adopt a "snapshot" view of § 1325(b)'s projected disposable income calculation. Their views differ largely over when the picture should be taken. Trustee Peake contends that the "snapshot" is taken on the confirmation date. The Gonzalezes contend that the "snapshot" is taken on the petition date. The Court rejects both views. Section 1325(b) requires courts to take a motion-picture view. A chapter 13 case is not a static "snapshot." A chapter 13 case is a moving saga.

For the reasons set forth in this Memorandum Opinion, the Court concludes that the Gonzalezes' payment amount is a mixed question of law and fact. The Court holds:

• Trustee Peake's objection to the Gonzalezes' currently proposed plan is sustained.

• If the Gonzalezes propose an amended plan, and an objection is filed, the Court will conduct an evidentiary hearing. The Gonzalezes' allowed deductions will depend on the projected circumstances shown at the evidentiary hearing.

• The Gonzalezes may deduct future home mortgage payments for the period during which the home is projected to be retained.

• The Gonzalezes may deduct the mortgage and rental expense allowed by § 707(b) for the period during which they have no projected payments on debt secured by a home.

• If the Court projects that the Gonzalezes will incur secured debt to purchase a replacement home, the Gonzalezes may deduct payments on the new debt for the appropriate period.

Background

The Gonzalezes, like all chapter 13 debtors, were required to file various documents. The documents included a schedule of current income and expenditures (§ 521(a)(1)(B)(ii)), and a statement of their monthly net income, itemized to show how the amount was calculated (§ 521(a)(1)(B)(v)). The Official Forms for the first requirement are Schedules I and J. The Official Form for the second requirement is Form B22C.

Courts use Form B22C to evaluate a debtor's compliance with § 1325(b)(1). If the trustee or the holder of an allowed secured claim objects to confirmation, § 1325(b)(1) requires debtors either to devote all of their "projected disposable income" to their chapter 13 plan or to pay holders of unsecured claims in full. Form B22C utilizes various formulas to calculate disposable income. The Gonzalezes' initial Form B22C projected disposable income calculation resulted in negative $1,815.00 per month. Based on this negative projected disposable income, the Court could confirm a chapter 13 plan that proposed to pay unsecured creditors nothing.

The Gonzalezes' schedules I and J showed a different financial reality. The Gonzalezes' schedules I and J estimated an average monthly income of $7,464.73 and expenses of $6,401.00. The difference between the Gonzalezes' excess income under their schedules and their Form B22C arises largely from inclusion of payments on the Tomball home on their Form B22C. Debtors' Form B22C calculation included forecasted monthly payments of $4,539.00 on the home.

However, the Gonzalezes will never make an actual payment on the to-be-surrendered home during their plan period. Prior to a hearing on their proposed plan, the Gonzalezes chose to surrender the Tomball home and lease a new residence.¹ On January 2, 2008, the holder of the deed of trust on the home filed a motion for relief from the stay (docket no. 51). The Gonzalezes did not oppose the motion. The Court granted the motion on February 1, 2008.

On December 11, 2007, Trustee Peake filed an Objection to Confirmation of the Gonzalezes' plan (docket no. 43). Trustee Peake alleges that the Gonzalezes' Form B22C contains miscalculations that erroneously reduce the Gonzalezes' disposable income. Trustee Peake alleges that the Gonzalezes overestimated certain taxes listed on line 30 in the amount of $1,831.00, and improperly deducted mortgage payments for the Tomball home. During the initial hearing on Trustee Peake's objection, the parties agreed that the mortgage payment issue was dispositive. The disputed tax amounts will not affect this proceeding's. outcome if the Gonzalezes are entitled to the mortgage deductions. The Court will consider the tax issue during the confirmation hearing if an amended plan is filed. On March 25, 2008, the Court continued the plan confirmation hearing and requested briefing on the issue of whether the debtor's Form B22C projected disposable income calculation may include payments on a surrendered home.

The mortgage payment deductions significantly impact the amount unsecured creditors will be paid. The Gonzalezes' amended plan proposes to pay $1,060.00 per month to the chapter 13 trustee. The payments are almost exclusively devoted to IRS taxes, bankruptcy attorney fees, and loans on two vehicles. The Gonzalezes propose to pay unsecured creditors 1% of an estimated $70,293.96 in total unsecured claims, or $522.64 over the course of the 60-month plan.

If the Court sustains Trustee Peake's objections, the Gonzalezes would not be allowed the $4,539.00 monthly home mortgage deductions. Instead, the Gonzalezes would be allowed only the housing deduction allowed for a family of five pursuant to § 707(b). As of the Gonzalezes' petition date, that amount was $1,012.00 per month. This one change would increase the Gonzalezes' disposable income by $3,527.00.² The Gonzalezes' original Form B22C reflected negative monthly disposable income of $1,815.00. Trustee Peake's adjustment would produce a positive monthly disposable income of $1,712.00, without considering the tax issue.³ The adjustment would result in a plan that pays unsecured creditors 100% of their $70,293.96 in claims.⁴

Jurisdiction

This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A). Venue is proper under 28 U.S.C. § 1408.

Law

To resolve this case, the Court must analyze multiple detailed statutory provisions that have been subject to inconsistent interpretations.

"The starting point in discerning congressional intent is the existing statutory text." Lamie v. U.S. Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004) (citing Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438, 119 S.Ct. 755, 142 L.Ed.2d 881 (1999)). "It is well established that `when the statute's language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms.'" Id. (quoting Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A, 530 U.S. 1, 6, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000)). "The plain meaning is not conclusive if `the literal application of a statute will produce a result demonstrably at odds with the intention of its drafters.'" U.S. v. Ron Pair Enters., Inc., 489 U.S. at 242, 109 S.Ct. 1026 (quoting Griffin v. Oceanic Contractors Inc., 458 U.S. 564, 571, 102 S.Ct. 3245, 73 L.Ed.2d 973 (1982)).

Analysis of § 1325(b)

A wealth of published opinions analyze calculation of projected disposable income under § 1325(b)(1)(B). Most opinions carefully consider presumed legislative policy and focus on selected language from portions of § 1325(b). Yet the opinions are uniform neither in result nor in reasoning.

Section 1325(b)'s language is difficult to parse. This Court has developed a flow chart that gives meaning to and integrates each provision of § 1325(b). Individual segments of the flow chart are included throughout this Memorandum Opinion. Appendix A to this Memorandum Opinion contains a unified flow chart. Appendix B reproduces § 1325(b) in its entirety. Appendix C reproduces § 707(b)(2)(A)-(B).

The Court's interpretation of § 1325(b)(1)(B)'s projected disposable income requirement is set forth below.

A. Triggering the Projected Disposable Income Requirement

The first question is whether § 1325(b)(1)(B)'s projected disposable income requirement has been invoked. To invoke the requirement, two events must occur: (i) an objection; and (ii) less than 100% payment of unsecured claims. 11 U.S.C. § 1325(b)(1)(A)-(B).

NOTE: OPINION CONTAINING TABLE OR OTHER DATA THAT IS NOT VIEWABLE

Section 1325(b) only...