In re Grabarczyk

In Re: Anthony R. Grabarczyk and Bethany A. Grabarczyk, Debtors.

Case No. 10-37007

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO WESTERN DIVISION

Dated: March 15 2012

The court incorporates by reference in this paragraph and adopts as the findings and orders of this court the document set forth below. This document has been entered electronically in the record of the United States Bankruptcy Court for the Northern District of Ohio.

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Mary Ann Whipple

United States Bankruptcy Judge

JUDGE MARY ANN WHIPPLE

MEMORANDUM OF DECISION AND ORDER

DENYING CONFIRMATION OF AMENDED CHAPTER 13 PLAN

This case came before the court for hearing on confirmation of Debtors' proposed Amended Chapter 13 Plan [Doc. # 83]. Debtors, their attorney, and counsel for the Chapter 13 Trustee appeared in person. At the hearing, the Chapter 13 Trustee orally objected to confirmation, arguing that the Amended Plan does not meet the disposable income test of 11 U.S.C. § 1325(b)(1)(B). For the reasons that follow, the court agrees. The court will, therefore, sustain the Trustee's objection and deny confirmation of the Amended Plan.

BACKGROUND

The following facts are not in dispute. Debtors filed a joint petition for relief under Chapter 7 of the Bankruptcy Code on October 13, 2010. Their motion to convert to a Chapter 13 case was granted on March 16, 2011. Debtors' bankruptcy schedules filed after conversion show assets that include real property located at 2416 Portsmouth, Toledo, Ohio, owned jointly by Debtors and that is subject to a mortgage inexcess of the stated value of the property, and rental property located at 3417 Downing, Toledo, Ohio, owned by Anthony Grabarczyk, together with two other partners. Relief from stay has been granted as to the Portsmouth property, Debtors' mortgage has been foreclosed and the property has been sold. [Doc. # 56, Schedule A, p. 3/37]. The Downing property is subject to a mortgage for which Anthony Grabarczyk is jointly and severally liable.

Debtors' schedules also show assets that include, among other things, a 2007 Chevy Silverado, a John Deere tractor that Debtors have since surrendered, and a 2008 Saturn Aura, which was a leased vehicle that Debtors have surrendered after expiration of the lease term. [Id., Schedule B, p. 6/37]. After surrendering the Saturn, Debtors purchased a ten-year-old vehicle that they own free and clear of any lien.

Debtors' Schedule I shows gross monthly wages in the amount of $10,354, income from real property in the amount of $82, and payroll deductions that include monthly payroll taxes and social security withholdings in the total amount $2,550. [Id., p. 20/37]. Their Schedule J includes a tax expense of $40, which represents an annual shortfall on income taxes withheld from Debtors' wages, and 401(k) plan loan payments of $731, which represents the total monthly payment on four separate loans, each of which will be paid off at different times during the term of the proposed Amended Plan. Their Schedule J does not include a mortgage expense for the Downing rental property and they indicate that the rent collected on the rental property covers the monthly mortgage payment due. [See id., pp. 20, 22-23/37].

Debtors filed their Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income on Official Form B22C, also known as the means test. Part I of Form B22C reflects a debtor's average income during the six calendar months before filing the bankruptcy petition. Debtors report total monthly income of $11,069, which includes net rental income from the Downing property of $80. [Doc. # 65]. Because their income is above the applicable median income for a household the size of Debtors' in Ohio, as set forth in Part II, they were also required to complete Part III of the form, which includes a calculation of deductions from income that are allowed under 11 U.S.C. § 707(b)(2).

Debtors deduct from their income on Form B22C total expenses in the amount of $11,287.72, resulting in monthly disposable income shown on line 59 of a negative $218.72. Their deductions include vehicle operation expense deductions on line 27A for two vehicles in the amount of $420, a vehicle ownership/lease expense deduction on line 28 in the amount of $168.31 ($496 IRS Local Standard less secured debt payment of $327 on the Chevy Silverado), and an ownership/lease expense deduction on line29 for a second vehicle in the amount of $229 ($496 IRS Local Standard less secured debt payment of $267 on the Saturn Aura).¹ On line 30, Debtors deduct $2,074 as their total average monthly expense actually incurred for all federal state and local taxes that include income taxes, social security taxes and Medicare taxes. On Line 47, Debtors deduct secured debt payments of $267 for the Saturn Aura, $617 for the Portsmouth property, $100 for the John Deere tractor, and $678 for the Downing rental property. Debtors also deduct $314.31 on line 49 for payments on prepetition priority claims and $20.70 on line 50 for Chapter 13 administrative expenses. The claims bar dates have passed. The claims register shows that $18,348.66 in priority unsecured claims have been filed.

In their Amended Plan, Debtors propose a sixty-month plan with payments beginning at $270 per month for twenty-three months and increasing to $605 per month for six months and then $670 per month for thirty-one months, for total plan payments of $34,410. [Doc. # 83, ¶ 1]. The Amended Plan provides that Debtors surrender the Saturn Aura, the John Deere tractor, and the Portsmouth property and that the mortgage on the Downing rental property be paid outside the plan by Debtors and their co-debtors. It indicates that unsecured creditors will be paid a dividend of 4%. [Id., ¶ 4(d)(2)].

LAW AND ANALYSIS

The Trustee objects to Debtor's pending proposed amended Chapter 13 plan, arguing that it fails to meet the projected disposable income test set forth in 11 U.S.C. § 1325(b)(1)(B). While the objecting party has the initial burden to produce evidence in support of an objection, "[debtors have the ultimate burden of proof to show the requirements of 11 U.S.C. § 1325 have been met." In re Lofty, 437 B.R. 578, 584 (Bankr. S.D. Ohio 2010); In re McCarthy, 376 B.R. 819, 821 (Bankr. N.D. Ohio 2007); see also Harbin v. Caldwell (In re Caldwell), 895 F.2d 1123, 1126 (6th Cir.1990); Ed Scar & Sons, Inc. v. Francis (In re Francis), 273 B.R. 87, 91 (B.A.P. 6th Cir. 2002).

Section 1325(b)(1)(B) provides that if a trustee objects to confirmation of a plan, unless unsecured creditors' claims will be paid in full, the court may not approve the plan unless "as of the effective date of the plan . . . the plan provides that all of the debtor's projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan." 11 U.S.C. § 1325(b)(1)(B) (emphasis added). In determining whether all of a debtor's projected disposable income will be applied to make planpayments to unsecured creditors, the court "begins] by calculating disposable income, and in most cases, nothing more is required." Hamilton v. Lanning, – U.S.–, 130 S. Ct. 2464, 2475 (2010). However, the court may go further and "may account for changes in the debtor's income or expenses that are known or virtually certain at the time of confirmation." Id. at 2478.

"Disposable income" is defined with respect to above-median income debtors, such as Debtors in this case, in § 1325(b)(2) and (3). Those sections provide that "disposable income" means current monthly income ("CMI"), as defined in § 101(10A) and limited in § 1325(b)(2), less amounts reasonably necessary to be expended for the maintenance and support of debtor and debtor's dependents as determined in accordance with the means test set forth in 11 U.S.C. § 707(b)(2)(A) and (B). Official Form B22C facilitates this calculation, id. at 2470, n.2, thus yielding monthly disposable income as defined in § 1325(b)(2) and (3).

The Chapter 13 Trustee objects to Debtors' calculation of disposable income on their Form B22C. Specifically, the Trustee objects to Debtors' ownership/lease expense deduction for a second vehicle on line 29, the secured debt deduction for the Saturn Aura that they have surrendered on line 47b, the deductions on lines 47c and 47d for secured debt relating to the Portsmouth property and John Deere tractor, both of which Debtors have surrendered, and the deduction on line 47e for the secured debt payment relating to the Downing rental property. In addition, the Trustee asserts that deductions for payments on prepetition priority claims and Chapter 13 administrative expenses of $314.31 and $20.70, respectively, must be added to Debtors' monthly disposable income on line 59 of Form B22C to arrive at the proper Chapter 13 monthly plan payment.²

Debtors assert, among other things, that certain deductions are understated. Specifically, they assert that their line 55 deduction in the amount of $469 for qualified retirement deductions should be $731, the actual monthly amount required to be paid, and that they are entitled to an additional vehicle operation expense deduction of $200 for the car recently purchased by them since it is a ten-year-old vehicle.

I. Monthly Disposable Income Under the Means Test

A. Vehicle Ownership/Lease Expense Deduction

Under the means test calculation of disposable income, a debtor is entitled to deduct from CMI the debtor's "applicable monthly expense amounts specified under the National Standards and Local Standards.. . ." 11 U.S.C. § 707(b)(2)(A)(ii)(I). The Local Standards for transportation include both a vehicle operation expense amount and an ownership/lease expense amount. The Trustee asserts that Debtors are entitled only to the operation expense deduction for their second vehicle and not the ownership/lease deduction...