In re Joest

450 B.R. 381

In re Karen S. JOEST, Debtor.

No. 10–60028.

United States Bankruptcy Court, N.D. New York.

March 18, 2011.

Maxsen D. Champion, Esq., Syracuse, NY, Staff Attorney for Chapter 13 Trustee.Steven R. Dolson, Esq., Syracuse, NY, Attorney for Debtor.

MEMORANDUM–DECISION AND ORDER

DIANE DAVIS, Bankruptcy Judge.

Before the Court is the Chapter 13 Trustee's (“Trustee”) objection to confirmation of Karen Joest's (“Debtor”) proposed Chapter 13 plan pursuant to 11 U.S.C. § 1325(b)(1)(B).¹ The narrow issue presented to this Court is whether in above median income cases a debtor's reasonably necessary expenses are defined solely by § 707(b)(2), as incorporated in § 1325(b)(3), or does this Court retain the discretion to separately inquire as to the reasonable necessity of a specific expense under § 1325(b)(2). Debtor is an above median income single individual who seeks to retain two encumbered vehicles that she is making payments on. The Trustee contends that under § 1325(b)(2) it is neither reasonable nor necessary for this above median income Debtor to repay two vehicles under § 1325(b)(3). In response, Debtor argues that the “ownership costs” are “applicable” to her by virtue of her above median income status, geographical region, and the number of vehicles she actually owns. Based on the within reasoning, the Court overrules the Trustee's objection.

JURISDICTION

The Court has core jurisdiction over the parties and subject matter of this contested matter pursuant to 28 U.S.C. §§ 157(a), (b)(1), (b)(2)(L), (b)(2)(O) and 1334.

FACTS

On January 6, 2010, Debtor filed her voluntary chapter 13 petition, proposed plan, schedules (collectively, “Petition”) and Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income (hereinafter “Form 22C”), the last of which is otherwise known as the “means test.” Pursuant to the information contained on the Form 22C, the Debtor is an above median income debtor.²

Debtor's proposed Chapter 13 plan, filed on January 6, 2010 (“Plan”), includes a sixty-month term and a pro rata distribution to general unsecured creditors equal to 17% on allowed claims. The Plan provides for payments of $140 per month from February 2010 to January 2011, $465 per month from February 2011 through July 2014, and $545 from August 2014 through January 2015, for a total of $21,210.00 over the five year period. The proposed increase in the monthly plan payments corresponds with the repayment in full of two loans that Debtor proposes to pay “outside” the Plan.

Debtor is single and unmarried and has no dependents. As an above median income debtor, pursuant to § 1325(b)(3) she must use Form 22C to determine reasonably necessary expense deductions that are applicable to her under § 707(b)(2). On Schedule B of the Petition, Debtor lists an ownership interest in two vehicles, both of which she seeks to retain. The first vehicle, a Toyota Rav 4, has an alleged value of $11,914.00 and the payoff on this vehicle is $3,919.00. This vehicle will be paid in full within the first year, which amount is reflected by the first increase in Plan payments. The second vehicle, a 1998 BMW Z3, will be paid through the Plan by way of a “cram down” at $4,465.00 subject to a 5% interest rate. Debtor's pre-petition monthly payments as reported on Schedule J of the Petition, were $212.75 for the Toyota and $66.41 for the BMW, respectively. Debtor also proposes to pay pre-petition tax arrears through the Plan and to make ongoing mortgage payments on her residence outside the Plan.

In calculating her “projected disposable income” under § 1325(b)(1)(B), Debtor claims the following monthly deductions for two vehicles on Form 22C in accordance with the Internal Revenue Service's (“IRS”) National and Local Standards ³ in effect at the time Debtor sought relief under the Code: (1) a $470 operation cost deductions for two or more vehicles on Line 27A, (2) a $422.59 ownership expense deduction for her Toyota on Line 28, (3) a $276.25 ownership expense deduction for the BMW on Line 29, and (4) a $212.75 amortized deduction on Line 47 for the automobile loan on the BMW and $66.41 for the Toyota.⁴ These deductions, coupled with other national and local deductions enumerated under § 707(b)(2) and incorporated by reference in § 1325(b)(3), result in a negative monthly projected disposable income of $28.68 per month on line 58 of Debtor's Form 22C. Debtor's Schedule F of the Petition lists a total of $66,639.00 in non-priority unsecured debt. Specifically, Trustee objects to the ownership cost associated with the second vehicle, the BMW.

The Court first heard this contested matter during its regular confirmation calendar on March 2, 2010, in Utica, New York. Thereafter, the parties submitted memoranda of law on this issue of first impression. On May 6, 2010, the Court took the matter under advisement. The following now constitute the Court's findings of fact and conclusions of law to the extent required by Federal Rule of Bankruptcy Procedure 7052.

ARGUMENTS

The Trustee argues that Debtor is not entitled to deduct more than one vehicle notwithstanding her above median income status. Accordingly, he asserts that Debtor has improperly claimed ownership costs for a second vehicle for which she has no demonstrable need. The Trustee contends that under § 1325(b)(2), Debtor may claim only reasonably necessary expenses and that payments for a second vehicle for a single debtor household are inherently unreasonable. The Trustee argues that § 1325(b)(2) applies to all debtors and that § 1325(b)(3) then directs above median income debtors to claim expenses in accordance with § 707(b)(2). Based on the Trustee's calculations, if payments for the second vehicle are disallowed, Debtor's projected disposable income would be $460.32 per month rather than negative $26.68 per month and general unsecured creditors would receive an additional 2%. Notably, the Trustee has not raised or argued lack of good faith under § 1325(a)(3).

Debtor counters that § 1325(b)(2)'s “reasonably necessary” requirement for an above median debtor is now defined by § 1325(b)(3) to be those expenses that are “applicable” to that debtor. Debtor argues that by importing § 707(b)(2) and the IRS' National Standards and Local Standards into § 1325(b)(3), Congress imposed an objective standard for expenses in above median income cases and stripped bankruptcy judges of any discretion to subjectively and independently review the reasonableness of an expense in those cases. Debtor further asserts that the plain language of § 707(b)(2), as evidenced by Congress' use of two different words, namely “applicable” ⁵ and “actual,” supports her argument that this section delineates when an expense may be claimed as a deduction. Debtor points to BAPCPA's legislative history to clarify that Congress sought to achieve uniformity and to eliminate the inconsistent outcomes that existed between districts prior to the enactment of BAPCPA by implementing § 707(b)(2) and the IRS' National and Local Standard amounts and the means test as part of BAPCPA's amendments.

DISCUSSION

In discerning congressional intent, “[t]he starting point ... is the existing statutory text, and not the predecessor statutes. 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.” Lamie v. United States Tr., 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004) (internal citations omitted). In considering the plain text of § 1325(b)(2) and (3), this Court should consider the context of these subsections and avoid interpretations that are “senseless” or contrary to congressional intent. Hamilton v. Lanning, ––– U.S. ––––, 130 S.Ct. 2464, 2468–69, 177 L.Ed.2d 23 (2010). With this plain meaning rule as its touchstone, the Court embarks on its analysis of the term “reasonably necessary” found in § 1325(b)(3) and which is central to this decision.

BAPCPA provides that when a Chapter 13 Trustee or an unsecured creditor objects to confirmation of a chapter 13 plan, the court may not approve the plan unless unsecured creditors are either paid in full under § 1325(b)(1)(A) or the debtor commits all of his or her “projected disposable income” to the plan for a set period of time. 11 U.S.C. § 1325(b)(1)(B). Since Debtor has not proposed a 100% plan, she must devote all of her “projected disposable income to be received in the applicable commitment period” to make payments to her unsecured creditors pursuant to § 1325(b)(1)(B). 11 U.S.C. § 1325(b)(1)(B).

Although Congress did not newly define the term “projected disposable income,” it did define “disposable income” under amended § 1325(b)(2) to mean “... 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 debtor....” 11 U.S.C. § 1325(b)(2)(A)(i).⁶ For above median income debtors, § 1325(b)(3) directs that “[a]mounts reasonably necessary to be expended” § 1325(b)(2)(A)(i) “shall be determined in accordance with subparagraphs (A) and (B) of § 707(b)(2).” 11 U.S.C. § 1325(b)(3). Under § 707(b)(2)(A)(ii)(I), an above median income 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.11 U.S.C. § 707(b)(2)(A)(ii)(I) (emphasis added).⁷ The disposable income calculation has both an income and expense component to it and varies under § 1325(b)(2) and (b)(3) depending on whether a debtor is a below median income debtor or an above median income debtor. By virtue of how § 1325(b...