In re Marchionna

393 B.R. 512

In re Kristina MARCHIONNA, Debtor.

No. 08-10536.

United States Bankruptcy Court, N.D. Ohio, Eastern Division.

August 25, 2008.

COPYRIGHT MATERIAL OMITTED

Susan M. Gray, Susan M. Gray Attys & Counselors at Law, Rocky River, OH, for Debtor.

MEMORANDUM OF OPINION AND ORDER

RANDOLPH BAXTER, Bankruptcy Judge.

Before the Court is the Trustee's Objection to Plan Confirmation (the "Objection"), which is opposed by the Debtor, Kristina Marchionna (the "Debtor"). The Court acquires jurisdiction, over this matter pursuant to 28 U.S.C. §§ 1334, 157 and General Order No. 84 of this District. Upon a duly noticed hearing and a review of the record, the following findings of fact and conclusions of law are hereby rendered:

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On January 25, 2008 (the "Petition Date"), the Debtor filed her petition for relief under Chapter 13 of Title 11 of the United States Code (the "Bankruptcy Code"). Contemporaneously with her petition, she filed various schedules. On Schedule A, she listed her ownership interest in real property located at 16760 Parklane Drive, Strongsville, Ohio, (the "Property"), which she valued at $120,000.00. On Schedule D, she listed a claim of Wells Fargo Bank, secured by a first mortgage on the Property. The amount of the claim is $180,000.00, with $60,000.00 of the claim scheduled as unsecured.

The Debtor also filed Schedule I, Current Income of Individual Debtor(s), identifying a combined average monthly income of $4,855.99 and Schedule J, Current Expenditures of Individual Debtor(s), showing average monthly expenses of $4,495.85. Among the average monthly expenses, $1,300.00 was listed as rent or home mortgage payment. Subtracting the average monthly expenses from the average monthly income leaves a net monthly income of $360.14.

Along with her petition, the Debtor submitted Form 22C, Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income, which is also referred to as the "means test." Her reported income included that of her non-debtor spouse.¹ Form 22C indicates a combined current monthly income of $6,655.58 for the Debtor and her spouse. Their annual income of $79,866.96 exceeds the applicable median family income in Ohio for a household of three. See, http://www.usdoj.gov/ust/eo/ bapcpa/20080101/bci____data/median____income____table.htm (median income amount for a debtor, who is an Ohio resident, with a family of three that filed a bankruptcy case between January 1, 2008, and January 31, 2008). Their deductions from income totaled $8,376.97, including deductions on lines 47(b) and 48(a) for debt secured by the Property. The amounts of the debt payments for mortgage payments and arrears are $1,960.00 and $940.21, respectively. With these deductions from the combined monthly income, the monthly disposable income is negative $1,721.39.

Subsequently, the Debtor filed her Chapter 13 repayment plan (the "Plan"). The Plan proposes to pay $360.14 per month for 60 months with a 5% dividend to unsecured creditors. Additionally, Article 11 of the Plan entitled "Special Provisions" states the following:

Mrs. Marchionna has no plans at this time to reinstate the mortgage loan but she does intend to find a way to keep her house. For purposes of this bankruptcy case, in terms of dealing with payment expectations, the real estate should be considered surrendered in full satisfaction of the creditor's claim.

The Trustee then filed an Objection to Plan Confirmation seeking an increased monthly Plan payment of $482.00 and/or a 100% dividend to unsecured creditors to account for the Debtor's stated intention to surrender the Property in full satisfaction of the secured creditor's claim.

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The Trustee argues that the Debtor is not devoting all of her projected disposable income to the Plan as required by § 1325(b) of the Bankruptcy Code because her calculation of disposable income improperly deducts mortgage payments and arrearage payments in a sum of $2,900.21 per month on Property she proposes to surrender pursuant to the Plan. As the Debtor will not be making the payments on the surrendered Property, the Trustee asserts that there would be monthly disposable income available to fund her Plan during the applicable commitment period. Additionally, the Trustee distinguishes between the forward-looking nature of a Chapter 13 case and the snapshot approach for purposes of a Chapter 7 case. Therefore, the Trustee contends, the Plan has not been proposed in good faith and Plan Confirmation should be denied.

The Debtor opposes the Trustee's Objection and asserts that she correctly calculated her disposable income. She argues that the purpose of the means test requirements in a Chapter 7 case and a Chapter 13 case are precisely the same — to determine whether a debtor has disposable income to pay unsecured creditors. She contends that a Chapter 13 debtor, like a Chapter 7 debtor, is entitled to deduct payments on secured debt pursuant to 11 U.S.C. § 707(b)(2)(A)(iii) made applicable to Chapter 13 under § 1325(b)(3), notwithstanding a stated intention to surrender the collateral.

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The issue before this Court is whether a Chapter 13 debtor may take deductions on Form 22C for future payments on debt secured by real estate which she plans to surrender.

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Section 1325(b)(1) requires a debtor either to pay the full amount on his claims or commit all projected disposable income to the Plan. Section 1325(b)(1) provides as follows:

If the trustee ... objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan —

(A) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or

(B) 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).

Section 1325(b)(2) provides as follows:

For purposes of this subsection, the term "disposable income" means current monthly income received by the debtor (other than child support payments, foster care payments, or disability payments for a dependent child made in accordance with applicable nonbankruptcy law to the extent reasonably necessary to be expended for such child) less amounts reasonably necessary to be expended —

(A)(i) for the maintenance or support of the debtor or a dependent of the debtor, or for a domestic support obligation, that first becomes payable after the date the petition is filed; and

(ii) for charitable contributions (that meet the definition of "charitable contribution" under section 548(d)(3) to a qualified religious or charitable entity or organization) (as defined in section 548(d)(4)) in an amount not to exceed 15 percent of gross income of the debtor for the year in which the contributions are made; and

(B) if the debtor is engaged in business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business.

11 U.S.C. § 1325(b)(2).

In pertinent part, §§ 1325(b)(3)(B) and (b)(4)(A)(ii)(II) state,

Amounts reasonably necessary to be expended under paragraph (2), ..., shall be determined in accordance with subparagraphs (A) and (B) of section 707(b)(2), if the debtor has current monthly income, when multiplied by 12, greater than —

(B) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals;

. . .

(4) For purposes of this subsection, the "applicable commitment period" —

(A) subject to subparagraph (B), shall be —

. . .

(ii) not less than 5 years, if the current monthly income of the debtor and the debtor's spouse combined, when multiplied by 12, is not less than —

(II) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals;

11 U.S.C. §§ 1325(b)(3) and (b)(4).

Bankruptcy Procedural Rule 1007 sets forth the lists, schedules, statements and other documents a debtor is required to file.

A debtor in a chapter 13 case shall file a statement of current monthly income, prepared as prescribed by the appropriate Official Form, and, if the debtor has current monthly income greater than the median family income for the applicable state and family size, a calculation of disposable income in accordance with § 1325(b)(3), prepared as prescribed by the appropriate Official Form.

Fed. R. Bankr.P. 1007(b)(6)[Interim].²

With regard to secured debts, § 707(b)(2)(A)(iii) states:

(iii) 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 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 primary residence, motor vehicle, or other property necessary for the support of the debtor and the debtor's dependents, that serves as collateral for secured debts;

divided by 60.

. . .

11 U.S.C. § 707(b)(2)(A)(iii).

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Pursuant to the Bankruptcy Abuse Prevention and Consumer Protection Act (hereinafter, "BAPCPA"), significant amendments to the Bankruptcy Code were enacted. At issue in this case is the impact of the Debtor's stated intention to surrender real estate in full satisfaction of a secured creditor's claim on her compliance with the statutory requirements for plan confirmation under § 1325 of the Bankruptcy Code. The debtor bears the burden of establishing that the plan complies with the statutory requirements for confirmation. In re...