In re Ramos

494 B.R. 181

In re Sandra Sanchez RAMOS, Debtor(s).

No. 12–08816.

United States Bankruptcy Court, D. Puerto Rico.

June 4, 2013.

Eduardo J. Mayoral Garcia, San Juan, PR, for Debtor.

Alexandra Rodriguez, San Juan, PR, for Trustee.

ORDER

BRIAN K. TESTER, Bankruptcy Judge.

I. Factual Background

Before this court is Trustee's Report on Proposed Plan Confirmation under 11 U.S.C. § 1325 [Dkt. No. 22], Debtor's Response to Trustee's Report on Proposed Plan Confirmation under 11 U.S.C. § 1325 [Dkt. No. 24], and Trustee's Reply to Debtor's Response to Trustee's Report on Confirmation under 11 U.S.C. § 1325 and Memorandum of Law in Support Thereof [Dkt. No. 31]. For the reasons set forth below, confirmation of the debtor's chapter 13 plan is DENIED.

On October 31, 2012, Sandra Sanchez Ramos (“Debtor”) filed a voluntary chapter 13 plan with its corresponding schedules establishing Debtor's income, expenses, properties, and debts. On that same day, Debtor also filed Form 22C: Chapter 13 Statement of Monthly Income and Calculation of Commitment Period and Projected Disposable Income (“Means Test”) ¹. According to line 11 of Debtor's Form 22C, Debtor's monthly gross income for the six months prior to her filing of bankruptcy was $1,674.34 (total of $1,205.00 in salary, $166.67 in summer bonus, $202.67 in tax refund and $100.00 in cost of living). Debtor is a household of one person and with that respective size and income; Debtor is below-median income with a thirty-six (36) months commitment period. Debtor's Schedules I and J further reveal that Debtor has a monthly net income of $1,385.75, after accounting for tax deductions from her monthly salary, and monthly expenses totaling $1,285.00 for a monthly income of $100.00. Debtor filed her proposed chapter 13 plan on October 31, 2012. In her proposed plan, Debtor provides for sixty (60) payments of $100.00, for a base of $6,000.00. Debtor provides for the payment of secured arrears to Banco Bilbao Vizcaya Argentaria (“Oriental Bank and Trust”) in the amount of $1,832.05, payments for the priority claims filed by the Department of the Treasury in the amounts of $4.12 and $389.46, and attorneys' fees in the amount of $2,750.00. In total, the plan pays approximately five (5) percent of each general unsecured claim. On March 14, 2013, Jose R. Carrion (the “Trustee”) filed an unfavorable report on Debtor's Plan. Amongst the objections raised by the Trustee, the Trustee objected that Debtor's plan did not state that all future tax refunds would be submitted to the Trustee in order to increase the base of the plan.² On March 18, 2013, Debtor filed her response to the Trustee's report on confirmation. This Court held a confirmation hearing on March 21, 2013. The next day, the Trustee requested leave to file a reply brief to Debtor's earlier response to the Trustee's report, which was granted.

II. Trustee's Report on Proposed Plan Confirmation under 11 U.S.C. § 1325

In the Trustee's report on proposed plan confirmation under 11 U.S.C. § 1325, the Trustee argues that Debtor's proposed plan cannot be confirmed because it has two deficiencies. More specifically, Debtor's proposed plan (1) fails the disposable income test because the plan fails to provide that all future tax refunds will be submitted to the Trustee to increase the base of the plan and (2) violates § 1325(a)(5)(A) because the secured creditors in the plan have not accepted the plan. Namely, the Trustee points out that Cooperativa A/C Empledos Municipales de Guaynabo (“Cooperativa”) filed an objection ³ to the confirmation because Debtor executed a loan sixty-nine (69) days before the filing of the bankruptcy petition. As such, the Trustee requested this Court to deny the Debtor's plan dated October 31, 2012.

In opposition, Debtor contends that the Trustee's arguments have no merit and thus her plan should be confirmed. Debtor's arguments are two-fold:

(1) In regards to the tax refund request, Debtor contends that inclusion of a provision in her plan in regards to future tax refunds is not a requirement under § 1325 and such requirement is contrary to the United States Supreme Court interpretation of the term “projected disposable income.” Debtor argues that the projected disposable income can only be calculated in a manner in accordance with Form 22C entitled “Statement of Current Income and Calculation of Commitment Period and Disposable Income.” Therefore, only in unusual cases, may a bankruptcy court go further and take into account other known or virtually certain information about debtor's future income or expenses. The Debtor makes the argument that the Trustee has yet to meet the burden of showing to this court the existence of an “unusual circumstance” which would impact the Debtor's “known or virtually certain” changes in Debtor's future income that would warrant the inclusion of her tax refunds into the calculation into Form 22C. Further, Debtor contends that pursuant to § 1325(b), Debtor is not required to pay unsecured creditors an amount exceeding the amount as determined by her Form 22C, which in the Debtor's circumstances is zero ($0.00).

(2) In regards to the objection to confirmation by Cooperativa, Debtor argues that she has filed a separate response stating the reasons for which Cooperativa's objection should be overruled. (Dkt. No. 23).

In response to Debtor's opposition, the Trustee concentrated on the tax refund issue. The Trustee argues that Debtor's projected disposable income is not calculated through the Means Test and therefore, Debtor must submit her tax refund for the payment of unsecured creditors. The Trustee cites § 1325(b), where if a Trustee or creditor objects to a plan confirmation, a bankruptcy court cannot confirm a plan unless all claims are paid in full or the Debtor is distributing all her disposable income to fund such plan. Pursuant to § 1325(b)(2), disposable income is defined as the Debtor's current monthly income less the expenses necessary for Debtor's maintenance and support. Therefore, such current monthly income generally consists of the average income for six months prior to filing bankruptcy. Consequently, if the debtor's income is below median, debtor may deduct the full amount of the expenses necessary for the support and maintenance. On the contrary, if the debtor is above median income, such debtor may calculate projected disposable income using the Means Test. Naturally, the projected disposable income is reached afterdeducting the debtor's expenses from the current monthly income. In this instance, the Debtor is below median income, thus her projected disposable income cannot be calculated through the Means Test but instead through Schedules I and J. With such a backdrop, the Trustee proceeds to argue that tax refunds are disposable income and thus such tax refunds must be submitted to the Trustee to increase the base of the Debtor's plan within the property of the estate. The Trustee further points out that even with an above median income debtor, if such debtor receives a tax refund, the debtor over-estimated his or her liability in the Means Test and therefore, such debtor cannot be rewarded by keeping such additional income to the detriment of his or her unsecured creditors. The Trustee further argues that even if the court resorts to the “unusual circumstances” standard as guided by the Supreme Court, Debtor's lack of a future tax refund inclusion meets such standard. Summarily, citing a list of cases, the Trustee contends that Debtor's future tax refund must be included in the property of the estate. The Trustee further clarifies that per Debtor's Schedule I and J, Debtor has a projected disposible income of $100.00. Debtor's tax liability was accounted on her Schedule I, which lists a tax and social security deduction of $73.12 from her gross monthly salary. Therefore, any additional future tax refund received would constitute additional income unaccounted for in the Debtor's schedules. With the trend of the Debtor receiving various refunds such as those Debtor received three times in the past four years, Debtor's tax refunds are inherently disposable income that must be submitted to the property of the estate. Conclusively, the Trustee requests this court to reject the Debtor's plan provided for above.

III. Legal Analysis and Discussion

After reviewing the arguments of the parties, and the relevant law, this court concludes that confirmation of Debtor's plan must be denied because the Debtor's future tax returns are not being committed to her plan. This instant contention hinges on the issue of whether post-petition tax returns are to be considered property of estate, thus the analysis will be centered on such.

A. Chapter 13 Disposable Income

The Bankruptcy Code empowers a bankruptcy court to calculate a debtor's projected disposable income. In doing so, the Supreme Court established the “forward-looking” approach. Such approach mandates the court to begin by calculating disposable income and only in unusual cases, may the court go further to take into account other income or expenses that are known or virtually certain information about the debtor's future income or expenses. Hamilton v. Lanning, 560 U.S. 505, 130 S.Ct. 2464, 2474–75, 177 L.Ed.2d 23 (2010). Therefore, if an unsecured creditor or the chapter 13 trustee objects to the confirmation of a proposed plan, § 1325(b)(1) provides that a bankruptcy court may not approve such plan unless such plan provides for the full repayment of unsecured creditors or provides that all of the debtor's “projected disposable income” will be received over the duration of the plan will be applied to plan payments.

Pursuant to the Bankruptcy Code, as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), for purposes of calculating the disposable income of a chapter 13 debtor whose income is below the median for his or her state, the phrase “amounts reasonably necessary to...