In re Spurgeon

378 B.R. 197

In re Chad Edwin SPURGEON, Debtor.

No. 07-10462.

United States Bankruptcy Court, E.D. Tennessee, Southern Division.

October 10, 2007.

Kenneth C. Rannick, Kenneth C. Rannick, P.C., Chattanooga, TN, for Debtor.

James M. Setters, Chattanooga, TN, for C. Kenneth Still, Chapter 13 Trustee.

MEMORANDUM

R. THOMAS STINNETT, Bankruptcy Judge.

The chapter 13 trustee has objected to confirmation of Mr. Spurgeon's proposed chapter 13 plan on the ground that it does not satisfy the disposable income test. The trustee contends the plan does not require Mr. Spurgeon to use all his projected disposable income for payments under the plan. 11 U.S.C. § 1325(b)(1). Mr. Spurgeon calculated disposable income by deducting installment payments on a secured debt to Green Tree Servicing for the 60 months after the filing of his chapter 13 case. Mr. Spurgeon will not make those payments or any regular payments to Green Tree as a secured creditor. His proposed chapter 13 plan provides for surrender of the mobile home securing the debt and payment of the debt as unsecured. The court has also lifted the automatic stay to allow Green Tree to repossess and foreclose. 11 U.S.C. § 362(a), (d). The question is whether the statutes still allow Mr. Spurgeon to deduct the contractual installment payments for the purpose of determining disposable income or projected disposable income.

The bankruptcy code defines disposable income but not projected disposable income. 11 U.S.C. § 1325(b)(1), (2). Disposable income is the difference between monthly income and monthly deductible expenses. The statutes provide the rules for determining monthly income and monthly deductible expenses. 11 U.S.C. §§ 1325(b)(2) & 101(10A).

As a general rule, deductible expenses are amounts reasonably necessary to be expended by the debtor for the maintenance or support of the debtor and the debtor's dependents. 11 U.S.C. § 1325(b)(2)(A). The general rule focuses on actual future expenses by referring to amounts "to be expended." The general rule apparently does not allow deduction of expenses that will not continue during the time the debtor is performing the plan.¹ Beskin v. McPherson (In re McPherson), 350 B.R. 38 (Bankr.W.D.Va.2006); In re Edmunds, 350 B.R. 636 (Bankr.D.S.C. 2006); In re McGillis, 370 B.R. 720 (Bankr.W.D.Mich.2007).

The rules for determining deductible expenses are more detailed in this case because Mr. Spurgeon's current monthly income exceeds the relevant median family income. The court must determine deductible expenses by referring to the expense provisions of the means test for chapter 7 cases. 11 U.S.C. § 1325(b)(3) & § 707(b)(2)(A), (B). The deduction rules in the means test create the problem in this case, as explained below in more detail.

When Mr. Spurgeon filed this chapter 13 ease, he owed a debt to Green Tree Servicing secured by a mobile home that was not his residence. Mr. Spurgeon's contract with Green Tree required installment payments of $341.42 per month for each of the 60 months after he filed his chapter 13 case. Mr. Spurgeon included these installment payments when he calculated the expense deduction for average monthly payments on secured debts. The deduction of the payments due to Green Tree is supposedly allowed by one of the expense provisions incorporated from the means test. The statute provides:

(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).

Mr. Spurgeon relies on clause (I) above. He asserts that Green Tree was a secured creditor, and the monthly installment payments were amounts scheduled by the contract as due to Green Tree in the 60 months after bankruptcy.

Mr. Spurgeon's proposed chapter 13 plan provides that he will surrender the mobile home to Green Tree. When a chapter 13 plan provides that the debtor will surrender all of the creditor's collateral, the plan is not required to provide for any payments on the debt as an allowed secured claim. 11 U.S.C. § 1325(a)(5). Mr. Spurgeon's proposed chapter 13 plan does not provide for the installment payments set by the contract. It does not provide for regular payments in a different amount. It does not provide for payments of any kind that will add up to a fixed total, with or without interest. In summary, Green Tree will not receive any payments under the chapter 13 plan as a secured creditor, the holder of an allowed secured claim.

The court has also lifted the automatic stay to allow Green Tree to repossess and foreclose. The order lifting the stay approved the chapter 13 trustee's abandonment of the mobile home. 11 U.S.C. § 554. Green Tree will acquire possession of the mobile home as a result of the order lifting the stay or as a result of confirmation of the proposed plan.

State law requires Green Tree to make a commercially reasonable disposition of the mobile home. Ala.Code § 7-9A-610; Dixon v. Green Tree, Inc. (In re Dixon), 2007 WL 703612 (Bankr.M.D.Ala. Mar. 5, 2007); Tenn.Code Ann. § 47-9-610; Auto Credit of Nashville v. Wimmer, 231 S.W.3d 896 (2007). If the foreclosure price does not pay all the debt and expenses, Green Tree can file an amended proof of claim for the deficiency as a general (non-priority) unsecured claim. In, re Delmonte, 237 B.R. 132 (Bankr.E.D.Tex.1999); In re Morris, 289 B.R. 783 (Bankr.S.D.Ga.2002); In re Tyler, 166 B.R. 21 (Bankr.W.D.N.Y.1994); see also In re McBride, 337 B.R. 451 (Bankr. N.D.N.Y.2006). Mr. Spurgeon's proposed plan is a remainder plan; general unsecured claims receive the amount left over after paying priority claims and making payments on allowed secured claims. The exact percentage to be paid on general unsecured claims, including Green Tree's deficiency claim, will not be known until sometime during the performance of the plan.

In summary, either the lifting of the automatic stay or confirmation of the proposed plan will relieve Mr. Spurgeon from the need to make future payments to Green Tree as a secured creditor. Nevertheless, Mr. Spurgeon reduced his disposable income by deducting the monthly installment payments to Green Tree for the 60 months after he filed his chapter 13 case. This deduction apparently caused an understatement of disposable income or projected disposable income — if they are intended to be an accurate estimate of the money the debtor will have available under the proposed plan to pay general unsecured claims.

The court is not saying that the calculation of disposable income was inconsistent with the directions for completing Official Form B22C. The court assumes the calculation followed the directions. This does not necessarily mean the deduction should be allowed for the purpose of calculating either disposable income or projected disposable income, as explained below.

The debtor in a chapter 7 bankruptcy case can also surrender collateral to a secured creditor. 11 U.S.C. § 521(a)(2). Some courts have held that the deduction statute in question, as part of the chapter 7 means test, still allows the debtor to deduct the future installment payments. 11 U.S.C. § 707(h)(2)(A)(iii)(I); In re Hartwick, 352 B.R. 867 (Bankr.D.Minn. 2006), affirmed in part, reversed in part, Fokkena v. Hartwick, 373 B.R. 645, 2007 WL 2350560 (D.Minn. Aug.20, 2007); In re Simmons, 357 B.R. 480 (Bankr.N.D.Ohio 2006); In re Nockerts, 357 B.R. 497 (Bankr.E.D.Wis.2007); In re Randle, 358 B.R. 360 (Bankr.N.D.Ill.2006). At least one court has reached the same result in a chapter 13 case; it allowed the chapter 13 debtor to deduct future, contractual installment payments on a secured debt even though the chapter 13 plan provided for surrender of the collateral. In re Oliver, 2006 WL 2086691 (Bankr.D.Or. June 29, 2006).

The oddness of this result could be lessened by holding that actual ability to pay after confirmation is a factor in deciding whether the debtor proposed the plan in good faith. 11 U.S.C. 1325(b)(3) & 1307(c); Alt v. United States (In re Alt), 305 F.3d 413 (6th Cir.2002); Hardin v. Caldwell (In re Caldwell), 895 F.2d 1123 (6th Cir.1990) (good faith filing of chapter 13 case); see also 11 U.S.C. § 707(b)(3); In re Simmons, 357 B.R. 480 (Bankr.N.D.Ohio 2006); In re Nockerts, 357 B.R. 497 (Bankr.E.D.Wis.2006) (income available as result of surrender of collateral but not within calculation of disposable income still a factor in determining good faith). This combination of rules would be an odd result in itself. Furthermore, the good faith requirement is always in danger of becoming a catch-all ground for objecting to confirmation on the basis of facts that should support an objection under one of the economic tests for confirmation. 3 Keith M. Lundin, Chapter 13 Bankruptcy § 193.1 (3rd ed.2006). Before using the good faith requirement to shape the results of the disposable income test, the court should carefully interpret the statutes to determine whether they actually allow the deduction claimed by Mr. Spurgeon.

Most courts have not allowed the deduction in chapter 13 cases when the proposed plan provided for surrender of the collateral. This court agrees with some of their reasoning. In particular, confirmation of the plan will change the facts relevant to the deduction. The amounts that would otherwise be due under the contract after the debtor filed the chapter 13 case will not be scheduled as contractually due to a secured creditor. They will not be within the terms of the deduction statute....