In re Toxvard

485 B.R. 423

In re Tammy Lea TOXVARD, Debtor.

No. 11–17876 MER.

United States Bankruptcy Court, D. Colorado.

Jan. 9, 2013.

Karen Cody–Hopkins, Denver, CO, for Debtor.

Sally Zeman, Denver, CO, Chapter 13 Trustee.

ORDER

MICHAEL E. ROMERO, Bankruptcy Judge.

THIS MATTER is before the Court on the following:

1. Second Amended Chapter 13 Plan (the “Plan”) filed by debtor Tammy Lea Toxvard (the “Debtor”) on January 9, 2012; ¹

2. Objection to Confirmation of the Amended Plan (the “Objection”) filed by the assigned Chapter 13 trustee Sally Zeman (the “Trustee”) on February 8, 2012; ²

3. Debtor's Support Brief: Summary of Debtor's Position and Relevant Case Law filed by the Debtor on July 9, 2012; ³

4. Brief in Support of The Trustee's Objection to Motion to Confirm Chapter 13 Plan filed by the Trustee on July 9, 2012; ⁴

5. Debtor's Response to Trustee's Support Brief filed by the Debtor on July 25, 2012; ⁵

6. Response Brief in Support of The Trustee's Objection to Motion to Confirm Chapter 13 Plan filed by the Trustee on July 26, 2012; ⁶

7. Brief Amicus Curiae by Douglas B. Kiel in Support of Objection to Motion to Confirm Chapter 13 Plan filed by unassigned Chapter 13 trustee

Douglas B. Kiel (“Kiel”) on July 9, 2012; ⁷ and

8. Debtor's Response to Brief Amicus Curiae by Douglas B. Kiel in Support of Objection to Motion to Confirm Chapter 13 Plan filed by the Debtor on October 1, 2012.⁸

The Court has considered the evidence and legal arguments presented by the parties, including the parties' supplemental briefs and the brief amicus curiae submitted by Kiel, and hereby makes the following findings of fact and conclusions of law.⁹

BACKGROUND FACTS

The Court heard testimony from the Debtor and her non-filing spouse, Ludvig E. Toxvard, II (“Mr. Toxvard”), at the evidentiary hearing held June 25, 2012. At the outset of this opinion, the Court finds both witnesses were credible. The Court believes these witnesses testified truthfully and have asserted genuine issues of dispute in good faith, attempting to obtain a fair and just outcome. The background facts set forth herein are gleaned from testimony and evidence presented at the hearing, the stipulated facts submitted by the parties, and the record in the Debtor's bankruptcy case.

A. Debtor's First Marriage

The Debtor was previously married to Matthew Weese, and together they have three children.¹⁰ The Debtor owns certain real property known as 445 Aspen Circle, Frederick, CO 80530 (the “Frederick Property”), and the Frederick Property is titled in the Debtor's name only. The Debtor's Schedule A states the value of the Frederick Property is $190,500 and Schedule D lists two liens in the aggregate amount of $190,797 encumbering the Frederick Property. ¹¹ There is no equity in the Frederick Property.¹²

The Debtor's first marriage deteriorated due to financial disagreements, and the Debtor and Mr. Weese later divorced. The Debtor testified the Frederick Property is vacant, and given the lack of any equity, the property will be surrendered to the lienholders through the foreclosure process.

Prior to the Debtor's filing for bankruptcy protection, Mr. Weese and his counsel initiated an action to collect attorney's fees related to the divorce. The Debtor testified she was not represented in the dissolution proceeding, and the resulting issues involving custody, domestic support obligations and the Frederick Property were the cause of her bankruptcy filing.

B. Debtor's Second Marriage

On July 7, 2007, the Debtor married her second husband, Mr. Toxvard. Like the Debtor, Mr. Toxvard was also previously married and divorced. Mr. Toxvard has two children from his previous marriage. As a result of the financial difficulties and disputes during their previous marriages, the Debtor and Mr. Toxvard agreed to keep their income and expenses separate during their marriage to avoid fighting over money. The Debtor and Mr. Toxvard maintain separate checking and savings accounts, and file separate tax returns. ¹³

Prior to their marriage, Mr. Toxvard was the sole owner of certain real property known as 9423 N. 89th Street Longmont, Colorado 80503 (the “Longmont Property”). Mr. Toxvard has maintained sole ownership of the Longmont Property and bears sole responsibility for the mortgage obligations against the Longmont Property. Although the Debtor resides at the Longmont Property, the Longmont Property is not property of the Debtor's bankruptcy estate because the Debtor has no legal or equitable ownership interest in the Longmont Property. ¹⁴

C. Debtor's Bankruptcy Filing

On April 11, 2011 (“Petition Date”), the Debtor filed for relief under Chapter 13 of the Bankruptcy Code. The Debtor filed her petition as a married individual filing alone. The Debtor and Mr. Toxvard reside in the Longmont Property, and their respective children are not dependents. The parties agree the Debtor's household consists of only two individuals.

The Debtor submitted her Form B22C with her initial bankruptcy filing, which calculates the Debtor's current monthly income for purposes of determining the plan commitment period and the Debtor's disposable income.¹⁵ The Debtor asserts she completed Form B22C in conformance with her financial arrangement with Mr. Toxvard. The Debtor reports average monthly gross income of $3,500.02 for herself and $6,220.27 for Mr. Toxvard. The Debtor and Mr. Toxvard earn a combined average monthly gross income of $9,720.29, which, when annualized, equals $116,643.48—above the median family income in Colorado for a two person household.

The Debtor claimed the Line 19 marital adjustment deduction on her Form B22C in calculating her disposable income (the “Marital Adjustment Deduction”). The Marital Adjustment Deduction reduced the combined average monthly gross income to $5,321.26. When annualized, the adjusted disposable income equals $63,855.12—an amount just below the same Colorado median income threshold. This Marital Adjustment Deduction is at the center of the dispute between the Debtor and the Trustee.

The Debtor also filed her Schedules I and J on the Petition Date, which calculate the Debtor's average monthly income and monthly expenses.¹⁶ The Debtor did not disclose Mr. Toxvard's income on her Schedule I, but states “Debtor and spouse keep all income and expenses separate except debtor buys all food, and they file separate taxes.” ¹⁷ The Debtor lists her average gross monthly income as $2,916.68 and her average monthly expenses as $2,214.00.

D. Second Amended Plan and Trustee's Objection

On January 9, 2012, the Debtor filed her Plan, providing a payout to Class 4 creditorsof $5,654 over 60 months, in the following tiered payments: $1,180.00 total for months 1 through 10, and $185.00 per month for months 11 through 60. The aggregate general unsecured claims are $19,710.83, resulting in a 28.7% recovery for Class 4. Counsel for the Trustee represented as of June 25, 2012, the Debtor was current on monthly payments under the Plan.

On February 8, 2012 the Trustee filed her Objection, asserting two objections to confirmation of the Plan. First, the Trustee alleges the Debtor's Marital Adjustment Deduction is overstated to reduce the Debtor's household income to below the median. The Trustee argues the Debtor's household income is actually above the median, and she should calculate her disposable income under 11 U.S.C. § 1325(b)(3)¹⁸ rather than § 1325(b)(2). Thus, the Trustee asserts she cannot determine if the Debtor is committing all of her disposable income to the Plan based on the Debtor's calculation of disposable income under § 1325(b)(2). Second, the Trustee objects to confirmation because the Debtor did not include Mr. Toxvard's income on Schedule I, and a complete Schedule I is necessary to calculate disposable income under § 1325(b)(2).

DISCUSSION

With respect to confirmation of a Chapter 13 plan, “[t]he controlling section of the Bankruptcy Code is § 1325.” ¹⁹ The instant dispute centers on the Debtor's Line 19 Marital Adjustment Deduction, and her calculation of disposable income under § 1325(b)(2). Based on the facts of this case, the issue before the Court is whether the Debtor's calculation of disposable income, which includes the Marital Adjustment Deduction, complies with § 1325(b)(1)(B). If so, the Debtor's Plan may be confirmed over the Trustee's Objection. Interpretation of the Line 19 marital adjustment is an issue of first impression for this Court.

The Court notes the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) amended § 1325(b) to establish requirements for Chapter 13 plan payments, where the plan does not provide for full payment of unsecured claims and an objection to confirmation is filed by a trustee or a holder of an unsecured claim. In this circumstance, § 1325(b)(1)(B) requires payment of all the debtor's projected disposable income for the applicable commitment period to unsecured creditors.²⁰ BAPCPA amended § 1325(b)(2) and added § 1325(b)(3), which together provide a new definition of “disposable income.” Specifically, these amendments link “disposable income” as defined in § 1325(b)(2) to “current monthly income” as defined in § 101(10A). ²¹

A. Current Monthly Income

Section 101(10A)(A) defines “currently monthly income” as “the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor's spouse receive), without regard to whether such income is taxable income,” which the debtor receives in the six months preceding the petition date.²²

Section 101(10A)(B) further provides:

(B) Current monthly income includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor's spouse), on a regular basis for the household expenses of the debtor or the debtor's dependents (and in a joint case the debtor's spouse if not otherwise a dependent) ... [.] ²³

A plain reading of § 101(10A)(B) indicates current monthly income must include...