by The Bankruptcy Court for the Eastern District of North Carolina found that the applicable commitment period set forth in section 1325(b)(1)(B) does not apply to above-median debtors with zero or negative disposable income and that early termination of the plan does not alter the debtor’s projected disposable income calculation. In re Ballew, 12-4059 (Bankr. E.D. N.C. Jan. 11, 2013).
In that case, the court consolidated nineteen chapter 13 cases which the trustee had moved to dismiss for failure to contribute all debtors’ disposable income for the benefit of unsecured creditors. The trustee sought to overturn precedent permitting such early termination. See, e.g., Musselman v. eCast Settlement Corp. (In re Musselman), 394 B.R. 801 (E.D.N.C. 2008); In re Alexander, 344 B.R. 742, 750–51 (Bankr. E.D.N.C. 2006). The trustee’s theory was that when a plan that terminates early is confirmed, at the cessation of plan payments the debtor, no longer responsible for paying income into the plan, has a sudden increase in disposable income and should therefore have to pay that increased income into a plan lasting for the entire commitment period. Because this increase is known or virtually certain to occur, the trustee argues, the reasoning and holding of Hamilton v. Lanning, 560 U.S. ___, 130 S. Ct. 2464, 177 L. Ed. 2d 23 (2010), applies.
The questions before the court, therefore, were twofold: 1) whether projected disposable income as determined at the outset of the plan remains the same even where the debtor has shortened the life of the plan by increasing plan payments, and 2) whether the 60 month applicable commitment period applies to debtors with zero or negative income.
Addressing the first issue, the court was persuaded by the reasoning in In re Moore, 482 B.R. 248 (Bankr. C.D. Ill. 2012), in which an unsecured creditor sought to increase the debtor’s plan payments after the debtor paid off a secured creditor outside the plan prior to termination of the plan. Significantly, when proposing their plan, the debtors had calculated what they owed to the secured creditors and spread that amount over 60 months for purposes of calculating projected disposable income. The Illinois court found that the fact that they paid the debts off more quickly than the 60 month period did not alter the appropriate calculation of projected disposable income.
The same was true for the debtors in Ballew. When proposing their plans, they calculated their expenses in accordance with the Means Test, amortizing those payments over a 60 month period, and determining plan payments in such a way that the entire amount would be paid into the plan, accounting for the shorter term by an increase in plan payments. The court found that debtors should not be penalized for making larger payments than required. “If the debtors decide to pay a larger monthly payment over a shorter time, it does not follow that the disposable income calculation was incorrect.” This does not contravene Lanning. The Lanning Court made clear that the mechanical approach to projected disposable income is presumed to be an accurate representation of projected disposable income subject to anticipated changes occurring during the life of the plan. Where the actual income and expenses are not expected to change, the fact that alterations may be made with respect to how that projected disposable income is paid and over what period of time, does not change the original calculation.
Turning to the second issue, whether the applicable commitment period is a temporal requirement, or a multiplier, the court noted a third, hybrid approach under which the plan period must comply with the 36 or 60 month period where there is projected disposable income, but need not comply when the debtor has zero or negative disposable income as discussed in In re Kagenveama, 541 F.3d 868, 875–78 (9th Cir. 2008), overruled on other grounds, Lanning, 130 S. Ct. at 2478. This approach conforms to the plain text of the Code under which sections 1322 and 1325 make the applicable commitment period contingent on the existence of disposable income. Agreeing with Alexander and Musselman, the court found that where that income is absent, “there is no need to extend plans artificially.”
The issue of whether the applicable commitment period comes into play when the debtor has zero or negative disposable income has been batted about the circuit courts to some extent with the Sixth and Eleventh Circuits finding that it is a temporal requirement under all circumstances. Baud v. Carroll (In re Baud), 634 F.3d 327, 338 (6th Cir. 2011); Whaley v. Tennyson (In re Tennyson), 611 F.3d 873, 877–78 (11th Cir. 2010). The Ninth Circuit is currently reviewing its decision in Kagenveama, in the cases of Danielson v. Flores (In re Flores), 692 F.3d 1021, 1027 (9th Cir. 2012), rehearing en banc granted, No. 11–55452, 2012 WL 6618328 (9th Cir. Dec. 19, 2012), and American Express v. Henderson, No. 11-35864 (9th Cir.). NACBA has filed amicus briefs in both those cases.