APPEAL FROM THE UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE TENTH CIRCUIT (BAP No. KS-07-067). (Bankr. No. 06-41037).
The opinion of the court was delivered by: Brorby, Senior Circuit Judge
Before MURPHY, Circuit Judge, BRORBY, Senior Circuit Judge, and TYMKOVICH, Circuit Judge.
This bankruptcy appeal presents a question of first impression in this circuit: What is the proper way to calculate the "projected disposable income" of an above-median Chapter 13 debtor under amendments to the bankruptcy code effected by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (BAPCPA)? In this case, the United States Bankruptcy Court for the District of Kansas adopted the "forward-looking approach," which is the method adopted by the majority of bankruptcy courts and bankruptcy appellate panels (BAPs) that have considered the question. Under that approach, a Chapter 13 debtor's six-month, pre-petition "disposable income" (as defined by statute) is presumed to be the debtor's "projected disposable income" for purposes of establishing the monthly sum that the debtor must commit to repayment of unsecured creditors in order to advance a confirmable payment plan and overcome objections to it. The forward-looking approach permits the amount of projected disposable income to be rebutted upon a showing of special circumstances at the time of plan confirmation.
In the course of its analysis, the bankruptcy court rejected a different method, the "mechanical approach," which equates a Chapter 13 debtor's projected disposable income with the statutorily defined "disposable income" and then "projects" that amount over the length of the applicable commitment period. It does not permit adjustment to projected disposable income to account for special circumstances at the time of plan confirmation.
In affirming the bankruptcy court's decision, the Tenth Circuit BAP also adopted the forward-looking approach and its rebuttable presumption. See In re Lanning, 380 B.R. 17 (10th Cir. B.A.P. 2007). For the reasons discussed below, we also adopt the "forward-looking approach." Exercising our jurisdiction under 28 U.S.C. §§ 158(d)(1) and 1291, we affirm the BAP's decision.
The parties stipulated to the relevant facts. The debtor, Stephanie Kay Lanning, is a single woman with no children and a Kansas resident. She filed a Chapter 13 petition on October 16, 2006, to address $36,793.36 in unsecured debt. Her annual gross income was $43,147 in 2004, and $56,516 in 2005. During the six-month period before filing her petition, Ms. Lanning took a buyout from her employer, Payless, that increased her monthly gross income to $11,990.03 in April 2006 and $15,356.42 in May 2006.
As part of her petition, Ms. Lanning filed Schedule I ("Current Income of Individual Debtor(s)"), which showed a monthly net income of $1,922 ($23,604 annually), apparently reflecting actual income from a job she started after leaving Payless. App. at 31. She also filed Schedule J ("Current Expenditures of Individual Debtor(s)"), which showed actual monthly expenses of $1,772.97 and, consequently, excess monthly income of $149.03. Id. at 32. In addition, Ms. Lanning completed Form B22C (now denominated Form 22C), "Statement of Current Monthly Income and Disposable Income Calculation." Id. at 40-43. Form B22C first requires a debtor to calculate "current monthly income" as an average of income for the six calendar months immediately preceding the month in which the petition is filed. Id. at 40. Under this formula, Ms. Lanning's "current monthly income" was $5,343.70, which included the buyout from Payless. When that figure was annualized, her income ($64,124.34) was greater than the median income for a family of one in Kansas ($36,631.00), so she was required to complete the remainder of Form B22C, on which most expenses and other deductions are calculated by reference to standard sums issued by the Internal Revenue Service (National and Local IRS Standards). Id. at 41-43.
According to her Form B22C, Ms. Lanning's total monthly expenses were $4,228.71, leaving her with "Monthly Disposable Income Under [11 U.S.C.] § 1325(b)(2)" of $1,114.98. Id. at 43.
Based on the excess monthly income of $149 shown on Schedule J, Ms. Lanning proposed a repayment plan of $144 per month for thirty-six months ($5,184) as satisfaction of the $36,793.36 in unsecured debt. She moved the bankruptcy court to determine that 11 U.S.C. § 1325(b)(1)(B) did not require her to commit the $1,114.98 in monthly disposable income calculated on Form B22C (which included her buyout) to repayment of the unsecured creditors.
Section 1325(b)(1)(B) is the primary statute involved in this case, and when, as here, a Chapter 13 debtor proposes a plan that contemplates less than full repayment of all allowed unsecured claims and there is an objection, that section conditions plan confirmation as follows:
(b)(1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan--
(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)(B) (emphasis added).*fn2 Although none of the unsecured creditors objected to the proposed plan, the
Chapter 13 Trustee did, arguing that § 1325(b)(1)(B) provides a rigid formula for determining projected disposable income that is based on a debtor's historical monthly income as calculated on Form B22C. The Trustee proposed that a monthly payment of $756 (less than Ms. Lanning's Form B22C "monthly disposable income" of $1,114.98) for sixty months would repay the unsecured creditors in full, despite acknowledging that Ms. Lanning did not have the means to fund such a plan.
II. The Bankruptcy Court's Decision
The bankruptcy court rejected the mechanical approach that the Trustee advocated. The court noted that the term "projected disposable income" is not defined in § 1325(b)(1)(B), but that § 1325(b)(2), as amended by the BAPCPA, defines "disposable income":
(2) 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 non-bankruptcy 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, ...