- Category: Judge Berger
- Published: 08 July 2011
- Written by Judge Berger
Signed July 07, 2011.
United States Bankruptcy Judge
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
SAMUEL LESLIE BLUMER and Case No. 10-22424
REBECCA ANN BLUMER, Chapter 13
ROBERT D. BERGER
MEMORANDUM OPINION AND ORDER
DENYING CONFIRMATION OF AMENDED CHAPTER 13 PLAN
Confirmation of Debtors’ Amended Chapter 13 plan is before the Court.1 The Chapter 13
Trustee objects to Debtors’ proposed amended plan because the plan does not commit all
projected disposable income to unsecured creditors.2 The issue is whether Chapter 13 debtors
may deduct monthly mortgage payments related to a surrendered home under §707(b)(2)(A)(iii)
as incorporated into §1325(b). The Court, having reviewed the relevant pleadings and having
considered counsel’s and the Trustee’s arguments, finds the amended plan cannot be confirmed
and orders Debtors to submit an amended Statement of Current Monthly Income and Calculation
Doc. No. 31.
Doc. No. 40.
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of Commitment Period and Disposable Income (“Form B22C”) without the deductions and in
conformity with this Order.
Findings of Fact
Debtors filed for Chapter 13 relief on July 15, 2010. Debtors’ Form B22C indicates they
are above-median income debtors with $106,435 reported as their annualized income for a
family of two. Debtors completed the disposable income calculation under §1325(b)(3) and
reported negative monthly disposable income after taking deductions for two mortgages on their
home. Debtors originally planned to retain their home; however, the mortgagee’s proof of claim
greatly exceeded Debtors’ estimate. Prior to confirmation, Debtors amended their plan and
proposed to surrender the home. Debtors did not amend their Form B22C. The Trustee argues
Debtors have disposable income available to pay unsecured creditors if the payments for the
surrendered home are removed from Debtors’ budget.
Conclusions of Law
Section 1325(b)(1)(B) requires debtors to commit their projected disposable income to
pay unsecured creditors as of the effective date of the plan. For purposes of §1325(b),
“disposable income” is defined as current monthly income (“CMI”) less “amounts reasonably
necessary to be expended.”3 Section 1325(b)(3) states “amounts reasonably necessary to be
expended” shall be determined under § 707(b)(2)(A) and (B) if the debtor is an above-median
Commonly referred to as the means test, §707 is also known as the “presumption of
abuse test” in Chapter 7 cases. In Chapter 7, §707(b)(2) measures the debtor’s financial
3 11 U.S.C. §1325(b)(2).
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condition at the time of filing and presumptively determines whether the debtor qualifies for
Chapter 7 relief. Because the presumption of abuse is determined as of the petition date, the
subsequent surrender of collateral is inconsequential in Chapter 7.4
However, when §707(b)(2) is incorporated into §1325(b)(3), the “presumption of abuse
test” becomes the “disposable income test” for Chapter 13 above-median income debtors. Thus,
the impact of debtors surrendering collateral is materially different in the context of Chapter 13
because of the timing and purpose of applying the §707 means test. Section 1325(b)(1) applies
the means test “as of the effective date of the plan.” Rather than a snapshot of debtor’s financial
condition as of the petition date, the disposable income test addresses the debtor’s financial
condition as of the effective date of the plan. The effective date of the plan is the confirmation
date – whether it be confirmation of the first plan filed at the case’s commencement or a pre-
confirmation amended plan. The purpose of the disposable income test is not to determine the
debtor’s initial eligibility for relief, but to presumptively determine an amount of disposable
income to be committed to unsecured creditors during the plan’s applicable commitment period.
Thus, under §1325(b), disposable income is determined by applying §707(b)(2)(A) and (B) to
the debtor’s circumstances as they exist on the date of confirmation, rather than based on
circumstances as they exist on the petition date.5 Because the test is applied at a different time,
payments on account of secured debts cannot include payments on account of surrendered
In re Walker, 2006 WL 1314125, at *4 (Bankr. N.D. Ga. 2006); see also In re Nockerts, 357 B.R. 497
(Bankr. E.D. Wis. 2006); In re Galyon, 366 B.R. 164 (Bankr. W.D. Okla. 2007); In re Hartwick, 359 B.R. 16
(Bankr. D.N.H. 2007); In re Hartwick, 352 B.R. 867 (Bankr. D. Minn. 2006); In re Palm, 2007 WL 1772174
(Bankr. D. Kan.).
5 In re Crittendon, 2006 WL 2547102 (Bankr. M.D.N.C. 2006); In re Nockerts, 357 B.R. at 504; In re
Edmunds, 350 B.R. 636 (Bankr. D.S.C. 2006); In re McPherson, 350 B.R. 38 (Bankr. W.D. Va. 2006); In re
McGillis, 370 B.R. 720 (Bankr. W.D. Mich. 2007).
Case 10-22424 Doc# 72 Filed 07/07/11 Page 3 of 5
collateral because those amounts will not be paid once a plan surrendering the collateral is
Further, §1325(b)(2) requires debtor’s expenses be “reasonably necessary” for debtor’s
support before the expense may be deducted from CMI.6 Reasonably necessary expenses are
those expenses which can be claimed as a §707(b)(2)(A) expense with the additional
requirement the expense also be necessary for debtor’s support during the applicable
commitment period as of the effective date of the plan. Expenses avoided by surrendering
property are not reasonably necessary for the debtor’s support as of the effective date of the plan
and will not meet this additional criteria.
Recent case law requires the Chapter 13 disposable income test be based on the forward-
looking approach.7 The Supreme Court has found “that when a bankruptcy court calculates a
debtor’s projected disposable income, the court may account for changes in the debtor’s income
or expenses that are known or virtually certain at the time of confirmation.”8 Chapter 13 debtors
may not deduct budget expenses they know they will not pay after confirmation.
In this case, Debtors have surrendered the house. The two mortgage note payments are
not deductible because they will not be paid. These “phantom” secured debt payments are not
reasonably necessary for the Debtors’ support during the applicable commitment period. 9
Accordingly, Debtors may not deduct the payments on account of the secured debt for the
6 This requirement is not present in Chapter 7.
7 Hamilton v. Lanning, – U.S. –, 130 S. Ct. 2464 (2010); Ransom v. FIA Card Services, N.A., – U.S. –, 131
S. Ct. 716 (2011); In re Liehr, 439 B.R. 179 (B.A.P. 10th Cir. 2010); Darrohn v. Hildebrand, 615 F.3d 470 (6th Cir.
8 Lanning, 130 S. Ct. at 2478.
9 In re Liehr, 439 B.R. 179; Darrohn v. Hildebrand, 615 F.3d 470; In re Turner, 574 F.3d 349 (7th Cir.
2009); however this interpretation is not without detractors, 8 COLLIER ON BANKRUPTCY ¶1325.11[c] at 1325-63
(Alan N. Resnick & Henry J. Sommer, eds., 16th ed. 2011).
Case 10-22424 Doc# 72 Filed 07/07/11 Page 4 of 5
surrendered home on Form B22C.
For the foregoing reasons, Debtors’ amended plan cannot be confirmed because it is
premised on an incorrect Form B22C and does not commit Debtors’ projected disposable income
to unsecured creditors. The Trustee’s Objection to Confirmation is sustained. Debtors are
allowed 45 days to file an amended plan and an amended Form B22C without the deductions for
payments on account of surrendered collateral.
IT IS SO ORDERED.
ROBERT D. BERGER
U.S. BANKRUPTCY JUDGE
DISTRICT OF KANSAS
Case 10-22424 Doc# 72 Filed 07/07/11 Page 5 of 5
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