- Category: Judge Nugent
- Published on 12 September 2008
- Written by Judge Nugent
Signed and entered on 07/24/2008
Case: 07-11829 Doc #: 68 Filed: 07/24/2008
SIGNED this 24 day of July, 2008.
ROBERT E. NUGENT
UNITED STATES CHIEF BANKRUPTCY JUDGE
Page 1 of 18
DESIGNATED FOR PUBLICATION
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
IN RE: )
NICHOLAS JEROME DeTHAMPLE, ) Case No. 07-11829
ANGELA RENEE DeTHAMPLE, ) Chapter 13
This Court considers an issue requiring interpretation of certain provisions of the Bankruptcy
Code enacted by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
(BAPCPA): Is a 401(k) disbursement received by an above-median income debtor during the 6month
period before filing included in the calculation of “current monthly income” under 11 U.S.C.
§ 101(10A) and the amount of “projected disposable income” that must be paid under the chapter
13 plan? The chapter 13 trustee objected to confirmation of debtors’ amended chapter 13 plan on
Case: 07-11829 Doc #: 68 Filed: 07/24/2008 Page 2 of 18
the grounds of feasibility and failure to include the 401(k) disbursement in projected disposable
income as required by 11 U.S.C. § 1325(b)(1)(B).1 The parties submitted the case on joint
stipulations of fact and briefs.2 The trustee appeared by her attorney Christopher T. Micale. The
debtors appeared by their attorney William H. Zimmerman.
The Court has jurisdiction over this case pursuant to 28 U.S.C. § 1334(b) and § 157(b)(2)(L).
Findings of Fact
Pursuant to the parties’ stipulations of fact,3 the Court finds the following facts controlling
for determining the trustee’s objection to confirmation.
Debtors filed their chapter 13 petition on July 31, 2007, together with their completed Form
B22C.4 Debtors filed their amended chapter 13 plan on January 10, 2008.5 As of February 6, 2008
unsecured claims filed in debtors’ case total $20,183.06.6 It is stipulated that debtors are above-
median income debtors without regard to whether the 401(k) disbursement is included in current
1 Dkt. 41. Unless otherwise noted, all statutory references are to Title 11 U.S.C. § 101 et
seq., as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
2 Dkt. 51. The trustee filed a brief.
3 Dkt. 45.
4 Form B22C is the official bankruptcy form required to be completed by chapter 13
debtors containing their statement of current monthly income and disposable income calculation.
5 Dkt. 38. Debtors propose a reduction in monthly plan payments from $1,000 to $400.
6 If the trustee is successful in her objection to claim number 4, the unsecured claims
may increase slightly to $20,279.06.
Case: 07-11829 Doc #: 68 Filed: 07/24/2008 Page 3 of 18
monthly income.7 Line 6 of Form B22C is for pension and retirement income. Debtors showed no
income on line 6.
The six-month period for calculating “current monthly income” under § 101(10A) is January
1, 2007 through June 30, 2007. In April of 2007, Mrs. DeThample received a $4,000 disbursement
from her 401(k) plan; this disbursement was within the six-month period defined by § 101(10A).
The parties further stipulate that the “nature of the debtor-wife’s disbursement from her 401(k) is
such that it was a singular event and is not anticipated to occur again during the life of the debtors’
Chapter 13 Plan.”8
The statement of current monthly income, as completed by debtors, shows current monthly
income of $4,875.27 and is comprised of Mr. DeThample’s wages (Form B22C, line 2) and Mrs.
DeThample’s unemployment compensation (Form B22C, line 8). The total of all deductions and
adjustments from current monthly income claimed by debtors on Form B22C is $4,994.52 (line 57)
resulting in monthly disposable income of zero (line 58). If the 401(k) disbursement were included
in Form B22C, debtors’ current monthly income would increase to $5,541.94 and debtors’ monthly
disposable income would be $547.42. In this instance, unsecured creditors would receive
$32,845.20 over the applicable commitment period ($547.42 x 60 months).
After their initial filing debtors filed amended Schedules I and J on January 10, 2008.9
Amended Schedule I shows that Mrs. DeThample is now employed and that debtors’ gross income
7 See Dkt. 45, ¶ 11. Because debtors are above-median income debtors, debtors must
commit their projected disposable income for an “applicable commitment period” of 60 months.
§ 1325(b)(4)(A). No issue is presented in the matter before the Court concerning the length of
the applicable commitment period.
8 Dkt. 45, ¶ 15.
9 Dkt. 40.
Case: 07-11829 Doc #: 68 Filed: 07/24/2008 Page 4 of 18
is $4,177.12.10 After payroll deductions and monthly expenses, amended Schedule J shows that
debtors are left with monthly disposable income of $344.40.11
The starting point for the Court’s analysis necessarily begins with current monthly income
as defined by § 101(10A) because the definition of “disposable income” under § 1325(b)(2)
incorporates the current monthly income concept.12 Once current monthly income and disposable
income are established, the Court must consider whether debtors are committing all of their
“projected disposable income” (a term undefined by the Code) to make payments to unsecured
creditors under the plan as required for confirmation under § 1325(b)(1)(B). Thus, the Court turns
to the first part of this analysis – current monthly income.
Is a 401(k) Distribution Received by Debtors Included in Current
Under § 101(10A), current monthly income (CMI) is defined as “average monthly income
that the debtor receives from all sources . . . without regard to whether such income is taxable
income . . . .” At first blush, a 401(k) plan distribution or withdrawal would seem to be a “source”
10 Amended Schedule I shows that Mrs. DeThample’s monthly gross earnings ($560) are
less than the average monthly unemployment compensation ($643) she previously reported in
the Statement of Current Monthly Income on Form B22C, line 8, and substantially less than the
$1,544 of monthly unemployment she was actually receiving at the time of filing.
11 Debtors’ original Schedules I and J, showed gross income of $5,161,12 and monthly
disposable income of $1,438.40. Of this gross income, debtors reported on Schedule I that Mrs.
DeThample was receiving monthly unemployment income of $1,544 at the time of filing
12 Section 1325(b)(2) states that “[f]or purposes of this subsection [§ 1325(b)], the term
“disposable income” means current monthly income received by the debtor . . . less amounts
reasonably necessary to be expended – (A)(I) for the maintenance or support of the debtor or a
dependent of the debtor . . . .”
Case: 07-11829 Doc #: 68 Filed: 07/24/2008 Page 5 of 18
within the plain meaning of these few words. However, bankruptcy courts disagree on whether
401(k) withdrawals within the six months preceding a debtor’s filing are part of CMI.13
In Simon v. Zittel, one bankruptcy judge has held that 401(k) draws should be excluded from
CMI, noting that the content of a 401(k) account is income that the employee received at the time
it was deposited:
Simply put, once placed in a retirement account, the funds are unavailable to the
wage earner only in the sense that there may be hoops to jump through to access
them. For example, while funds deposited in a checking account can be accessed by
simply writing a check, payment of deferred taxes and, in some situations, a penalty,
may be required to access funds in a 401(k) or other retirement account. The
presence of penalties and taxes, however, does not make the funds any more
unavailable than funds in a checking account. Clearly, wages, once received by the
debtor, are “received for use” and within the “care, custody and control” of the
debtor until they are spent, no matter how they are allocated.14
The Simon court also notes that, while the taxation of funds deposited in a 401(k) account
as income is deferred until they are withdrawn, those funds are subjected to other forms of taxation
including Medicare, social security and federal unemployment tax at the time they are earned.15
Thus, while the taxation of these funds is irrelevant to whether they are a part of CMI, 401(k) funds
are “received” by the debtor at the time he earns his wage, not when he withdraws them.
Accordingly, the Simon court concludes that 401(k) draws within the six months preceding filing
13 The Court’s research uncovered three bankruptcy court decisions that have addressed
the issue of whether early disbursements or withdrawals from a 401(k) (not a loan) are included
in CMI. In two of the three cases, the bankruptcy courts concluded that 401(k) withdrawals
taken in the 6-month period before filing are not part of CMI: Simon v. Zittel, 2008 WL. 750346
(Bankr. S. D. Ill. Mar. 19, 2008) and In re Wayman, 351 B.R. 808 (Bankr. E. D. Tex. 2006). In
the remaining case, In re Sanchez, 2006 WL 2038616 (Bankr. W. D. Mo. Jul. 13, 2006), the
bankruptcy court concluded that 401(k) disbursements received by the debtor during the 6-month
period before filing are included in the definition of CMI.
14 2008 WL 750346 at * 3 (Bankr. S.D. Ill. Mar. 19, 2008).
Case: 07-11829 Doc #: 68 Filed: 07/24/2008 Page 6 of 18
are not included in CMI.
Another case that so holds is In re Wayman.16 There, the debtor received part of her exhusband’s
IRA account as part of her divorce settlement and drew down part of it in the six-month
run up to bankruptcy. Holding that the debtor “received” this income when the account was set over
to her, and not when she took a distribution, the court stated that the income need not be reported
on Form B22C, nor did it comprise CMI. This case is helpful for the proposition that IRA or 401(k)
income is received when the debtor obtains custody and control of it, not when the funds are
withdrawn. Given the Code’s provision that the determination be made without regard to whether
the funds are “taxable income,” this conclusion is entirely logical. Of course, in Wayman, there is
a clear record as to when the debtor “received” the IRA account. That evidence is not referenced
in Simon, and one can only speculate as to when that debtor “received” the funds that were deferred
to his 401(k).
On the inclusion side of the CMI argument is In re Sanchez, a case similar to that at bar,
where the debtor took a distribution within the six months before filing.17 There, the bankruptcy
court concluded that because the income had been deferred by being placed in the IRA account, it
was not “received” in the sense of having “come into the possession” by the debtor until it was
disbursed from the IRA:
The Court does not need to look further than the plain language of the statute to
arrive at this conclusion. “Income” is “a gain or recurrent benefit usually measured
in money that derives from capital or labor.” “Received” means “to come into
possession of” or “acquire.” And, “derived” is largely redundant of “received,”
meaning “to take, receive, or obtain especially from a specified source.” A
16 351 B.R. 808 (Bankr. S.D. Tex. 2006).
17 2006 WL 2038616 (Bankr. W. D. Mo. Jul. 13, 2006).
Case: 07-11829 Doc #: 68 Filed: 07/24/2008 Page 7 of 18
disbursement from a 401(k) plan fits all of these critical terms. It is a gain, inasmuch
as a person cannot use the money deposited in a 401(k) plan until it is disbursed, and
a person obviously cannot use the funds until he takes possession of them.18
The Sanchez court rejected out of hand the proposition that the funds were income received when
they were deposited and drew support for its conclusion from the fact that 401(k) funds are taxed
as income only when they are distributed.19 The court also noted the lack of evidence that the funds
drawn within the six months were the same funds deposited by the debtor during that time.20
In the present case, there is nothing in the stipulation upon which this Court could conclude
that the funds drawn were funds earned within the six months preceding the filing. What is clear
is that the debtor did not have possession or use of these funds until they were distributed and that
occurred during the relevant six month period. This Court agrees with the Sanchez court that the
receipt of the 401(k) disbursement constitutes a part of debtors’ income and is included in CMI.21
Like the Sanchez court, this Court notes that the common, dictionary definition of “income” includes
a “a gain or recurrent benefit . . . that derives from capital or labor.”22 While the arguments found
in Simon and Wayman are persuasive, this Court reads § 101(10A) to include every dime a debtor
gets during the relevant period except for those amounts specifically excluded by § 101(10A)(B),
like Social Security benefits. What these debtors received from the 401(k) was a derived gain.
18 Id. at *2 [citations omitted].
20 Id. at *3.
21 See generally James W. McNeilly, Jr., and David P. Leibowitz, Withdrawals from
Tax-deferred Retirement Accounts: Included in Current Monthly Income?, XXVII Am. Bankr.
Inst. J. 12, 58-59 (June 2008).
Case: 07-11829 Doc #: 68 Filed: 07/24/2008 Page 8 of 18
Congress could certainly have added other exclusions, but it did not. The Court also believes that
this reading is consistent with the apparent purpose of the CMI calculation, that being to determine
how much money debtors have available to pay their creditors.
Is Debtors’ Receipt of a 401(k) Distribution Included in Debtors’
Projected Disposable Income for Purposes of § 1325(b)(1)(B)?
Having concluded that debtors’ 401(k) draw should have been included in their CMI, the
Court must now turn to the equally vexing issue of how to calculate the debtors’ “projected
disposable income” in determining whether this plan complies with § 1325(b)(1)(B). Section
1325(b)(1)(B) provides that if the trustee or an unsecured creditor objects to debtor’s plan, the court
may not confirm it unless “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.”
“Disposable income” is defined in § 1325(b)(2) as “current monthly income received by the debtor
. . . less amounts reasonably necessary to be expended . . . .” Thus, courts must wrangle with
whether “projected disposable income” means “disposable income” as determined by Form B22C,
line 58 over the applicable commitment period, a simple mathematical calculation known as the
“mechanical rule,”23 or whether CMI, as adjusted on Form B22C, is merely the starting point in
“projecting” what the debtor might make and be able to pay over the commitment period. In this
case, if the B22C figures are used exclusively, the debtor will be required to pay the unsecured
creditors $32,845.20 over the life of the plan ($547.42 x 60 months) when their Schedules I and J
23 See e.g., In re Greer, __ B.R. __, 2008 WL 2485521 (Bankr. C.D. Ill. 2008); In re
Manci, 381 B.R. 537 (W.D. Wis. 2008); In re Brady, 361 B.R. 765 (Bankr. D. N.J. 2007); In re
Miller, 361 B.R. 224 (Bankr. N.D. Ala. 2007); In re Hanks, 362 B.R. 494 (Bankr. D. Utah 2007);
In re Alexander, 344 B.R. 742 (Bankr. E.D. N.C. 2006).
Case: 07-11829 Doc #: 68 Filed: 07/24/2008 Page 9 of 18
reflect only $344.40 a month in net disposable income, as that term was formerly understood.
The Code’s use of adjusted CMI as the definition of “disposable income” not only seems
contrary to determining what a debtor might earn and spend in the future because the CMI
calculation is not only a retrospective view of income, but is also somewhat theoretical because the
permissible deductions from CMI made on Form B22C are not all “actual” numbers. Instead, many
of the permissible deductions are premised on Internal Revenue standards and do not reflect a
debtor’s actual reported expenses. In light of that, a majority of courts have adopted a hybrid
approach to projecting disposable income that begins with the CMI figures on B22C, but, where it
appears that the debtor’s prospective income expectations do not match that, ends with an
examination of the debtor’s actual income and expenses to determine what projected disposable
income is.24 In other words, these courts go beyond the concept that “projected” disposable income
implicates a mere multiplier of past income and expense as shown on Form B22C, line 58. The
hybrid approach has been adopted by the Tenth Circuit Bankruptcy Appellate Panel (BAP) in In re
Because both camps ride under the banner of “plain meaning,” this Court notes that Congress
has defined the term “disposable income” in § 1325(b). It states that, for the purposes of subsection
(b), disposable income is defined as “current monthly income received by the debtor . . . less
24 See e.g., In re Briscoe, 374 B.R. 1 (Bankr. D. Colo. 2007); In re Edmondson, 363 B.R.
212 (Bankr. D. N.M. 2007); In re Jass, 340 B.R. 411 (Bankr. D. Utah 2006); In re Casey, 356
B.R. 519 (Bankr. E. D. Wash. 2006); In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex. 2006); In
re Fuller, 346 B.R. 472 (Bankr. S.D. Ill. 2006); In re Louviere, __ B.R. __, 2008 WL 925824
(Bankr. E.D. Tex. 2008); In re Meek, 370 B.R. 294 (Bankr. D. Idaho 2007).
25 380 B.R. 17 (10th Cir. BAP 2007).
Case: 07-11829 Doc #: 68 Filed: 07/24/2008 Page 10 of 18
amounts reasonably necessary to be expended . . . .”26 The only other time the words “disposable
income” appear together in subsection (b) are in § 1325(b)(1)(B), and then the words are preceded
by “projected.” The target amount that the debtor must propose to pay is the projected disposable
income “to be received” during the commitment period.27 In the balance of subsection (b), when
referring to the debtor’s income to determine whether the debtor lies above or below the income
median, the drafters used not “disposable income,” but the words “current monthly income” much
as they did in § 707(b). The word “projected” and the phrase “projected disposable income” are
Under the previous law, projected disposable income was well-defined in the case law as the
difference between what the debtor projected she might make and what she might be expected to
expend for her and her dependents’ support and well-being.28 Former § 521(1) required a “schedule
of current income and current expenditures.”29 New § 521(a)(1)(B)(ii) requires the same. Indeed,
new § 521(i)(1) provides that any debtor who fails to file this schedule shall suffer automatic
dismissal of the case on the 46th day after the filing of the petition. Clearly, Congress laid great
emphasis on debtors’ continued accurate representation of not only their CMI and applicable
expense deductions on Form B22C (a required filing under new § 521(a)(1)(B)(v)), but also of their
26 Section 1325(b)(2).
27 Section 1325(b)(1)(B).
28 See § 1325(b)(1)(B) (Thomson/West 2003) (requiring chapter 13 plan to provide “that
all of the debtor’s projected disposable income to be received in the three-year period beginning
on the date that the first payment is due under the plan will be applied to make payments under
the plan.”); In re Richardson, 283 B.R. 783, 798 (Bankr. D. Kan. 2002); In re Solomon, 67 F.3d
1128 (4th Cir. 1995); In re Frederickson, 375 B.R. 829, 832-33 (8th Cir. BAP 2007) (discussing
“projected disposable income” pre-BAPCPA); In re Anderson, 21 F. 3d 355 (9th Cir. 1994).
29 Schedule I and Schedule J.
Case: 07-11829 Doc #: 68 Filed: 07/24/2008 Page 11 of 18
actual monthly income and expense on Schedules I and J. If all income-driven decisions to be made
in chapter 7 and 13 cases were to be made using only CMI and not actual current income and
expense, there would be no purpose to requiring both schedules to be filed.
A definition of the word “project” is “to plan, figure, or estimate for the future.”30 The
concept of CMI by definition looks to the immediate pre-petition past. Projecting disposable income
forward, or estimating it for the future requires not only consideration of the debtor’s past
performance, but also of his current income and expenditures. If they are similar, projected CMI,
adjusted by reasonably necessary expenses, and multiplied by the number of months in the
applicable commitment period, may well be the appropriate measurement of what the debtor is
obliged to pay. If, however, the record suggests that the CMI calculation may not approximate the
debtors’ present and future income abilities, courts cannot simply ignore those conditions. That is
the import of the word “projected” in the statute.
This Court agrees with the analysis of this question found in my colleague Judge Karlin’s
opinion in In re Lanning, as affirmed by the Tenth Circuit Bankruptcy Appellate Panel.31 Judge
Karlin notes that the reference to projected income to be received would be superfluous were courts
bound only to the historical average income set forth in § 101(10A) and Form B22C.32 She also
concludes that “we cannot minimize Congress' insertion of the word “projected” before the words
“disposable income” in the Chapter 13 confirmation context.”33 She points out that courts are
31 No. 06-41037, 2007 WL 1451999 (Bankr. D. Kan. May 15, 2007), aff’d in part 380
B.R. 17 (10th Cir. BAP 2007), appeal docketed No. 08-3009 (10th Cir.).
32 2007 WL 1451999 at *5.
Case: 07-11829 Doc #: 68 Filed: 07/24/2008 Page 12 of 18
directed to determine whether the debtor is committing her projected disposable income “as of the
effective date of the plan,” again implicating an attempt to determine what the debtor’s future will
bring, predicated on her present financial abilities.34 Finally, she notes that, as in the present case,
use of the CMI multiplier without consideration of a debtor’s present abilities would prevent many
debtors’ plans from ever being confirmed, even though they had the capacity to pay their creditors
something.35 This Court agrees with Judge Karlin’s reasoning, and respectfully disagrees with those
courts that would apply the rote mechanical test.
In the Tenth Circuit BAP opinion affirming Judge Karlin’s Lanning decision,36 the BAP
panel opted for the “projected view” and cited for support the First Circuit BAP’s opinion in In re
Kibbe.37 Kibbe, in turn, adopts the reasoning of the two leading bankruptcy court opinions
supporting the forward-looking view: In re Jass38 and In re Hardacre.39 Kibbe involved a below-
median debtor who proposed a plan that paid no unsecured dividends because her B22C disposable
income was a negative number, even though she had obtained a higher paying job immediately
before filing and her actual income exceeded her expenses by more than $2,400. The First Circuit
[W]here, as here, the “current monthly income” amount is not true to the debtor's
actual current income, courts should assume that Congress intended that they rely
36 380 B.R. 17 (10th Cir. BAP 2007).
37 361 B.R. 302 (1st Cir. BAP 2007).
38 340 B.R. 411 (Bankr. D. Utah 2006).
39 338 B.R. 718 (Bankr. N.D. Tex. 2006).
Case: 07-11829 Doc #: 68 Filed: 07/24/2008 Page 13 of 18
on what a debtor can realistically pay to creditors through his or her plan and not on
any artificial measure. Attaching the word “projected” to a historical calculation
assumes, without justification, that a debtor's circumstances will not change after the
date of case commencement or during the plan commitment period. Life informs
otherwise. Insofar as the term “disposable income” demands a look back and the
term “projected” requires a look forward, the language is irreconcilable. One must
give way to the other, or the courts must fashion an interpretation that gives the
greatest meaning to both.40
Where the debtor’s actual or reasonably anticipated income at confirmation is not “substantially the
same” as the Form B22C disposable income figure, the First Circuit BAP held that the bankruptcy
court must consider that fact in projecting disposable income.
Thus, the Lanning panel agreed “with the courts that have found “disposable income” to be
only the starting point in determining “projected disposable income” under section 1325(b)(1)(B).
Where it is shown that Form B22C disposable income fails accurately to predict a debtor's actual
ability to fund a plan, that figure may be subject to modification.”41
Subsequent to Lanning, the Ninth Circuit Court of Appeals has adopted the narrow
interpretation that applies a multiplier. In In re Kagenveama,42 that court holds that “projected
disposable income” as referenced in § 1325(b)(1)(B) is “disposable income” as defined in §
1325(b)(2), projected over the applicable commitment period. This, the Ninth Circuit concludes,
is the “most natural reading.”43 Kagenveama specifically rejects Hardacre, stating that “projected”
modifies “disposable income,” and that “disposable income” and “projected disposable income” are
40 361 B.R. at 312.
41 380 B.R. at 24-25.
42 __ F.3d __, 2008 WL 2485570 (9th Cir. June 23, 2008).
43 Id. at *2.
Case: 07-11829 Doc #: 68 Filed: 07/24/2008 Page 14 of 18
directly linked concepts.44 Responding to Jass, the court says that nowhere in § 1325 is there
language that would implicate or create the establishment of a “presumption” concerning disposable
income. The court noted that the existence of the § 707(b) presumption of abuse demonstrates that
Congress knows how to create a presumption and did not do so in connection with disposable
The factual setting of Kagenveama may have some bearing on the weight to be given its
holdings. The debtor’s Form B22C expenses were greater than her CMI, yielding a negative
disposable income figure. Nevertheless, this above-median debtor proposed a plan with a thirty-six
month duration, paying $1,000 per month to the unsecured creditors. The chapter 13 trustee
objected, asserting that the applicable commitment period was properly 60 months, not 36. The
bankruptcy court overruled the trustee’s objection, stating that debtor was not required to propose
a 60-month plan because she had no projected disposable income. This lower court ruling the Ninth
Circuit affirmed, suggesting that Kagenveama may be about applicable commitment periods as
much as it is about projected disposable income. In the Ninth Circuit, a debtor with no projected
disposable income has no applicable commitment period.
Moreover, the Ninth Circuit’s Kagenveama opinion only looks within the confines of §
1325(b) for its analysis and nowhere acknowledges the inherent contradiction between “projecting”
disposable income “to be received in the applicable commitment period” and using the backward-
looking “current monthly income” figure as a starting point. It also ignores the prefatory language
in § 1325(b)(1) that requires these calculations be made “as of the effective date of the plan” as
44 Id. at *3.
45 Id. at *4.
Case: 07-11829 Doc #: 68 Filed: 07/24/2008 Page 15 of 18
opposed to determining what was received during the six-month period before the case was filed,
as the definitions of CMI and disposable income contemplate. Lanning recognizes these
contradictions and attempts to resolve them in a manner that not only gives all of these terms
meaning, but also results in above-median debtors being required to pay what they actually can pay
or being allowed to not pay what they cannot. This is entirely consistent with the policy and
legislative history of BAPCPA as well as the policy of the 1978 Act. Although this Court agrees
with Judge Karlin’s and the Tenth Circuit BAP’s analysis and interpretation of “projected disposable
income” as used in § 1325(b)(1)(B), it notes that Lanning is presently on appeal to the Tenth Circuit
Court of Appeals.46
In the present case, debtors’ actual disposable income deduced from amended Schedule I and
J, without regard to any intended further withdrawals from their 401(k), is about $344.47 Over sixty
months, the debtors could pay approximately $20,640 on account of unsecured claims. Unsecured
claims in this case total at most $20,279. Moreover, the debtors’ draw of $4,000 on their 401(k)
does not appear to be part of an ongoing pattern of payments.48 Indeed, according to debtors’
amended Schedule C, only $400 remains in the 401(k) account. This affords sufficient factual
predicate to find that a change of circumstances justifies excluding the pre-petition $4,000 401(k)
distribution from debtors’ CMI, at least for § 1325(b)(1)(B) purposes.49 While this Court declines
46 No. 08-3009 (10th Cir.). The parties have filed their appellate briefs and the appeal
awaits the Tenth Circuit’s decision.
47 Dkt. 40.
48 The parties described the $4,000 withdrawal in the joint stipulations as a “singular
event” and “not anticipated to occur again” during the life of the plan. Dkt. 45, ¶ 15.
49 The substantial change in debtors’ circumstances here is the fact that the pre-petition
401(k) distribution was a “singular event,” that Mrs. DeThample subsequently obtained
Case: 07-11829 Doc #: 68 Filed: 07/24/2008 Page 16 of 18
to categorically declare that pre-petition 401(k) disbursements may in all cases be excluded from
the projected disposable income calculation, where the draw does not appear to have been taken on
a planned or periodic basis, it will likely be disregarded in the projected disposable income
calculus.50 This reading is consistent with a reading of other portions of the Code, including the
clearly espoused policy of § 522(b)(4) which fully exempts any qualified retirement fund from the
bankruptcy estate, § 522(b)(3)(C) that exempts a 401(k) fund for debtors claiming state law
exemptions, § 522(d)(12) that exempts any 401(k) fund for debtors claiming federal exemptions, and
§ 522(n) which allows other Internal Revenue Code 408 funds to be exempted up to $1.0 million.
Congress clearly intended that debtors’ retirement assets be protected even in the event of debtors’
If a strict interpretation of § 1325(b)(3)(B) is applied, it appears that debtors expenses on
amended Schedule J are within the amounts deemed reasonably necessary in that subsection.
employment and that her earnings from that employment as reported on amended Schedule I are
substantially less than she was receiving pre-petition from unemployment compensation. In
Lanning, the Tenth Circuit BAP stated that it is appropriate to utilize the “special circumstances”
standard in § 707(b)(2)(B)(i) “in considering a Chapter 13 debtor’s claim that a substantial
change of circumstances justifies a similar deviation from Form B22C.” 380 B.R. at 25. The
Court concludes that debtors have satisfied that “special circumstances” standard in this case,
given the parties’ stipulations.
50 If, for instance, the debtor had reached the age of 62 and had begun to draw on her
401(k) regularly as a means of support, the Court might, after reviewing and comparing Form
B22C and Schedules I and J, consider that those disbursements should included in the projected
disposable income calculation.
51 The Court notes that these debtors exempted this 401(k) fund under KAN.STAT.ANN.
§ 20-2618 (2007), the exemption of benefits under the retirement system for judges. Because the
401(k) is identified on Schedule C as a Cessna plan, the Court does not believe debtors cited the
correct statutory authority for exempting the 401(k). See KAN.STAT.ANN. § 60-2308 and § 602313(
a)(1) (2005). The trustee has not, however, objected to debtors’ claim of exemption in the
Case: 07-11829 Doc #: 68 Filed: 07/24/2008 Page 17 of 18
Because these debtors are above-median, their reasonably necessary expenses are determined in
accordance with § 707(b)(2)(A) and (B) on Form B22C. In other words, while they may be entitled
to apply a real-time income figure in determining the “disposable income,” they are constrained by
allowable amounts of B22C expenses.52 A comparison of their Schedule J expenses to those noted
on Form B22C shows that none of the expenses they claim on Schedule J exceeds the amounts
determined in accordance with § 707(b)(2)(A) and (B).53
Applying these conclusions to the DeThamples, a projected disposable income calculation
similar to the debtor in Lanning obtains.54 These debtors’ amended Schedule I shows net monthly
income of $2,893.4055 and debtors’ Form B22C shows expenses calculated under § 707(b)(2) as
$4,994.52 resulting in a negative number. By electing to pay $400 per month under their amended
chapter 13 plan,56 more than the statutory means test requires, the debtors’ plan is confirmable so
long as it runs 60 months.
52 See In re Gonzalez, __ B.R. __, 2008 WL 2492162, *15-16 (Bankr. S.D. Tex. 2008).
See also, In re Lanning, 2007 WL 1451999 at *7; In re Jass, 340 B.R. at 418.
53 The total deductions allowed under § 707(b)(2) as shown on debtors’ Form B22C, line
52 is $4,793.93, while the monthly expenses claimed on amended Schedule J by debtors is
54 “Because Debtor Lanning’s Schedule I showed actual income of $1,922, and her B22C
showed expenses of $4,228, the means test would result in Debtor not having to pay anything to
unsecured creditors, because the remainder is a negative number. If she pays zero, however, she
cannot formulate a feasible plan that meets all the other requirements of § 1325(a). Nothing
prevents debtors from electing to pay more than the statutory means test requires, in order to
meet the requirement that a plan must be feasible, so long as the payment continues for 60
months. Accordingly, since Debtor Lanning has proposed to pay $144 per month, her plan is
confirmable so long as it continues 60 months.” 2007 WL 1451999 at *8.
55 Dkt. 40.
56 Dkt 38.
Case: 07-11829 Doc #: 68 Filed: 07/24/2008 Page 18 of 18
Therefore, the Court concludes that while the pre-petition distribution from the debtor’s
401(k) is included in CMI for completing Form B22C, it may be disregarded in determining debtors’
projected disposable income for confirmation purposes under § 1325(b)(1)(B) and the factual
circumstances of this case. The Trustee’s objection is therefore OVERRULED. The Trustee is
directed to prepare and circulate an order on confirmation consistent with the forgoing.
# # #