Here is an issue about Chapter 13 calculations. I don't have the answer so I would appreciate any opinions, especially from any Chapter 13 trustee attorney who reads this blog.
The B22 Means Test looks to the debtor's average income calculated by looking at the debtor's income over the 6 month period preceding the month of filing. The B22 budget is a pro forma budget that uses IRS approved expense figures. We know that Judge Massey and Judge Mullins draw a distinction between the "projected disposable income" of a B22 form and actual disposable income that we see on the Schedule I & J budget. As I read their opinions, the actual budget as shown on Schedules I & J is the appropriate budget from which to evaluate whether a Chapter 13 should be confirmed.
Nevertheless, Chapter 13 trustees routinely file objections to confirmation on the grounds that the B22 showed X in disposable income and X x 60 months = Y which equals Z percentage dividend to unsecured creditors. If the plan as filed does not propose a payment of Z percent to unsecureds, the trustee objects.
In many of my Chapter 13 cases, the B22 does show disposable income, whereas the I & J schedules show none. Why? The allowable expenses per the IRS are incredibly stingy. For example, the IRS budget "allows" a Dekalb County family of 4 a whopping $1,176 for housing and utilities per month. If you assume that utilities are $250, that leaves $926 for a mortgage payment. That translates into roughly a $120,000 house.
Many honest, hardworking debtors live in $200,000 or $250,000 houses with mortgage payments – perhaps both a first and a second mortgage – of $1,800 to $2,000. Under the old law, this level of mortgage payment rarely if ever drew an objection.
Since the B22 Means Test in this example only recognizes the first $926 of our hypothetical $2,000 mortgage, the means test tells us that $1,074 is left over. At the same time, our debtors may have to stretch to find $200 or $250 in their Schedule I & J real life budget.
Nevertheless, the Chapter 13 trustees are using the $1,074 to determine what percentage the debtors need to be paying back to their unsecured creditors.
What is the basis of this objection? Does the Bankruptcy Code require a Chapter 13 debtor to pay a dividend to unsecureds equal to the B22 projected disposable income? If so, what the applicable Code section?
I have always taken the position that the B22 Means Test is a qualification – it tells you if you can file a Chapter 7 without a presumption of abuse, or a 36 month Chapter 13 or a 60 month Chapter 13. Beyond that, I don't see how any of the B22 numbers mean anything.
Is not Chapter 13 still controlled by the Kitchens criteria, where for years no one said "boo" abot a $2,000 mortgage obligation for a family of 4.
Thoughts? Comments?
[tags] means test, Schedule I & J, bankruptcy disposable income, projected disposable income [/tags]