Opinion
Case No. 19-10304-JGR
2020-05-12
IN RE: Leonard Edwin ADAMSON, Jr., SSN: xxx-xx-xxxx Debtor.
Michael Suchoparek, Weselis & Suchoparek, LLC, Denver, CO, for Debtor. Adam M. Goodman, Chapter 13 Trustee, Denver, CO, for Trustee.
Michael Suchoparek, Weselis & Suchoparek, LLC, Denver, CO, for Debtor.
Adam M. Goodman, Chapter 13 Trustee, Denver, CO, for Trustee.
ORDER DENYING CONFIRMATION
Joseph G. Rosania, Jr., United States Bankruptcy Judge
This matter comes before the Court on confirmation of the Amended Chapter 13 Plan (Doc. 27; the "Amended Plan") filed by Leonard Edwin Adamson, Jr. (the "Debtor"), and the Chapter 13 Trustee's Objection to Confirmation (Doc. 30; the "Objection to Confirmation"). At issue in this proceeding is whether the Amended Plan may be confirmed, notwithstanding that it fails to provide for payment of all net proceeds from a potential personal injury claim to creditors. This is an issue of first impression in this Circuit. The Court has jurisdiction over this core matter pursuant to 28 U.S.C. § 157(b)(2)(L) and 28 U.S.C. § 1334.
BACKGROUND
I. The Bankruptcy Filing and Amendments
The pertinent facts are undisputed. The Debtor filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code on January 16, 2019. The Debtor's Official Form 122C-1 Statement of Current Monthly Income and Calculation of Commitment Period reflects that the Debtor is a below-median income debtor with a commitment period of three years (Doc. 5).
The Debtor's Schedule A/B lists, inter alia , the following asset:
Potential Personal Injury Claim relating to a [sic] auto accident claim from October 13, 2017. This may include 1st and 3rd party insurance coverage. Debtor has retained counsel for this matter which is different than his bankruptcy [sic] counsel. Value Unknown.
(D.'s Ex. 1, p. 22). The Debtor's Schedule C lists a 100% claim of exemption in the personal injury claim pursuant to Colo. Rev. Stat. § 13-54-102(1)(n) (D.'s Ex. 1, p. 25). The Debtor subsequently filed Amended Schedules A/B and C on May 24, 2019, and July 1, 2019, respectively, to change the value of the personal injury claim from "$1.00" to "unknown" (D.'s Ex. 1, pp. 58; 61). The Debtor's Amended Schedule A/B reflects: "Value Unknown as there is no agreeed [sic] upon settlement nor a trial verdict at this time" (D.'s Ex. 1, p. 58).
The Debtor notes that, "[u]nder Colorado Law, the Debtor has a three-year statute of limitations on this claim to commence suit" (Doc. 48). The Court acknowledges that the Debtor must commence suit or settlement of the personal injury claim during the required three-year commitment period for his Chapter 13 plan, or he will be forever barred from doing so.
II. The Amended Plan and Chapter 13 Trustee's Objections
The Debtor filed his Amended Plan on April 17, 2019 (D.'s Ex. 2). The Amended Plan provides for total payments of $60,540 over five years, of which $864.58—or approximately 3.24%—is to be paid toward the $26,667.50 in timely-filed and allowed non-priority unsecured claims in the Debtor's case. The Amended Plan also provides for payment of priority claims, including tax debt in the amount of $27,868.80, and arrearages on the Debtor's principal residence in the amount of $18,592.62. The latter two debts are presumably the reason that payments under the Amended Plan extend beyond the three-year commitment period required of a below-median income debtor.
The Chapter 13 Trustee filed his Objection to Confirmation of the Amended Plan on May 9, 2019. By the Objection to Confirmation, the Chapter 13 Trustee argued, in relevant part, that the Amended Plan should not be confirmed because it "fails to provide that all net proceeds from the pending/anticipated lawsuit will be paid to the Trustee for distribution to allowed unsecured claims, as required by 11 U.S.C. §§ 1325(a)(3), 1325(a)(4), and 1325(b)."
The Court held a preliminary hearing on confirmation of the Amended Plan and the Objection to Confirmation on May 23, 2019, at which it set an evidentiary hearing and ordered the parties to file trial briefs. The Chapter 13 Trustee filed his brief on June 25, 2019 (Doc. 41), and the Debtor filed his brief on July 9, 2019 (Doc. 48). The evidentiary hearing was rescheduled from time-to-time and ultimately held on September 17, 2019.
Prior to the evidentiary hearing, on July 24, 2019, the Chapter 13 Trustee timely filed an objection to the Debtor's amended claim of exemption in the personal injury claim (Doc. 49; the "Objection to Exemption"). By the Objection to Exemption, the Chapter 13 Trustee argued that the claim should not re-vest in the Debtor upon confirmation "such that any proceeds realized would be available as disposable income for distribution to creditors." The Debtor filed a response in opposition to the Objection to Exemption on July 30, 2019 (Doc. 55).
At the evidentiary hearing, the Chapter 13 Trustee represented that he filed the Objection to Exemption solely to preserve his Objection to Confirmation, because some courts have declined to reach the disposable income argument where the Chapter 13 trustee failed to object to the corresponding claimed exemption. On the issue of confirmation, the Court heard testimony from the Debtor and legal argument of the parties. The Debtor offered two exhibits, both of which were admitted into evidence. Exhibit 1 consisted of the Debtor's bankruptcy petition and all subsequent amendments, and Exhibit 2 was the Amended Plan.
The Debtor testified that the personal injury claim stems from an automobile accident in which the Debtor was rear-ended by an at-fault driver (Tr. 15:7-24). The Debtor testified that as a result of the accident, the at-fault driver's automobile was non-operational, and the Debtor's automobile was totaled (Tr. 15:25-16:14). The Debtor testified that he suffered injuries from the accident, including pain, numbness, tightness, and a back injury that requires ongoing physical therapy (Tr. 16:15-17:25). The Debtor testified that since the accident occurred in 2017, his injuries have required him to visit a doctor at least once per month, including visits to his general physician, at least half a dozen visits to a specialist, approximately 30 total visits to two physical therapists, and visits for both a CAT scan and a MRI (Tr. 17:5-8; 18:17-24; 19:18-22). The Debtor testified to the ongoing nature of his injuries, that none of his treating doctors have been able to predict when his injuries may resolve, and to his understanding that if physical therapy is unsuccessful, the next step may be for him to see a neurologist (Tr. 19:13-17; 19:23-20:10; 21:2-7).
The Debtor also testified that none of the debts listed on his Schedule E/F are medical debts associated with the automobile accident because his insurer has paid said debts in part, and the Debtor has paid the remaining co-pays and out-of-pocket costs as they have come due (Tr. 14:21-24; 28:2-29:18). The Debtor testified that his co-pays and out-of-pocket costs have ranged between $10 and $167 per instance, with his most frequently incurred cost being a $40 co-pay per doctor visit (Tr. 28:25-29:18).
The Debtor's primary arguments were threefold: (i) the plain language of 11 U.S.C. § 522(c) expressly shields exempt assets from pre-petition creditors; (ii) the "ability-to-pay test" in 11 U.S.C. § 1325(a)(4) compels a debtor to pay unsecured creditors the value of his non-exempt assets, therefore the debtor should not be required to pay the value of his exempt assets; and (iii) a personal injury recovery is not "disposable income" as that term is defined in 11 U.S.C. § 1325(b)(2), therefore it cannot be "projected disposable income" under 11 U.S.C. § 1325(b)(1). The Debtor also made general and specific policy arguments against requiring debtors to pay proceeds of exempt assets to creditors in Chapter 13 cases, including: (i) it will discourage prospective debtors from filing Chapter 13; (ii) it will ensure that Chapter 13 debtors receive unreasonably low personal injury settlement offers and discourage debtors from pursuing civil litigation against negligent parties; and (iii) it is not equitable for the Chapter 13 Trustee to mandate receipt of the recovery without indemnifying the Debtor for his costs in pursuing the litigation.
The Chapter 13 Trustee conceded that the personal injury claim is exempt but argued that courts generally hold that proceeds of exempt assets are "disposable income" under 11 U.S.C. § 1325(b)(2), regardless of a claimed exemption. The Chapter 13 Trustee explained that his ordinary practice in similar cases is as follows: (i) the Chapter 13 Trustee does not object to the personal injury claim re-vesting in the debtor upon confirmation, so long as the Chapter 13 plan provides that the net proceeds of such claim are turned over to the Chapter 13 Trustee once received; and (ii) after the proceeds are turned over, the Chapter 13 Trustee confers with the debtor to assess the debtor's needs and reach an agreement as to what portion of the proceeds, if any, should be considered disposable income. The Chapter 13 Trustee proposed to treat the net proceeds of the personal injury claim in this case in a manner consistent with his ordinary practice.
Both parties analyzed cases decided before and after enactment of the Bankruptcy Abuse Protection Consumer Protection Act of 2005 ("BAPCPA") in support of their positions. The Debtor urges this Court to base its decision on post-BAPCPA decisions.
The Debtor also asserts that the Court should consider decisions from jurisdictions with "re-vesting plans" under 11 U.S.C. § 1327, not "non-vesting plans" under 11 U.S.C. § 1306. While the Debtor correctly notes that the District of Colorado is a "re-vesting plan" jurisdiction, the Court finds that this distinction is not controlling with respect to the instant proceeding. 11 U.S.C. § 1327 states: "Except as otherwise provided in the plan or the order confirming the plan , the confirmation of a plan vests all of the property of the estate in the debtor." (emphasis added). Here, the Chapter 13 Trustee argues that plan should provide for payment of the net proceeds from the personal injury to creditors because they should be included in the calculation of the Debtor's disposable income under 11 U.S.C. § 1325(b)(2).
ANALYSIS
"Chapter 13, commonly referred to as the wage earner chapter, is conceptually a personal or individual reorganization." In re Doucet , No. 15-21531, 2016 WL 2603072, at *4 (Bankr. D. Kan. May 3, 2016). Individuals with regular income obtain a discharge after the successful completion of a payment plan approved by the bankruptcy court. Marrama v. Citizens Bank of Massachusetts , 549 U.S. 365, 367, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007). Plan payments are usually made from a debtor's "future earnings or other future income." Harris v. Viegelahn , 575 U.S. 510, 135 S. Ct. 1829, 1835, 191 L.Ed.2d 783 (2015) (citations omitted). Conversely, under Chapter 7, "the debtor's assets are immediately liquidated and the proceeds [are] distributed to creditors." Id. at 1834.
"Proceedings under Chapter 13 can benefit debtors and creditors alike." Id. at 1835. Chapter 13 is a soft landing place for debtors who need time to reorganize their financial matters, including curing pre-petition defaults on secured debt and paying priority claims over three to five years. Doucet , 2016 WL 2603072, at *4 (citations omitted). Whereas creditors usually receive more under a Chapter 13 plan than they would have under a Chapter 7 liquidation. Harris , 135 S. Ct. at 1835.
Confirmation of a Chapter 13 plan is governed by 11 U.S.C. § 1325. The court shall confirm a plan if each of the requirements of 11 U.S.C. § 1325 is met. See 11 U.S.C. § 1325(a). Chapter 13 debtors bear the burden of proving the required elements of 11 U.S.C. § 1325 by a preponderance of the evidence. In re Styerwalt , 610 B.R. 356, 368 (Bankr. D. Colo. 2019) (citations omitted).
As a preliminary matter, the Debtor argues that because the "ability-to-pay test" in 11 U.S.C. § 1325(a)(4) compels a debtor to pay unsecured creditors the value of his nonexempt assets, he should not be required to pay the value of his exempt assets. However, courts have concluded that the "ability-to-pay test," or "best interests of creditors test[,] of § 1325(a)(4) is a separate and distinct test from the ‘best effort’ requirement of § 1325(b)(1)." In re McDonald , 519 B.R. 324, 329 (Bankr. D. Kan. 2014) (citation omitted). Indeed, "[t]he requirements of § 1325(b)(1) and § 1325(a)(4) must both be met to secure confirmation of a plan, and the fulfillment of one has no bearing on the other." In re Hutchinson , 354 B.R. 523, 531 (Bankr. D. Kan. 2006) (citation omitted). 11 U.S.C. § 1325(b)(1) is implicated where, as here, a Chapter 13 plan does not provide for full repayment of unsecured claims and the Chapter 13 trustee or an allowed unsecured creditor objects to confirmation. 11 U.S.C. § 1325(b)(1)(B) states:
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.
(emphasis added).
The Bankruptcy Code does not define "projected disposable income." However, 11 U.S.C. § 1325(b)(2), which was substantially revised by BAPCPA, defines "disposable income" as:
[C]urrent monthly income received by the debtor (other than payments made under Federal law ... with respect to the coronavirus disease 2019 (COVID-19), child support payments, foster care payments, or disability payments for a dependent child made in accordance with applicable nonbankruptcy 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 [certain] charitable contributions ...; and
(B) if the debtor is engaged in business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business.
(emphasis added). The redefinition of "disposable income" is one of a number of changes that BAPCPA made to Chapter 13 for the purpose of ensuring that debtors "repay creditors the maximum they can afford." Ransom v. FIA Card Servs., N.A. , 562 U.S. 61, 71, 131 S.Ct. 716, 178 L.Ed.2d 603 (2011).
BAPCPA also added "current monthly income" as a new term. 11 U.S.C. § 101(10A)(A) defines "current monthly income" as "the average monthly income from all sources that the debtor receives ... without regard to whether such income is taxable income," derived during the relevant six-month period as determined under either 11 U.S.C. §§ 101(10A)(A)(i) or 101(10A)(A)(ii). (emphasis added). Pursuant to 11 U.S.C. § 101(10A)(B), "current monthly income" expressly excludes: (i) benefits received under the Social Security Act; (ii) certain payments to victims of war crimes or crimes against humanity; and (iii) certain payments to victims of international terrorism or domestic terrorism. Courts have determined that amounts received from the excluded sources in 11 U.S.C. § 101(10A)(B) are not included in the calculation of a debtor's projected disposable income. See e.g. , Anderson v. Cranmer (In re Cranmer) , 697 F.3d 1314, 1318 (10th Cir. 2012) (holding that the debtor's projected disposable income is calculated using his disposable income and, therefore, need not include his Social Security income, which is expressly excluded from disposable income).
In the case of Hamilton v. Lanning , 560 U.S. 505, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010), the Supreme Court examined the two prevailing methods of calculating a debtor's projected disposable income. The Lanning Court noted that, in most cases, projected disposable income is the average of the debtor's disposable income during the six months preceding the bankruptcy filing multiplied by the number of months in the debtor's plan. Id. at 513; 519, 130 S.Ct. 2464. However, it concluded that a forward-looking approach, rather than a mechanical approach, is the correct method of calculation where significant changes in a debtor's financial circumstances are "known or virtually certain at the time of confirmation." Id. at 524, 130 S.Ct. 2464. Notably, the Lanning Court based its decision on "the text of § 1325 and pre-BAPCPA practice." Id.
Pre-BAPCPA, courts were split on the issue of whether exempt property must be included in the disposable income analysis. The majority of courts, relying on a distinction between the importance of exemptions in Chapter 7 and Chapter 13 cases and the "plain language" of 11 U.S.C. § 1325(b), held that exempt income must be included in the calculation. See In re Launza , 337 B.R. 286, 289 (Bankr. N.D. Tex. 2005) (collecting cases). Whereas courts that adopted the minority view read 11 U.S.C. § 1325(b) in conjunction with 11 U.S.C. § 522(c) to protect exempt property from pre-petition debt and exclude exempt income from the calculation. See In re Krapf , 355 B.R. 545, 547 (Bankr. D.S.C. 2006) (collecting cases).
11 U.S.C. § 522(c) states, in pertinent part: "[P]roperty exempted under this section is not liable during or after the case for any debt of the debtor that arose ... before the commencement of the case ...."
In the context of personal injury recoveries, both the Debtor and the Chapter 13 Trustee have found some support in pre-BAPCPA caselaw. The Debtor relies on a line of cases from bankruptcy courts within the Eleventh Circuit which hold that personal injury recoveries should be excluded from the disposable income calculation. See In re Graham , 258 B.R. 286 (Bankr. M.D. Fla. 2001) ; In re Hunton , 253 B.R. 580 (Bankr. N.D. Ga. 2000) ; In re Ferretti , 203 B.R. 796 (Bankr. S.D. Fla. 1996). The minority view espoused by these courts can be summarized as follows:
The clear language of 11 U.S.C. § 522(c) protects exempt property, regardless of form, from pre-petition debts. This express limitation cannot be ignored for purposes of defining disposable income under 11 U.S.C. § 1325(b)(2). To include exempt property within the parameters of 11 U.S.C. § 1325(b)(2) directly conflicts with § 522(c).
Ferretti , 203 B.R. at 800. In other words, "[o]nce the property is removed from the estate [through exemption], the debtor may use it as his own." Hunton , 253 B.R. at 582 (quoting Gamble v. Brown (In re Gamble) , 168 F.3d 442, 444 (11th Cir. 1999) ).
Importantly, each of the cases that the Debtor cites hinged on the absence of an objection to the claimed exemption in the personal injury claim at issue. See e.g. , Graham , 258 B.R. at 292 ("The Court is of the opinion that, if a debtor's claimed exemption is established under § 522(l ) through expiration of the Rule 4003(b) period without objection, then § 522(c), Taylor and Gamble operate to prevent a bankruptcy court from treating such exempt property as ‘disposable income’ under § 1325(b)."). Thus, these cases are distinguishable from the instant proceeding, wherein the Chapter 13 Trustee timely filed his Objection to Exemption.
The Court notes that at the time the Debtor filed his brief on July 9, 2019, the Trustee had not yet filed his Objection to Exemption.
The Chapter 13 Trustee relies on a divergent line of bankruptcy court decisions which hold that personal injury recoveries, to the extent that they are not reasonably necessary for the maintenance or support of the debtor or the debtor's dependents, are included in the disposable income calculation. See Watters v. McRoberts , 167 B.R. 146 (S.D. Ill. 1994) ; In re Pendleton , 225 B.R. 425 (Bankr. E.D. Ark. 1998) ; Gaertner v. Claude (In re Claude) , 206 B.R. 374 (Bankr. W.D. Pa. 1997). These courts, which adopt the majority view, emphasize that the plain language of " § 1325(b) does not qualify income by reference to its exempt status" and decline to impose such a qualification, noting that "[w]here there is no express limitation in the text, the Debtor bears an ‘exceptionally heavy’ burden of persuading the Court that Congress intended one." Watters , 167 B.R. at 147 (quoting In re Schnabel , 153 B.R. 809, 815 (Bankr. N.D. Ill. 1993) ).
The majority view is further bolstered by the diminished role that exemptions play in Chapter 13 cases versus Chapter 7 cases, which the Schnabel court aptly explained:
The Debtor's reliance on the exemption statutes is misplaced in the context of Chapter 13 plan confirmation proceedings. The Court does not dispute the Debtor's contention that exemptions apply in both Chapter 7 and Chapter 13. See 11 U.S.C. § 103(a). However, their significance is greatly diminished in a Chapter 13, where the fresh start is protected by the debtor's retention of non-disposable income rather than by exempt assets. See Collier , supra , ¶ 1300.81. Legislative history indicates that in a liquidation exemptions are meant to "protect a debtor from his creditors, to provide him with the basic necessities of life so that even if his creditors levy on all of his nonexempt property, the debtor will not be left destitute and a public charge." H.R.Rep. No. 95–595, supra , at 126, reprinted in , 1978 U.S.C.C.A.N. at 5787, 6087. See also S.Rep. No. 65, 98th Cong. 1st Sess. 7–8 (1983) .... A Chapter 13 debtor, on the other hand, may keep all its assets, exempt or not, in return for repayment of creditors out of future income. Where the Debtor is assured of an income sufficient to meet his basic needs, his fresh start is not imperiled by requiring him to make payments to creditors out of his [exempt income] ....
Schnabel , 153 B.R. at 817. The Schnabel court further reasoned that "[a]llowing the Debtor to use his exempt income to attain Chapter 13's broad discharge, without the corollary requirement to use it to pay creditors as much as he is able, would contravene the express purpose of the statute—namely, that the debtor make payments under a plan." Id.
The Court agrees with the well-reasoned pre-BAPCPA majority view. The Court also concurs with the Eight Circuit's rejection of the minority view and reconciliation of the majority reading of 11 U.S.C. § 1325(b) with 11 U.S.C. § 522(c), as set forth in the case of Stuart v. Koch (In re Koch) , 109 F.3d 1285 (8th Cir. 1997) :
Relying on an unpublished case from the Eastern District of Virginia, In re Daniels , 17-14285-BFK (Bank E.D. Va. Oct 1. 2018), the Debtor also argues that if this Court were to find that the net proceeds of the personal injury claim at issue are included in his projected disposable income under 11 U.S.C. § 1325(b)(1), it would amount to a surcharge of the Debtor's exempt property, which is prohibited under 11 U.S.C. § 522(c) and (l) and Law v. Siegel , 571 U.S. 415, 134 S.Ct. 1188, 188 L.Ed.2d 146 (2014). The Court is not persuaded. The Daniels court appears to endorse the "lump sum v. annuity" approach to personal injury recoveries, based on the Fourth Circuit's reasoning in the case of Solomon v. Cosby (In re Solomon) , 67 F.3d 1128 (4th Cir. 1995). However, Solomon involved exempt IRAs from which the debtor was not receiving disbursements—facts wholly distinguishable from those now before the Court.
Including exempt income in disposable income does not make exempt property "liable" to Chapter 13 unsecured creditors. Chapter 13 relief is at the option of the debtor. See § 1307(a), (b). The disposable income limitation in § 1325(b) simply defines the terms upon which Congress has made the benefits of Chapter 13 available.
Id. at 1289.
Additionally, the Court acknowledges that "[w]ith the enactment of BAPCPA in 2005, the split of authority over whether or not exempt assets are to be included in the calculation of disposable income has been statutorily answered by Congress." In re Waters , 384 B.R. 432, 436 (Bankr. N.D.W. Va. 2008). Indeed, "[a]fter BAPCPA, courts have concluded that there can be no debate: since current monthly income does not exclude exempt assets and it is the starting point for calculating disposable income, disposable income includes exempt assets." In re Brah , 562 B.R. 922, 924 (Bankr. E.D. Wis. 2017) (citations omitted); see also In re Royal , 397 B.R. 88, 101–02 (Bankr. N.D. Ill. 2008) ("Although both the disposable income definition and the current monthly income definition exclude certain items, exempt income is not excluded.").
More specifically, the Court notes that 11 U.S.C. § 1325(b)(2) expressly excludes from disposable income amounts received for COVID-19 stimulus payments, child support payments, foster care payments, and certain disability payments for a dependent child. 11 U.S.C. § 1325(b)(2)(A) and (B) further carve out amounts reasonably necessary for the maintenance or support of the debtor or debtor's dependents, payment of domestic support obligations, certain charitable contributions, and certain necessary business expenditures. 11 U.S.C. § 101(10A)(B) likewise expressly excludes from current monthly income certain payments to victims of war crimes or crimes against humanity, certain payments to victims of international or domestic terrorism, and exempt income from Social Security benefits. Thus, if Congress had intended to exclude exempt personal injury recoveries from the calculation of a debtor's disposable income, it certainly could have done so.
Notably, Congress most recently revised 11 U.S.C. § 1325(b)(2) on March 27, 2020, with the passage of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). This presented yet another opportunity for Congress to expressly exclude exempt property, including personal injury recoveries, from the definition of "disposable income," but it chose not to do so.
Nonetheless, the Debtor argues that a personal injury recovery cannot be disposable income because it is not "income." In support of this argument, the Debtor directs the Court to 11 U.S.C. § 101(39A), which references the income definitions used by the United States Census Bureau, and Official Form 122C-1, which he asserts lists the same income sources used by the Census Bureau. The Debtor contends that the Census Bureau uses American Community Survey, which expressly excludes "money from the sale of property" and "other types of lump-sum receipts" from income, and that a personal injury recovery falls within one or both of these exclusions. The Debtor argues that only the sources of income used by the Census Bureau and listed in Official Form 122C-1 may be considered in the disposable income analysis and, therefore, a personal injury recovery may not be considered.
The Debtor's argument is tenuous at best. While 11 U.S.C. § 101(39A) does reference the Census Bureau's income calculations, it does so specifically in relation to a debtor's "median family income." It may also be true that Official Form 122C-1 lists the same income sources used by the Census Bureau, but the form makes no express reference to the Census Bureau or incorporation of its income definitions. The Court has already established that a debtor's projected disposable income under 11 U.S.C. § 1325(b)(1) is calculated using the debtor's disposable income under 11 U.S.C. § 1325(b)(2), which, in turn, is calculated using the debtor's current monthly income under 11 U.S.C. § 101(10A). Yet neither 11 U.S.C. § 1325(b) nor 11 U.S.C. § 101(10A) make any reference to the Census Bureau's income definitions. That Congress made express reference to the Census Bureau's income calculations in 11 U.S.C. § 101(39A) but not in 11 U.S.C. § 1325(b) or 11 U.S.C. § 101(10A) is telling. See Ortiz-Peredo v. Viegelahn , 587 B.R. 321, 327 (W.D. Tex. 2018). Particularly where 11 U.S.C. § 101(10A) defines current monthly income, in part, as "the average monthly income from all sources that the debtor receives ...." See id. As such, the Debtor has failed to meet the exceptionally heavy burden of persuading the Court that Congress intended to jettison the long-standing practice of most courts of adjudicating exempt personal injury recoveries as disposable income.
A plain language reading of 11 U.S.C. §§ 1325(b) and 101(10A) is supported by the well-reasoned pre-BAPCPA majority view, from which this Court does not believe that BAPCPA's changes to 11 U.S.C. § 1325(b) and addition of 11 U.S.C. § 101(10A) warrant deviation. See id. at 326 ; see also Lanning , 560 U.S. at 524, 130 S.Ct. 2464 (basing interpretation of the post-BAPCPA changes to calculation of a debtor's projected disposable income in significant part on pre-BAPCPA practice). A plain language reading also accords with the overarching policy behind BAPCPA of maximizing payments to creditors. Finally, in this case, a plain language reading aligns with the Lanning Court's forward-looking approach to calculating a debtor's projected disposable income where changes in his financial circumstances are known or virtually certain at the time of confirmation.
For the reasons set forth above, the Court holds that the net proceeds from the personal injury recovery at issue herein should generally be included in the calculation of the Debtor's projected disposable income. However, the Debtor credibly testified at the evidentiary hearing regarding his need for ongoing medical treatment and the costs associated therewith. Thus, it is clear to the Court that at least some portion of the recovery will be reasonably necessary for the support of the Debtor. Exactly what portion is reasonably necessary for his support is an issue for another day, after the personal injury claim has been liquidated.
The Court does not believe that this ruling will discourage debtors from filing Chapter 13 cases. As the Court has previously observed, Chapter 13 provides numerous benefits not available to Chapter 7 debtors. In addition to being allowed time to reorganize their financial matters by curing pre-petition defaults on secured debt and paying priority claims over three to five years, Doucet , 2016 WL 2603072, at *4 (citations omitted), Chapter 13 debtors enjoy a broader discharge and better credit reports after bankruptcy than Chapter 7 debtors, Watters , 167 B.R. at 147. Further, the Court does not believe that this ruling will ensure that debtors receive unreasonably low personal injury settlement offers. Where a debtor requires ongoing medical treatment as a result of an injury, 11 U.S.C. § 1325(b)(2) permits the debtor to retain amounts reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor.
Although a Chapter 13 discharge is not as broad as it was pre-BAPCPA, Chapter 13 debtors still enjoy a broader discharge than Chapter 7 debtors in that certain debts that are non-dischargeable under Chapter 7 may be discharged under Chapter 13. See 11 U.S.C. §§ 1328(a)(2) and 523(a).
Finally, the Debtor's argument that it is inequitable for the Chapter 13 Trustee to mandate receipt of the recovery without indemnifying the Debtor for his costs in pursuing the litigation is unpersuasive. The Court notes that there are costs inherent in any litigation, regardless of whether a litigant is a debtor in bankruptcy. It is true that the result of litigation may be different for a debtor—namely, that he may be required to pay some or all of the proceeds to his creditors. However, a debtor cannot "expect[ ] to receive all of the benefits of a bankruptcy filing ... without accepting what burdens the law imposes in order to receive a discharge." In re Norwood , No. BR 12-23027 HRT, 2013 WL 4099834, at *17 (Bankr. D. Colo. Aug. 8, 2013).
The issue of whether exempt personal injury proceeds should be included in the calculation of a debtor's disposable income under 11 U.S.C. § 1325(b)(2) is a novel issue in this Circuit. Indeed, there is no controlling authority in the Tenth Circuit or the United States Supreme Court, and there is a vast split of authority among courts in the Circuits that have considered this question. Nonetheless, under Bullard v. Blue Hills Bank , 575 U.S. 496, 135 S.Ct. 1686, 191 L.Ed.2d 621 (2015), an order denying confirmation of a Chapter 13 plan is not final where it allows a debtor to propose another plan. However, should the Debtor wish to appeal this Order pursuant to Fed. R. Bankr. P. 8004, the Court would consider certifying a direct appeal to the Tenth Circuit under 28 U.S.C. § 158(d)(2).
IT IS THEREFORE ORDERED that confirmation of the Amended Plan (Doc. 27) is denied.
IT IS FURTHER ORDERED that on or before May 26, 2020 , the Debtor shall file a second amended Chapter 13 plan which provides that all net proceeds from the personal injury claim referenced on the Debtor's Amended Schedule A/B, once received, shall be turned over to the Chapter 13 Trustee, pending a determination of what portion of the proceeds are reasonably necessary for the maintenance and support of the Debtor.
IT IS FURTHER ORDERED that contemporaneously with the filing of the second amended Chapter 13 plan as set forth herein, the Debtor shall file a confirmation status report.
IT IS FURTHER ORDERED that upon the filing of the second amended Chapter 13 plan as set forth herein, the Chapter 13 Trustee's Objection to Exemption (Doc. 49) shall be deemed denied as moot.