Opinion
Case No. 07-14264.
April 15, 2008
ORDER OVERRULING OBJECTION TO CONFIRMATION
This case was filed under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). Before the Court is an objection ("Objection") (Doc. 44) to confirmation of the Seconded Amended Plan filed by the Debtors, Douglas Brown and Sheryl Mobley-Brown (hereinafter referred to as the Browns) filed by the Chapter 13 Trustee, Margaret A. Burks. The issue presented is whether attorney's fees, as has been done traditionally before enactment of BAPCPA, may be paid from a debtor's projected disposable income.
If a trustee raises a disposable income objection, the debtor must propose a chapter 13 plan that "provides that all of the debtor's projected disposable income . . . will be applied to make payments to unsecured creditors under the plan." See 11 U.S.C. § 1325(b)(1)(B) (emphasis added). As noted, this case was filed following the 2005 Amendments and the words "unsecured creditors" were inserted into § 1325(b)(1)(B) by BAPCPA.
Here, the Trustee raised a disposable income objection to the Browns' Second Amended Plan. Her Objection does not take issue with the amount of disposable income calculated by the Browns. Instead, the Trustee objects to the Browns' proposed allocation of their disposable income. The Browns' plan proposes to pay their attorney's fees from their disposable income. The Trustee argues that all of the Browns' disposable income must be applied towards payment of general unsecured claims and none of it may be used to pay a priority unsecured claim not designated under § 707(b)(2), specifically the Browns' attorney's fees. Accordingly, the Court must determine whether the words "unsecured creditors" in § 1325(b)(1)(B) include a debtor's attorney, even though the claim is classified as one held by a priority unsecured creditor.
At least five bankruptcy courts have addressed the issue of whether priority creditors are "unsecured creditors" under § 1325(b)(1)(B), including one from this district. See In re Echeman, 378 B.R. 177 (Bankr. S.D. Ohio 2007) (Walter, J.); In re Puetz, 370 B.R. 386 (Bankr. D. Kan. 2007); In re Amato, 366 B.R. 348 (Bankr. D.N.J. 2007); In re McDonald, 361 B.R. 527 (Bankr. D. Mont. 2007); In re Wilbur, 344 B.R. 650 (Bankr. D. Utah 2006). Each of these cases involved chapter 13 debtors with above median income. As such, the disposable income of each of the debtors in those cases was determined by 11 U.S.C. § 1325(b)(3) and Official Form B22C. Most of these courts noted that the plain language of the words "unsecured creditors" in § 1325(b)(1)(B) would seem to suggest that priority "unsecured creditors" could be paid from disposable income. Notwithstanding, the courts determined that such a construction could lead to absurd results. When determining disposable income for above-median income debtors under § 1325(b)(3) and Official Form B22C, debtors are specifically given the opportunity to deduct certain enumerated prepetition priority debts and the chapter 13 trustee's fee. Consequently, it would be absurd to allow debtors to deduct these same items under § 1325(b)(3) and Official Form B22C, which would result in the debtors being able to "double count" these items by paying them from disposable income.
This Court appreciates the foregoing analysis with respect to above median income debtors, as are the Browns in this case. However, what if the debtors in a chapter 13 case are not above median income? If a debtor's income does not exceed the defined median income of the state, § 1325(b)(3) and Official Form B22C do not determine disposable income. Is it proper to disturb the plain meaning of the words "unsecured creditors" in § 1325(b)(1)(B) based upon § 1325(b)(3) and Official Form B22C when § 1325(b)(3) and Official Form B22C are inapplicable to debtors who are not above the state's median income?
Fortunately, it is not necessary for the Court to decide this issue. Either way, the Browns prevail. If the words "unsecured creditors" in § 1325(b)(1)(B) are given their plain meaning, then attorney's fees, constituting a priority unsecured claim, may be paid from disposable income. If § 1325(b)(3) and Official Form B22C render such a construction absurd, then the Debtors may still pay their attorney's fees from disposable income because attorney's fees are not part of the disposable income calculus specifically addressed under § 1325(b)(3) and Official Form B22C. Consequently, as Judge Walter notes in his well-reasoned opinion in Echeman, there would be no double counting. See Echeman, 378 B.R. at 182 ("Form B22C does not necessarily provide a deduction for all of a debtor's priority unsecured claims such as, for example, a debtor's anticipated attorney fees. Puetz, 370 B.R. at 391. If such a creditor's claim is not specifically and accurately budgeted for by § 707(b)(2)(A), as applied in Form B22C, then payment toward that unsecured creditor's claim . . . must be paid out of projected disposable income pursuant to 11 U.S.C. § 1325(b)(1)(B).") (emphasis added); accord Puetz, 370 B.R. at 391-92.
The Advisory Committee Notes to Official Form B22C are instructional on this point. It provides, in relevant part, that:
The Chapter 13 form does not provide a deduction from disposable income for the Chapter 13 debtor's anticipated attorney fees. No specific statutory allowance for such a deduction exists, and none appears necessary. Section 1325(b)(1)(B) requires that disposable income contributed to a Chapter 13 plan be used to pay "unsecured creditors." A debtor's attorney who has not taken a security interest in the debtor's property is an unsecured creditor who may be paid from disposable income.
Part VI allows the debtor to claim additional deductions, as described above, and Part VII is the verification.
Given that the Court rules in the Browns' favor, the Trustee takes issue with the way the Browns deduct their attorney's fees from disposable income. The parties have stipulated that the Browns' disposable income over sixty months is $18,780. It is further stipulated that the Browns' attorney's fees are $2,000 and their total unsecured debt, including attorney's fees, is $87,253.80.
The Browns argue that the $2,000 attorney's fees should be deducted from $18,780, leaving $16,780 for payment to general unsecured creditors. On the other hand, the Trustee contends that the attorney's fees should not be deducted from $18,780 (i.e. paid 100%). Instead, the Trustee would have the Browns apply the $18,780 to the total unsecured debt, including attorney's fees, totaling $87,253.80. In essence, the Trustee believes the attorney's fees should be paid pro-rata with general unsecured claims. However, the Browns assert that the attorney's fees should be deducted from disposable income before pro-rata distribution (i.e. paid 100%) because the attorney's fees constitute a priority claim. The Court agrees with the Browns' calculations; attorney's fees constitute a priority claim entitled to full payment, in deferred cash payments, unless the holder of the claim agrees to a different treatment, which does not appear to be the case here. See § 1322(a)(2).
For the foregoing reasons, the Objection is hereby OVERRULED. The plan will be confirmed by separate order.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.