Opinion
Case No. 11-40453.
October 5, 2011
OPINION REGARDING TRUSTEE'S OBJECTION TO CONFIRMATION
The matter before the Court is the Chapter 13 Trustee's Objection to Confirmation of Debtor's Plan.
I. BACKGROUND
Diane Tobias ("Debtor") filed her Chapter 13 bankruptcy petition and her proposed Chapter 13 Plan on January 7, 2011. Debtor proposed a thirty-six month Plan (Docket No. 6), which provided for weekly payments of $131.54 and payment of a 34% dividend to unsecured creditors. On February 28, 2011, the Trustee filed an Objection to Confirmation of Debtor's proposed Chapter 13 Plan (Docket No. 14). Specifically, the Trustee objected to the following expenses included on Debtor's Schedule J: (a) $600 per month rent payment and (b) $95.00 per month storage fee. Debtor had indicated that she was currently renting a room in a hotel and that she would no longer need to keep a storage unit once she finds a rental home. Trustee objected to Debtor's failure to provide for increased plan payments upon the termination of Debtor's need to pay the monthly storage fee. Debtor's Schedule I showed $2,643 as the line 16 Combined Average Monthly Income — a figure which included $719 of Social Security Income. On March 3, 2011, Debtor filed an Amended Schedule J (Docket No. 15), on which she reduced her monthly rent expense to $400 and deducted the indicated Social Security Income of $719.00 from the Current Average Monthly Income on that form, resulting in a net monthly income figure of $51. Also on that date, Debtor filed her First Amended Chapter 13 Plan (Docket No. 16), which proposes that she pay $51 per week for thirty-six months, amounting to a 10% dividend being paid to unsecured creditors. On April 12, 2011, Debtor filed her Chapter 13 Confirmation Hearing Certificate (Docket No. 21), which stated regarding the deduction of her Social Security Income in her Amended Plan:
Although no formal objections were filed by the Trustee, the Trustee has refused to approve the Plan for confirmation due to Debtor's Schedule I and J deducting Social Security income from her net disposable income. Debtor's Position is that the recent 6th Circuit opinion in Baud vs. Carroll expressly held that Social Security income need not be included in the net disposable income calculation for a Chapter 13 Debtor's budget.
On May 2, 2011, the Court held a confirmation hearing, at which the Trustee declined to approve the Debtor's Plan for confirmation based on the Social Security Income exclusion. Debtor argued that Social Security income need not be included as income in the calculation of a debtor's projected disposable income for plan confirmation purposes, citing the recent Sixth Circuit Court of Appeals decision in Baud v. Carroll, 634 F.3d 327 (6th Cir. 2011). The Court requested post-hearing briefs from the parties regarding the Baud v. Carroll decision and its effect, if any, on the outstanding confirmation issues. This is the Court's decision.
II. DISCUSSION
A. Trustee's Failure to Timely File an Objection to Debtor's First Amended Plan
Debtor argues that the Court should not consider Trustee's objections to confirmation of Debtor's First Amended Chapter 13 Plan because Trustee failed to timely file a written objection in accordance with E.D. Mich. LBR 3015-3(a)(4). E.M. Mich. LBR 3015-3(a)(4) states: "The deadline to file an objection to confirmation of a modified plan is 28 days after service of the modified plan." That deadline would have been March 31, 2011. The Trustee did not file a specific objection to this modified plan, though, as noted, the Trustee had objected to the original plan on the basis of an alleged failure to provide all of Debtor's projected disposable income to fund the plan, citing the overstatement of the rent and storage fees. Confirmation was initially set for April 4, 2011. Likely because of the April 3, 2011 amended plan and Schedule J filings, that date was adjourned to April 18, 2011 by stipulation. On April 12, 2011, the Debtor filed a Confirmation Hearing Certificate with the above quoted notation. Debtor had filed a previous Confirmation Hearing Certificate on April 3, 2011, the same date Debtor had filed the modified plan and schedules raising the substantive issue involved in the case. Said certificate did not mention the substantive issue involved in this case or the possibility of same given the contemporaneously filed documents. On April 18, 2011, confirmation was adjourned by consent and without a hearing until May 2, 2011, at which time the issues were argued and a briefing schedule was set. The issue of the failure of the Trustee to timely file a specific objection to the modified plan does not appear to have been brought up at that hearing, but Debtor did raise it initially in her thereafter filed brief in response to the Trustee's brief. The recited combination of facts and circumstances preclude disposing of this case on the procedural basis asserted by the Debtor, such indicating that the parties timely knew and understood the basis and specifics of the Trustee's objection, and given Debtor's own tardiness in raising the procedural issue.
B. Whether Social Security Income Is Included in "Projected Disposable Income" Calculation
The essential issue in this case is whether Social Security income is included in the calculation of a debtor's projected disposable income. As noted, Debtor argues that, pursuant to the Sixth Circuit Court of Appeals decision in Baud v. Carroll, 634 F.2d 327 (6th Cir. 2011), Social Security income is not included in the projected disposable income calculation. The Trustee argues that Baud v. Carroll does not so hold and that it is not controlling authority in this case.
In Baud v. Carroll, the Sixth Circuit considered whether benefits received under the Social Security Act should be included in the projected disposable income calculation notwithstanding the fact that they are specifically excluded from current monthly income and thus also excluded from the calculation of disposable income. Baud v. Carroll, 634 F.2d 327 (6th Cir. 2011). In that case, the Sixth Circuit also determined: (1) whether an above-median-income debtor may deducted certain expenses as part of the calculation of projected disposable income, and (2) whether the temporal requirement of the applicable commitment period in 11 U.S.C. § 1325(b) applies to debtors with zero or negative projected disposable income as of the date of confirmation.
In Baud v. Carroll, the debtors filed their Form 22C Means Test, listing current monthly income of $7,086.72 and monthly disposable income of negative $1,203.55. Id. at 335. They also filed their Schedule I, listing gross monthly income of $9,115.63 (which included Social Security income for one of the debtors), and their Schedule J, listing actual monthly expenses of $4,946.41. Id. Their monthly net income on Schedule J was $402.32, compared to the disposable income of negative $1,203.55 on their Form 22C. Id. They submitted their Chapter 13 Plan, proposing for monthly payments to unsecured creditors totaling $30,321.65 over thirty-six months. Id. The Trustee objected to confirmation of that plan, arguing that it should be extended to sixty months. Id. at 335-36. The bankruptcy court sustained the Trustee's objection and the debtors filed an amended sixty-month plan, which was confirmed by order of the bankruptcy court. Id. at 336. The Debtors filed appealed the bankruptcy court decision, "arguing that the bankruptcy court erred in determining that the applicable commitment period under § 1325(b) imposes a temporal rather than a monetary requirement that applies to Chapter 13 debtors with zero or negative projected disposable income." Id. The Trustee argued that § 1325(b) requires a minimum plan length of 60 months because the debtors Schedules I and J indicated that they had positive projected disposable income on the date of the confirmation of their plan. Id. The District Court reversed the bankruptcy court's order and remanded the case. The Trustee appealed the District Court decision to the Sixth Circuit Court of Appeals.
In Baud v. Carroll, "the determination of whether the [debtors] had zero, negative or positive projected disposable income as of the confirmation date turn[ed] primarily on the issue of whether the benefits received under the Social Security Act can be included in the calculation." Id. at 344. The Sixth Circuit, after doing an in depth analysis of the relevant statutory framework, concluded that "the calculation of a debtor's projected disposable income . . . must not include items — such as benefits received under the Social Security Act — that are excluded from the definition of current monthly income set forth in § 101(1)(A))." Id. at 331. It stated:
[W]e see a "clear indication that Congress intended . . . a departure" from any such pre-BAPCPA practice, Lanning, 130 S.Ct. at 2473, in the combined effect of BAPCPA's (1) defining current monthly income to expressly exclude benefits received under the Social Security Act and (2) amending the definition of disposable income to incorporate the definition of current monthly income. And this clear indication by Congress that Social Security benefits are to be treated differently post-BAPCPA must override BAPCPA's purpose of ensuring that debtors "repay creditors the maximum they can afford," Ransom, 131 S.Ct. at 725 (internal quotation marks omitted), because any application of that purpose must be "consistent with the statutory text[.]" Id.
Were we to follow the approach espoused by the Appellant, bankruptcy courts — contrary to what the Supreme Court contemplated in Lanning and contrary to the express statutory language — would be permitted to depart from the definition of disposable income set forth in § 1325(b)(2) in virtually every case, given the improbability of a debtor's actual financial circumstances matching perfectly the disposable-income calculation set out by the BAPCPA.
Baud, 634 F.3d at 347 (quoting Hamilton v. Lanning, ___ U.S. ___, 130 S. Ct. 2464, 2473 (2010); Ransom v. FIA Card Services, N.A., ___ U.S. ___, 131 S. Ct. 716, 725 (2011)).
The Court finds that Baud v. Carroll is applicable to this case and binding on this Court. Thus, Debtor is not required to include her $719 per month Social Security income in calculating her "projected disposable income."
Trustee separately argues that Debtor must nevertheless include her Social Security income in her projected disposable income calculation to determine her Plan payment because not doing so would amount to bad faith pursuant to § 1325(a)(3). On that issue, in Baud v. Carroll, the Sixth Circuit also noted:
Courts are split on the issue of whether a bankruptcy court may consider an above-median-income debtor's decision to not commit available Social Security benefits to unsecured creditors in the good faith analysis under 11 U.S.C. § 1325(a)(3). Cf. Fink v. Thompson (In re Thompson), 439 B.R. 140, 142-43 (8th Cir. BAP 2010) (holding that debtors' exclusion of Social Security benefits as source of payment under Chapter 13 plan could not be considered in good-faith analysis), and Barfknecht, 378 B.R. at 164 ("[W]hether plan payment must include income derived from Social Security benefits is already specifically addressed elsewhere in the Bankruptcy Code. The trustee's proposed reading of the good faith standard would swallow up these other explicit statutory treatments, effectively rendering them nullities."), with Bartelini, 434 B.R. at 297 (holding that a debtor's decision to not commit Social Security benefits to pay unsecured creditors may be "considered as one of many factors under a totality of the circumstances inquiry to determine good faith"), and Upton, 363 B.R. at 536 (same). Because the Appellees have chosen to devote Social Security benefits to unsecured creditors, this good-faith issue is not before us today.
Baud, 634 F.3d at 346 n. 13. However, as that is dicta and because the Trustee did not file a "bad faith" objection to Debtor's plan and did not raise that argument at the confirmation hearing held on May 2, 2011, the Court will not decide the bad faith issue in this case.
III. CONCLUSION
For the reasons stated above, Trustee's objection to confirmation is overruled. Debtor shall prepare and present an appropriate order.