After Lanning, the same problems remain using PDI in 1325(b)(1).
Posted: Mon Jul 12, 2010 12:35 pm
PDI under 1325(b)(2) used in Chapter 11 and for below-median-income Chapter 13
debtor follows the preBAPCPA concept of calculating a plan payment; defining
Disposable Income as reducing income by household/living expenses only.
1325(b)(2) does not reduce CMI by administrative, secured arrears and priority
unsecured claims (other typical plan payment recipients). This "DisposableIncome" is a measure of what plan payment a debtor can afford.
PDI under the Chapter 7 Means Test and under 1325(b)(3) with reference to
707(b)(2) defines Disposable Income as reducing CMI by household/living expenses
(albeit standardized) and also by secured arrears and priority unsecured claims.
This "Disposable Income" is a measure of what [general] unsecured creditorsshould receive.
Unfortunately, defining Disposable Income in two entirely different ways and
requiring its use in one 1325(b)(1)(B) formula doesn't work.
BAPCPA changed 1325(b)(1)(B) by inserting "to unsecured creditors" between "will
be applied to make payment" and "under the plan" with the obvious intention that
[general] unsecured creditors receive the PDI; Disposable Income being
calculated under 1325(b)(3) and 707(b)(2).
BAPCPA neglected to change the definition of Disposable Income calculated under
1325(b)(2) to include reductions of CMI by administrative expenses, securedarrears and priority unsecured claims. The absurd result of using this PDI in
1325(b)(1)(B) being that below-median-income debtors must pay all that they can
afford to [general] unsecured creditors before any PDI can be used for other
plan purposes.
Alternatively, ignoring the addition of "to unsecured creditors" between "will
be applied to make payment" and "under the plan" and interpreting PDI as ameasure of what a debtor can afford to pay makes 1325(b)(3) superflous.
Lanning's instructions to adjust PDI by foreseeable changes in income and
expenses does not resolve the problem thatthe statute defines Disposable Income
in two incompatible ways for use in the same test.
Kagenveama (and the dissent in Lanning) got it right when focusing on
1325(b)(1)(B) using 1325(b)(3) as a calculation of what [general] unsecuredcreditors should get, if anything. Kagenveama is still applicable post Lanning,
if 1325(b)(1)(B) PDI goes to only [general] unsecured creditors.
The courts using PDI under 1325(b)(1)(B) with Disposable Income being calculated
under 1325(b)(2) as a measure of what total monthly amount debtor can afford to
pay also got it right. However, when applying this approach and using
Disposable Income calculated under 1325(b)(3), these courts must ignore that
BAPCPA's added the phrase "to unsecured creditors" to 1325(b)(1)(B) and must
also adjust Disposable Income from a calculation of what [general] unsecured
creditors should receive, to become a measure of ability to pay; this usually
means ignoring Form B22C'sDisposable Income andusing Schedule I - J in its
place.
Law Office of Peter M. Lively * Personal Financial Law Center I
11268 Washington Blvd, Suite 203, Culver City, CA 90230-4647
Telephone: (310)391-2400 * (800)307-3328 * Fax: (310)391-2462
A-Bankruptcy-Attorney.com
Personal Financial Law Center II - Costa Mesa, CA
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PDI under 1325(b)(2) used in Chapter 11 and for below-median-income Chapter 13 debtor follows the preBAPCPA concept of calculating a plan payment; defining Disposable Income as reducing income by household/living expenses only. 1325(b)(2) does not reduce CMI by administrative, secured arrears and priority unsecured claims (other typical plan payment recipients). This "Disposable Income" is a measure of what plan payment a debtor can afford.
PDI under the Chapter 7 Means Test and under 1325(b)(3) with reference to 707(b)(2) defines Disposable Income as reducing CMI by household/living expenses (albeit standardized) and also by secured arrears and priority unsecured claims. This "Disposable Income" is a measure of what [general] unsecured creditors should receive.
Unfortunately, defining Disposable Income in two entirely different ways and requiring its use in one 1325(b)(1)(B) formula doesn't work.
BAPCPA changed 1325(b)(1)(B) by inserting "to unsecured creditors" between "will be applied to make payment" and "under the plan" with the obvious intention that [general] unsecured creditors receive the PDI; Disposable Income being calculated under 1325(b)(3) and 707(b)(2).
BAPCPA neglected to change the definition of Disposable Income calculated under 1325(b)(2) to include reductions of CMI by administrative expenses, secured arrears and priority unsecured claims. The absurd result of using this PDI in 1325(b)(1)(B) being that below-median-income debtors must pay all that they can afford to [general] unsecured creditors before any PDI can be used for other plan purposes.
Alternatively, ignoring the addition of "to unsecured creditors" between "will be applied to make payment" and "under the plan" and interpreting PDI as a measure of what a debtor can afford to pay makes 1325(b)(3) superflous.
Lanning's instructions to adjust PDI by foreseeable changes in income and expenses does not resolve the problem that the statute defines Disposable Income in two incompatible ways for use in the same test.
Kagenveama (and the dissent in Lanning) got it right when focusing on 1325(b)(1)(B) using 1325(b)(3) as a calculation of what [general] unsecured creditors should get, if anything. Kagenveama is still applicable post Lanning, if 1325(b)(1)(B) PDI goes to only [general] unsecured creditors.
The courts using PDI under 1325(b)(1)(B) with Disposable Income being calculated under 1325(b)(2) as a measure of what total monthly amount debtor can afford to pay also got it right. However, when applying this approach and using Disposable Income calculated under 1325(b)(3), these courts must ignore that BAPCPA's added the phrase "to unsecured creditors" to 1325(b)(1)(B) and must also adjust Disposable Income from a calculation of what [general] unsecured creditors should receive, to become a measure of ability to pay; this usually means ignoring Form B22C's Disposable Income and using Schedule I - J in its place. Peter M. Lively, JD/MBALaw Office of Peter M. Lively * Personal Financial Law Center I11268 Washington Blvd, Suite 203, Culver City, CA 90230-4647Telephone: (310)391-2400 * (800)307-3328 * Fax: (310)391-2462 A-Bankruptcy-Attorney.comPersonal Financial Law Center II - Costa Mesa, CA
THIS MESSAGE IS INTENDED ONLY FOR THE USE OF THE INDIVIDUAL OR ENTITY TO WHICH IT IS ADDRESSED, AND MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL AND EXEMPT FROM DISCLOSURE UNDER APPLICABLE LAW. IF THE READER OF THIS MESSAGE IS NOT THE INTENDED RECIPIENT, OR THE EMPLOYEE OR AGENT RESPONSIBLE FOR DELIVERING THE MESSAGE TO THE INTENDED RECIPIENT, YOU ARE HEREBY NOTIFIED THAT ANY DISSEMINATION, DISTRIBUTION OR COPYING OF THIS COMMUNICATION IS STRICTLY PROHIBITED. IF YOU HAVE RECEIVED THIS COMMUNICATION IN ERROR, PLEASE NOTIFY US IMMEDIATELY BY E-MAIL OR BY TELEPHONE. THANK YOU.
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