Projected Disposable Income under BAPCPA

Disparate Effects of a Single Word
In order to gain confirmation of a chapter 13 plan if it faces objection by the trustee or the holder of an unsecured claim, a debtor must pay in full each allowed unsecured claim, 11 U.S.C. §1325(b)(1)(A), or devote to the plan all projected disposable income to be received during the applicable commitment period, 11 U.S.C. §1325(b)(1)(B). Thus confirmation rests, if allowed unsecured claims are not completely satisfied, on a qualifying amount of money paid over a qualifying span of time.

While it has become quite de rigueur to criticize the unartful drafting of some of the amendments to the Bankruptcy Code wrought by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the requirement for a debtor to pay into her plan her projected disposable income remains unchanged. What has been added, however, is a definition of “disposable income.” 11 U.S.C. §1325(b)(2). Some courts have found this semantic difference consequential, even determinative. Others, by various devices, have not. The issue is whether projected disposable income is distinguishable from disposable income for the purposes of compliance with 11 U.S.C. §1325(b).

The Code explicitly defines “disposable income” as current monthly income, itself further defined in the Code (see 11 U.S.C. §101(10A)), less reasonable expenditures for a debtor’s support, a debtor’s dependent’s support, a debtor’s domestic support obligation, qualifying charitable contributions up to a specified limit and for the continued viability of a debtor’s business. 11 U.S.C. §1325(b)(2). If a debtor’s current monthly income exceeds the median family income of her state, the reasonableness of the expenditure amounts is determined by tests set forth in 11 U.S.C. §707(b)(2). 11 U.S.C. §1325(b)(3).

According to some, different statutory treatment is accorded a debtor’s projected disposable income. (See 11 U.S.C. §1325(b)(1)(B)). By the addition of the participial adjective “projected,” as well as the particularization of income “to be received,” the Code appears to require a determination of a debtor’s anticipated income. For confirmation of a plan in the face of objection thereto, this anticipated income must be applied to paying unsecured creditors. 11 U.S.C. §1325(b)(1).

“It’s But Little Good You’ll Do Watering Last Year’s Crops.”¹

The U.S. Bankruptcy Court for the Northern District of Texas conducted its textual and contextual analysis of the germane statutory language and concluded that projected disposable income “necessarily refers to income that the debtor reasonably expects to receive during the term of her plan.” In re Hardacre, 338 B.R. 718, 723 (Bankr. N.D. Texas 2006). Many others on similar or additional bases agree. See, e.g., In re Dew, No. 06-40154, 2006 Bankr. LEXIS 1126, at **10-11 (Bankr. N.D. Ala. May 31, 2006) (“For any particular debtor, disposable income in §1325(b)(2) is not necessarily the same as projected disposable income in §1325(b)(1)(B)…To hold otherwise would assign no meaning to the term ‘projected,’ which would be contrary to rules of statutory construction”); accord, In re DeMonica, No. 06-00094, 2006 Bankr. LEXIS 1466, at *10 (Bankr. N.D. Ill. July 31, 2006) (concurring with the Hardacre court’s interpretation of projected disposable income); In re Kibbe, 342 B.R. 411, 414 (Bankr. D. N.H. 2006), appeal docketed, No. 06-19 (B.A.P. 1st Cir. May. 12, 2006) (agreeing with the semantic analysis offered by In re Hardacre and opining that Congress intended, by the inclusion of the word “projected,” a forward-looking examination of a debtor’s anticipated income, thus avoiding potentially anomalous results attendant with a debtor’s dramatic change of financial circumstances in the six months immediately pre-petition).

To the semantic analysis of Hardacre are added the accordant legislative intent, juridical and public policy analyses of In re Jass, 340 B.R. 411, **10-16 (Bankr. D. Utah 2006). The Jass court, harmoniously with the textual and contextual approaches employed by the Hardacre court, found additional support for its statutory interpretation in its analysis of Congress’ intent for a differentiation between “projected disposable income” and “disposable income” in its showing that such differentiation furthers the public policy goals of bankruptcy, and by showing that it avoids the surplusage construction attendant with equating the two.

In accord are In re Clemons, No. 05-85163, 2006 Bankr. LEXIS 1366, (Bankr. N.D. Ga. June 1, 2006) (showing, by a “holistic” statutory interpretation, and by harmonious legislative intent and the policy goals served thereby, that 11 U.S.C. §1325(b) permits a bankruptcy court to adjust the debtor’s current monthly income so as to approximate his anticipated income so that his plan requires him to pay what he can, but not more than is possible); In re Grady, 343 B.R. 747 (Bankr. N.D. Ga. 2006) (opining that determination of projected disposable income necessarily requires a consideration of a debtor’s future and historical finances on the basis of the plain meaning of the statute, contextual analysis and the policy goals of the Code); In re Risher, No. 05-61822, 2006 Bankr. LEXIS 1364, at **8-10 (Bankr. W.D. Ky. July 12, 2006) (in requiring debtors to pay into their plans their income tax refunds, the court opined that projected disposable income is based on anticipated income over the term of the plan); In re Pak, 343 B.R. 239, 2006 Bankr. LEXIS 907, at **17-18 (Bankr. N.D. Calif. May 18, 2006) (opining that, for the purposes of confirmation of a chapter 13 plan, a determination of projected disposable income must include a debtor’s actual and anticipated future income); In re Fuller, No. 06-30313, 2006 Bankr. LEXIS 1615, at **26-27 (Bankr. S.D. Ill. June 21, 2006) (agreeing with others’ conclusion that “projected disposable income,” 11 U.S.C. §1325(b)(1)(B), is distinguished by legislative intent from “disposable income,” 11 U.S.C. §1325(b)(2)); In re McGuire, 342 B.R. 608, 614 (W.D. Mo. 2006) (opining that projected disposable income predates BAPCPA and, by analogizing to the Eighth Circuit’s pre-BAPCPA characterization of a chapter 12 debtor’s projected disposable income, that it changes from year to year, based on actual income and expenses); In re Fuger, No. 06-20801, 2006 Bankr. LEXIS, at *12 (Bankr. D. Utah June 29, 2006) (opining that the term “projected disposable income” requires that a plan’s payments be based on disposable income as projected into the future).

“Whatever Is, Is.”²

Predictably, others eschew any independent operation of the term “projected” as used to modify “disposable income.” Fairly exemplary is In re Alexander, No. 06-00324-JRL, 2006 Bankr. LEXIS 1272, at **16-17 (Bankr. E.D.N.C. June 30, 2006), which opined that the Code “plainly sets forth a new definition and method for calculating disposable income,” to which projected disposable income is “linked” (although the court avoided “equated”), and that determination of disposable income is a mathematical calculation mandated by 11 U.S.C. §1325(b)(2). Resultantly, “debtors with no disposable income under the new law have no projected disposable income.” Nevertheless, this court speculated that legislative intent may not have been well served by such a protocol: “Perhaps Congress, in an effort to make higher income debtors pay more to their unsecured creditors, unwittingly reached the opposite result.” Id. Another court accorded, applying an expense-centric analysis. In re Guzman, No. 05-45978-svk, 2006 Bankr. LEXIS 1406, at **4-5 (Bankr. E.D. Wis. July 19, 2006) (overruling a trustee’s objection to confirmation of an above-median-income debtor’s chapter 13 plan that showed no disposable income on Form B22C, which showed a calculation of monthly income strictly on the basis of the average of the six months pre-petition).

“Where Minds Differ and Opinions Swerve There Is Scant a Friend in That Company.” ³

Fortunately eschewing the drastic outcome observed by Elizabeth Regina, it appears that most courts distinguish projected disposable income from disposable income while still acknowledging the close relationship between the two. However, majority is not unanimity. This issue, like so many others birthed by BAPCPA, will be resolved over time by authoritative review or statutory amendment.

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