Kagenveama Survives Direct Assault

Posted by NCBRC - September 7, 2012

Wielding Hamilton v. Lanning, 130 S. Ct. 2464 (2010), the trustee in the Ninth Circuit case of In re Flores, launched a full-scale attack on Maney v. Kagenveama (In re Kagenveama), 541 F.3d 868 (9th Cir. 2008). Kagenveama won. The Ninth Circuit stood by its previous position that an above-median debtor with zero or negative disposable income does not need to confirm a 60 month plan under section 1325(b). Danielson v. Flores (In re Flores), No. 11-55452 (9th Cir. Aug. 31, 2012). NACBA assisted in drafting the debtor’s brief in this case.

The court disagreed with the trustee’s argument that Kagenveama’s holding is irreconcilable with Lanning finding that while Lanning resolved the conflict between the mechanical and forward-looking approaches to “projected disposable income” by adopting the forward-looking approach (albeit with limitations relating to certainty of future income), it did not address the applicability of section 1325(b). The Lanning decision simply did not mandate any position with respect to the relevance of section 1325(b)’s applicable commitment period to debtors with zero or negative income. Kagenveama, however, specifically addressed that question and found that when a debtor has no projected disposable income at all, the applicable commitment period does not apply because section 1325(b) is inextricably linked to projected disposable income. Thus, while Lanning overruled the portion of Kagenveama that adopted the mechanical approach to projected disposable income, it did nothing to Kagenveama’s holding with respect to the applicable commitment period.

Even while hinting at doubt about its decision in Kagenveama, the Flores court declined the trustee’s exhortation to overrule it, stating that in the absence of controlling, intervening Supreme Court precedent, it was bound by its earlier decision.

Any detriment to creditors by this decision is dubious. Debtors with zero or negative disposable income who nonetheless propose to make payments under a chapter 13 plan might be discouraged by a three or five year commitment period and decide simply not to promise income that they are not otherwise required under bankruptcy law to pay.

The identical issue is currently pending before another panel of the Ninth Circuit. American Express v. Henderson, No. 11-35864, 11-35865. The panel in that case cancelled its previously scheduled argument pending the decision in Flores. NACBA filed an amicus brief in Henderson.

Flores opinion

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