Projected Disposable Income Begins with Means Test

Posted by NCBRC - April 22, 2014

When calculating known or virtually certain changes to income or expenses, the starting point is the monthly income as shown on the means test rather than Schedules I and J. Kramer v. Bankowski (In re Kramer), No. 13-37 (B.A.P. 1st Cir. March 3, 2014). The chapter 13 debtors proposed a plan in which they would continue paying on their first mortgage, strip off the second mortgage and treat it as an unsecured debt. In the means test calculation the debtors deducted the amount of the second mortgage, $814.00, under 707(b)(2)(A)(iii)(I) as an amount “contractually due to [a] secured creditor.” The means test revealed a monthly income of $653.29. When the debtors calculated their monthly income using their Schedules I and J, which did not include the mortgage payment, the total was $1,199.92. They proposed to make 60 monthly payments of $1,200.00 based on the monthly income as calculated in their schedules.

The trustee objected to confirmation arguing that because the debtors planned to strip off the second mortgage they could not deduct that mortgage expense in their means test calculation. The trustee also argued that even if the debtors were permitted to make the deduction in the means test, the mortgage payment had to be added back to their income for purposes of calculating projected disposable income under section 1325(b)(1)(b). This would leave the debtors with projected disposable income of $1,467.29.

The bankruptcy court found that under Hamilton v. Lanning, 560 U.S. 505 (2010) and Ransom v. FIA Card Servs., N.A., 131 S. Ct. 716 (2011), the debtors correctly deducted the mortgage payments on the means test but that when calculating projected disposable income under section 1325(b)(1)(B), they could not continue to deduct the payments they would not in fact be making. In re Kramer, 495 B.R. 121, 123-24 (Bankr. D. Mass. 2013).

The BAP agreed. It rejected the debtors’ argument that for purposes of determining projected disposable income, the mortgage expense should be determined using Schedules I and J rather than by adding the expense back to the results of the means test calculation. The debtors’ reliance on pre-Lanning cases was unavailing. The panel found that, “What the debtors fail to recognize is that post-Lanning, the starting point for determining projected disposable income for above-median debtors is not the “net monthly income” calculated on Schedule J, but the “disposable income” calculated on Form B22C under the statutory formula.” See also In re Garrepy, 501 B.R. 13 (Bankr. D. Mass. Nov. 6, 2013) (deduction for stripped mortgage may not be used to calculate projected disposable income); In re Scott, No. 13-12135 (Bankr. N.D. Ohio Oct. 9, 2013) (“For above-median income debtors, the formula set out in the means test supplants the previous practice of calculating reasonable expenses for purposes of determining “projected disposable income” on a case-by-case basis by reference to a debtor’s actual expenses.”); In re Bronson, No. 10-1259 (Bankr. D. Ida. March 10, 2011) (means test rather than schedules controls calculation of projected disposable income). The panel found that the bankruptcy court properly adjusted the disposable income figure from the means test upward from $653.29 to $1,466.29 by adding back the $813.00 expense the debtors will no longer have to pay.

Kramer opinion



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