Funding a Chapter 13 plan

One of the many changes that the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 was in the calculation of how a debtor funds a plan under Chapter 13 of the Bankruptcy Code. Section 1325(b)(2) and (3) define the disposable income which must be paid to unsecured creditors as current monthly income less amounts necessary for:

- the maintenance or support of the debtor or a dependent of the debtor, and

- a domestic support obligation that first becomes payable after the date the petition is filed, and

- charitable contributions of up to 15 percent of gross income, and

- payment of expenditures necessary for the continuation, preservation and operation of a business.

These subsections also require these amounts to be determined in accordance with the Means Test of Section 707(b)(2) if the debtor's income exceeds the median income in the state. For cases filed after February 1, 2007, the median income in New York State for one earner is $42,869, for two people is $51,994, for three people is $62,815 and for four people is $74,501. For cases filed on April 1, 2007 or after, $6,900 is added for each individual in excess of four.

Pre-BAPCPA, this amount was determined by the difference between Schedules I (current income of individual debtor(s)) and J (current expenditures of individual debtor(s)).

This new formula is clearly stated in a recent case from the U.S. Bankruptcy Court for the District of New Jersey, In re Brady, 2007 Bankr. LEXIS 501 (Bankr. D. N.J.). In that case, the Court overruled the objections to confirming the debtors' proposed plan and assertion that the debtors' plan should be based on Schedules I and J of the trustee and one of the unsecured creditors. The Court explicitly stated that the disposable income figure determined by Form B22C (the Means Test form) is then projected over the applicable commitment period, which is 60 months if the debtors have positive disposable income.

In another case from the United States Bankruptcy Court for the District of Oregon, In re Cummings, 17 C.B.N. 527 (Bankr. D. Ore. 2007), the Court ruled that Chapter 13 debtors may deduct the full amount of the IRS standard home and car ownership expenses regardless of the amount of their actual payments, thereby not penalizing "frugal debtors." Frugal debtors thus benefit from BAPCPA's treatment of housing and transportation allowances over the pre-BAPCPA reliance on judicial interpretation of the reasonableness of Schedules I and J. This represents one of the few positive changes that BAPCPA wrought on the bankruptcy landscape. Anyone with questions about filing for Chapter 13 bankruptcy should contact Jim Shenwick.