Law School Case Brief
In re McPherson - 350 B.R. 38 (Bankr. W.D. Va. 2006)
If the Chapter 13 trustee objects to a plan, the bankruptcy court may not confirm that plan unless (1) the plan provides for the payment of each unsecured claim in full or (2) the plan provides that all of the debtor's "projected disposable income" to be received during the pendency of the plan will be applied to make payments to the unsecured creditors. 11 U.S.C.S. § 1325(b)(1). "Projected disposable income" is not defined in the Bankruptcy Code. "Disposable income" means the "current monthly income" received by the debtor less amounts reasonably necessary to be expended for support of the debtor and his or her dependents. 11 U.S.C.S. § 1325(b)(2). "Current monthly income" is defined as the average monthly income that the debtor receives during the 6-month period ending on the last day of the calendar month immediately preceding the date of petition. 11 U.S.C.S. § 101(10A). The "amounts reasonable necessary to be expended for support" under § 1325(b)(2) are to be determined in accordance with 11 U.S.C.S. § 707(b)(2)(A) and (B) if the debtor's "current monthly income," when multiplied times 12, is greater than the median annual income for a family of similar size in the debtor's state. 11 U.S.C.S. § 1325(b)(3).
This matter comes before the Court on the chapter 13 trustee's objection to the plan of reorganization filed by Charles Francis McPherson, Jr., and Sherri Lee McPherson (Debtors) on the grounds that it does not provide for the payment of all of the Debtors' projected disposable income during the five-year pendency of their proposed plan of reorganization as required by 11 U.S.C. § 1325(b). Specifically, the trustee objects to the Debtors' calculation under 11 U.S.C. § 707(b)(2)(A)(iii) of the amount of a deduction made from their income based on a secured claim. The Debtors oppose the motion to dismiss and assert that they have correctly interpreted Section 707(b)(2)(A)(iii). Debtors had purchased a computer on credit. They valued the computer at $ 100 and scheduled the creditor with a total claim in the amount of $ 2,216. Debtors were obligated under the purchase contract to make total payments of $ 4,056. The plan bifurcated the claim into a secured claim in the amount of $ 100 and an unsecured claim in an amount certain, $ 2,116. In calculating the amount of their monthly disposable income to be distributed to unsecured creditors under the plan, debtors deducted an amount equal to the total amount of all remaining payments due under the contract by the number of months in the proposed plan.
Was the Chapter 13 trustee’s objection to the confirmation of Debtors' plan on the grounds that it did not provide for the payment of all of debtors' projected disposable income during the five-year pendency of their proposed plan of reorganization as required by 11 U.S.C.S. § 1325(b) meritorious?
The federal district court held that the amount that could be deducted to arrive at Debtors' disposable income was the amount that Debtors would make in the future as provided in their plan, not the amount that was provided for in the contract that gave rise to both secured and unsecured claims.
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