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New Wrinkle for Chapter 13 Creditors

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Bankruptcy Law Network reports Bankruptcy ?Means Test? Doesn?t Dictate Chapter 13 Plan Payments, 5th and 7th Circuit Appeals Courts Say which may raise a new issue for Chapter 13 creditors

The chorus is growing ? two more appeals courts have ruled that the bankruptcy ?means test? (also known as Form B22C) doesn?t establish how much a chapter 13 debtor needs to pay each month into the plan. Instead, both the Fifth and Seventh Circuit Court of Appeals recently said that the means test only provides a ?starting point? for determining the plan payment, and that, logically enough, the debtor?s actual monthly budget should establish how much is to be paid into the chapter 13 plan.
These two cases, In re Nowlin, No. 08-20066 (5th Cir. July 17, 2009), and In re Turner, No. 08-2163 (7th Cir. July 20, 2009), both involved debtors whose annual incomes exceeded their states? median annual incomes. Each debtor therefore was required to propose a five year, rather than a three year, chapter 13 payment plan. In each case, the debtor?s proposed monthly plan payment relied upon the result obtained from the means test?s Form B22C to establish the plan payment. These amounts were much smaller than would have been obtained from the debtors? schedules I and J, their actual monthly budgets.

Those cases where the "means test" would have meant a smaller payment then could have been paid in reality by the debtor should now mean a larger payment

The appeals courts rejected the debtors? arguments, adopting instead what is sometimes called the ?crystal ball? approach. This approach simply focuses on what the debtor?s monthly budget shows he or she can afford to pay into the plan, using shedules I and J. The appeals courts held that in requiring a chapter 13 debtor to submit his or her ?projected monthly disposable income? into a chapter 13 plan, Congress intended bankruptcy courts to look beyond the means test to see what the debtor can actually afford to pay.

Creditors need to study the debtor's income and expense schedules closely.