§ 100.1     Applicable Commitment Period Calculation
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 100.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

At this point in the search for disposable income,1 you should have done all of the following:

 

 1.
Determined current monthly income (CMI) consistent with § 101(10A).2
 

 

 

 

 2.
Consulted the Census Bureau Charts3 and selected the appropriate median family income—being careful to pick the most favorable family size4 and to adjust for the Consumer Price Index if necessary.5
 

 

 

 

 3.
Based on the comparison of CMI to applicable median family income, you have calculated “amounts reasonably necessary to be expended—.”6 If the debtor has CMI less than applicable median family income, you determined “amounts reasonably necessary to be expended—” using § 1325(b)(2)(A) and (B).7 If the debtor has CMI greater than applicable median family income, you did this calculation using the much more complicated provisions in § 707(b)(2)(A) and (B),8 and you used all of new Official Form B22C.9
 

 

 

 

 4.
After deducting from CMI the appropriate “amounts reasonably necessary to be expended—,” you then made four additional adjustments:
 

 

 

 

  a.
Subtracted amounts included in CMI by § 101(10A)(B) that were not “received” by the debtor.10
 

 

 

 

  b.
Subtracted child support, foster care and disability payments.11
 

 

 

 

  c.
Subtracted amounts required to repay a pension loan described in §§ 1322(f) and 362(b)(19).12
 

 

 

 

  d.
Subtracted wages withheld and received by an employer as contributions to a retirement plan.13
 

 

 

[2]

The number that falls out the bottom of the calculation described above should be the debtor’s disposable income as defined in § 1325(b)(2). It should be a monthly amount, though it has to be admitted that some of the items deducted from CMI on the way to disposable income are difficult to express in monthly terms.

[3]

Upon objection by the trustee or the holder of an allowed unsecured claim, the disposable income test in § 1325(b) requires one further calculation: if the debtor is not paying the objecting creditor in full,14 then the plan must provide that “all of the debtor’s projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.”15

[4]

Applicable commitment period is a new term of art defined in § 1325(b)(4) as follows:

(4) For purposes of this subsection, the “applicable commitment period”—
(A) subject to subparagraph (B), shall be—
(i) 3 years; or
(ii) not less than 5 years, if the current monthly income of the debtor and the debtor's spouse combined, when multiplied by 12, is not less than—
(I) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner;
(II) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or
(III) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable State for a family of 4 or fewer individuals, plus $525 per month for each individual in excess of 4; and
(B) may be less than 3 or 5 years, whichever is applicable under subparagraph (A), but only if the plan provides for payment in full of all allowed unsecured claims over a shorter period.16
[5]

Much of § 1325(b)(4) looks like the immediately preceding subsection 1325(b)(3). That immediately preceding subsection requires the debtor to compare CMI to applicable median family income to determine whether “amounts reasonably necessary to be expended—” will be determined under § 1325(b)(2)(A) and (B) or under § 707(b)(2)(A) and (B).17 But, curiously, on closer inspection, the comparison of CMI to applicable median family income in § 1325(b)(4) for purposes of determining applicable commitment period is not the same test as in § 1325(b)(3) to determine “amounts reasonably necessary to be expended—.”

[6]

To determine “amounts reasonably necessary to be expended—” in § 1325(b)(3), the CMI of the debtor is multiplied by 12 and compared to applicable median family income. To determine the applicable commitment period under § 1325(b)(4), the “current monthly income of the debtor and the debtor’s spouse combined” is multiplied by 12 and compared to applicable median family income. For an unmarried debtor, this is a distinction without a difference. For a married debtor this difference could be enormous depending on what it means to combine the CMI of the debtor and the debtor’s spouse.

[7]

Before attempting to divine the meaning of “combined” in § 1325(b)(4), it has to be said that it makes no sense to “combine” the CMI of the debtor and the debtor’s spouse for any purpose. The definition of CMI already includes amounts paid by a nonfiling spouse on a regular basis for the household expenses of the debtor and the debtor’s dependents.18 It is not logical to add more to CMI when the spouse is not a debtor. If the spouse is a debtor, we have a joint debtor and § 101(10A) tells us how to account for the income of a spouse who is a joint debtor. The use of the word “combined” in § 1325(b)(4) should have been a reference to the CMI of joint debtors under § 101(10A) when the debtor and the debtor’s spouse are joint debtors. But § 1325(b)(4) says “combined,” and bankruptcy practitioners must figure out what it means to combine the CMI of a debtor and a debtor’s spouse for § 1325(b)(4) purposes when § 101(10A) excludes some or all of a spouse’s income from CMI for a married debtor not filing jointly.

[8]

There are at least three possible interpretations of “combined” in the § 1325(b)(4) context. One option is to treat the CMI of a debtor and a debtor’s spouse combined the same as the statutory definition of CMI of joint debtors. Section 101(10A) tells us how to calculate CMI for a married debtor, filing jointly with a spouse. This option has the immediate benefit of being relatively easy to perform. It has the equally obvious defect that BAPCPA uses the word “combined” in § 1325(b)(4) and uses the different word “joint” in § 101(10A). Ordinary canons of statutory construction strongly counsel that different concepts are intended by these different words. Combining CMI of a debtor and a nonfiling spouse for commitment period purposes should involve a different methodology than calculating CMI for married debtors in a joint case—especially given that the nonfiling spouse is not a debtor.19

[9]

A second possible interpretation of combined in § 1325(b)(4) would be to calculate CMI for the debtor under § 101(10A) as if it is not a joint case; do the same for the debtor’s spouse as if it is not a joint case; and then add the two amounts together. This is an awkward process because § 101(10A) repeatedly uses the word debtor and the phrase debtor’s spouse to signal different individuals. But the calculation could be performed by substituting debtor’s spouse for debtor in § 101(10A) for the spouse’s half of the calculation.

[10]

There is a huge problem with this second approach. In a not joint case, substituting debtor’s spouse for debtor in § 101(10A) doubles up the accounting for any amount paid on a regular basis for the household expenses of the debtor or the debtor’s dependents in § 101(10A)(B). It also seems to capture amounts paid on a regular basis for the household expenses of a spouse’s dependent that is not also a dependent of the joint debtor. This takes “combined CMI” well beyond CMI (joint or not) as defined in § 101(10A). This method will overstate CMI for commitment period purposes for married debtors not filing jointly. It imposes a commitment period penalty for married debtors who choose not to participate in a joint case. There is certainly nothing in the statute to suggest that Congress intended any such penalty.

[11]

There is a third possibility: “combined” in § 1325(b)(4) means something different from either of the above choices, and that other meaning will be extracted from § 1325(a)(4) based on the facts in individual cases. This is not to dodge the question of what “combined” means in § 1325(b)(4); it is simply to state that several calculations in addition to the two suggested above are likely to emerge as courts tangle with this illogical concept.

[12]

Perhaps proof of the probability that other meanings will emerge is the definition of “combined” that is implicit in Official Form B22C. As detailed elsewhere,20 in Part II of Official Form B22C, the drafters attempted a computation of commitment period for § 1325(b)(4) purposes. This effort is complicated by the conflicting goals of the form—to calculate both CMI and commitment period in the same form.21

[13]

You will recall that CMI is defined in § 101(10A) to exclude the income of a nonfiling spouse.22 Commitment period, in contrast, is defined for married debtors by § 1325(b)(4) based on the CMI of the debtor and the debtor’s spouse combined even when the case is not a joint case. Official Form B22C wanders around between the two definitions of combined suggested above and comes out with a commitment period formula that first includes all of the income of a spouse—whether the spouse is a joint debtor or not. Then, if the debtor “contends” at Line 13 of Official Form B22C that a nonfiling spouse’s income is excluded from the commitment period calculation, the debtor is instructed to subtract the spouse’s income that was “not regularly contributed to the household expenses” of the debtor or a dependent of the debtor.23

[14]

The notion of “combined” in Official Form B22C is different from the two choices offered above. Its voluntary feature will dramatically change the calculation depending on the debtor’s election. The word “contribution” is found nowhere in § 101(10A) or in § 1325(b)(4) but forms the basis of the adjustment at Line 13. The computation in Official Form B22C would not capture amounts paid on a regular basis for household expenses of a dependent of a nonfiling spouse that is not also a dependent of the debtor—a result consistent with the definition of CMI in § 101(10A) but inconsistent with the second possible meaning of combined CMI discussed above.

[15]

What’s a debtor to do? In the end, counsel has to pick a definition or make up a definition for “combined” in § 1325(b)(4) for every married debtor.

[16]

Once you have decided what the debtor’s (or the debtor and debtor’s spouse’s combined) CMI is, that amount must be compared to median family income as described in § 1325(b)(4)(A)(ii). Two additional decisions must be made here: (1) what is the “applicable State?”; and (2) what is the applicable family size?

[17]

For reasons similar to those discussed above with respect to § 1325(b)(3),24 it is likely the courts will conclude that the applicable state is the debtor’s state of current residence. The number of persons in the debtor’s household will determine the proper family size for purposes of picking median family income from the Census Bureau charts.25 Remember: household size is not the same as family size.

[18]

Notice also that the proper median family income amount to select from the Census Bureau charts is described as “for one earner” if the debtor’s household contains one person. For a household of two, three or four persons, the statute instructs the debtor to select “the highest median family income of the applicable State for a family of the same number or fewer individuals.”26

[19]

One interpretation of this section is that the debtor should consider the median family incomes listed for two-, three- and four-person families and select the highest of those three amounts. But there are Census Bureau charts of median family income that are broken down by number of “earners” within family sizes. This leads to a possible second interpretation that a debtor with four household members can pick a family size of two, three or four persons, and within that family size, the highest median family income is the appropriate measuring stick.27

[20]

For a household of more than four individuals, the debtor is directed to pick the highest amount shown on a Census Bureau chart using one of the methods discussed above for a four-person family, then to add $525 per month for each individual above four.28

[21]

Once a median family income amount is selected, that amount must be compared to the debtor’s CMI or to the CMI of the debtor and the debtor’s spouse combined if the debtor is married. If CMI is less than applicable median family income, then § 1325(b)(4)(A)(i) says the applicable commitment period is “three years.” If the debtor’s CMI is more than applicable median family income, then the applicable commitment period is “not less than five years.”29 The applicable commitment period may be less than three or five years “only if the plan provides for payment in full of all allowed unsecured claims over a shorter period.”30

[22]

“Three years” and “not less than five years” sound like periods of time. “Applicable commitment period” sounds like a period of time within which the debtor must commit to make payments to unsecured creditors. But the number determined under § 1325(b)(4) as the applicable commitment period is not used by the Bankruptcy Code in the temporal sense of how long a Chapter 13 plan must last.

[23]

Instead, § 1325(b)(1)(B) states that projected disposable income to be received by the debtor in the applicable commitment period must be “applied to make payments to unsecured creditors under the plan.” Disposable income determined under § 1325(b)(2) and (3)—especially for Chapter 13 debtors with CMI greater than applicable median family income—is an amount of money derived by applying a mathematical formula that bears no certain relationship to the debtor’s actual financial circumstances. Even more importantly, disposable income was not determined with any reference to the terms of the proposed plan. Disposable income is multiplied by applicable commitment period to determine the minimum amount of money the unsecured creditors must be paid through the plan. Applicable commitment period tells us nothing about how long it will take the debtor to pay that amount of money to unsecured creditors through the actual plan.

[24]

This must be true because of the way the statute, as amended by BAPCPA, calculates CMI and disposable income. CMI is not based on the actual income that the debtor has at the time payments commence under a plan or at any other time after the petition. It is a purely historical statement of the debtor’s income during an arbitrary six-month period before the petition.31

[25]

From that arbitrary platform, BAPCPA subtracts five classes of expenses and exclusions that again are related in no meaningful way to any plan that the debtor has actually proposed.32 For example, a Chapter 13 debtor with CMI greater than applicable median family income is instructed by § 707(b)(2)(A)(iii) to reduce CMI by 1/60th of all scheduled, contractually due payments to secured creditors.33 That amount will have no predictable relationship to the amount that the debtor will actually pay to secured creditors under the plan. A debtor who surrenders a car through the plan reduces the amount of secured debt that must be paid to secured creditors to confirm a plan, but that surrender will not change the amount of disposable income that was determined using the formula in § 1325(b)(2) and (3). But the debtor will then have more money available per month to pay through the plan to unsecured creditors than was calculated by the formula which multiplied disposable income times applicable commitment period. The result will be that the debtor will probably pay through the plan the amount required to be paid to unsecured creditors in a shorter period of time than the applicable commitment period determined under § 1325(b)(4). The disposable income test, as modified by BAPCPA, does not require that the plan last any particular period of time.

[26]

The complete disconnect between the actual provisions of the plan and the calculation of applicable commitment period only makes sense if applicable commitment period is a number that is multiplied by disposable income to determine the entitlement to unsecured creditors. If the debtor’s actual financial circumstances at confirmation of the plan would allow the debtor to pay more than the amount determined by multiplying applicable commitment period by disposable income, then one would expect a statutory mandate that the debtor pay to unsecured creditors “the greater of” the amount determined under § 1325(b)(2) or the “actual” ability of the debtor to make payments during the applicable commitment period. There is no such provision in the Code.

[27]

The courts have rejected the notion that projected disposable income is calculated as “whatever the debtor turns out to be able to pay to creditors during the proposed length of the plan.”34 Instead, it is a projection based upon the best estimates of trustees, creditors and judges about the debtor’s future financial ability. BAPCPA has substituted a mathematical formula that has as one component a number called applicable commitment period. This number works as the multiplicand in a formula.

[28]

Under prior law, the disposable income test worked backward from the budget—Chapter 13 trustees and allowed unsecured claim holders could beat on the debtor’s budget until they squeezed out the maximum amount of projected disposable income that would be available to pay creditors during the life of the plan. The likelihood that the debtor’s “actual” financial ability would vary from the projected disposable income test was relatively small given that the calculation of projected disposable income was based on the debtor’s actual income and expenses at confirmation.

[29]

With the substitution of CMI based on income remote in time from confirmation and exclusions from CMI that are not based on the terms of the debtor’s actual proposed plan, the likelihood of variance between the amount determined mathematically by § 1325(b)(1)(B) and the debtor’s actual financial ability is great. There will be many Chapter 13 cases in which the applicable commitment period is not accurate of the amount of time it takes the debtor to complete the payments to unsecured creditors required by the disposable income test in § 1325(b).35


 

1  See § 466.1 [ In General ] § 92.1  In General.

 

2  See § 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

3  See glossary at: http://factfinder.census.gov/home/saff/main.html?_lang=en.

 

4  See § 469.1 [ Comparison of CMI to Applicable Median Family Income: § 1325(b)(3) ] § 92.4  Household Size and Comparison of CMI to Median Family Income: § 1325(b)(3).

 

5  Id.

 

6  See § 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors.

 

7  See § 470.1 [ Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Applicable Median Family Income ] § 93.1  Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Median Family Income.

 

8  See discussion beginning at § 94.1  Big Picture: Too Many Issues.

 

9  See §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income, 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation and 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation.

 

10  See § 489.1 [ Amounts Paid by Others under § 101(10A)(B) ] § 99.2  Amounts Paid by Others under § 101(10A)(B).

 

11  See § 490.1 [ Child Support, Foster Care and Disability Payments ] § 99.3  Child Support, Foster Care and Disability Payments.

 

12  See § 491.1 [ Pension Loan Repayments ] § 99.4  Pension Loan Repayments.

 

13  See § 492.1 [ Employee Benefit Plan Contributions ] § 99.5  Employee Benefit Plan Contributions.

 

14  See § 168.1 [ Payment-in-Full Option ] § 91.7  Payment-in-Full Option.

 

15  11 U.S.C. § 1325(b)(1)(B) (emphasis added).

 

16  11 U.S.C. § 1325(b)(4) (emphasis added).

 

17  11 U.S.C. § 1325(b)(3) is discussed in §§ 470.1 [ Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Applicable Median Family Income ] § 93.1  Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Median Family Income and 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

18  See 11 U.S.C. § 101(10A)(B), discussed in §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income, 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline and 473.1 [ Accounting for Spouses ] § 94.3  Accounting for Spouses.

 

19  See also § 473.1 [ Accounting for Spouses ] § 94.3  Accounting for Spouses.

 

20  See §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income and 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation.

 

21  See § 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation.

 

22  See § 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

23  See § 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation.

 

24  See § 469.1 [ Comparison of CMI to Applicable Median Family Income: § 1325(b)(3) ] § 92.4  Household Size and Comparison of CMI to Median Family Income: § 1325(b)(3).

 

25  The Census Bureau charts for median family income can be found at http://factfinder.census.gov/home/saff/main.html?_lang=en.

 

26  11 U.S.C. § 1325(b)(4)(A)(ii)(II) (emphasis added).

 

27  See the similar discussion of 11 U.S.C. § 1325(b)(3) in § 469.1 [ Comparison of CMI to Applicable Median Family Income: § 1325(b)(3) ] § 92.4  Household Size and Comparison of CMI to Median Family Income: § 1325(b)(3).

 

28  11 U.S.C. § 1325(b)(4)(A)(ii)(III).

 

29  11 U.S.C. § 1325(b)(4)(A)(ii).

 

30  11 U.S.C. § 1325(b)(4)(B).

 

31  See 11 U.S.C. § 101(10A), discussed in §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income and 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

32  See § 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors.

 

33  See § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.

 

34  See § 164.1 [ Projected (Disposable) Income ] § 91.2  Projected (Disposable) Income.

 

35  See § 494.1 [ Projected Disposable Income ] § 101.1  What Do Unsecured Creditors Get? for further discussion of the entitlement of unsecured creditors at confirmation.