§ 11.2     When Must Debtor Have Regular Income?
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 11.2, at ¶ ____, LundinOnChapter13.com (last visited __________).

In a perfect world, Chapter 13 debtors would all have steady jobs at the filing of the petition and “regular income” for eligibility purposes would be easily determined under 11 U.S.C. §§ 109(e) and 101(30).1 In the real world, debtors frequently consult counsel when they are unemployed or underemployed. Debtors often become unemployed for periods of time during a Chapter 13 case.


It becomes important for eligibility purposes to know, as of what date will the bankruptcy court determine whether the debtor has regular income? The Bankruptcy Code does not clearly answer this question. Congress knows how to signal that a decision must be made at a hearing2 or on the “effective date of the plan”3 but did not do so in § 109(e) with respect to the regular income requirement. Section 109(e) states that the debt limits are determined based on “an individual with regular income that owes on the date of the filing of the petition . . . .”4 This order of phrases suggests that the “individual with regular income” must exist at the filing of the petition else the determination of debt at that time makes poor English sense. Some but not all courts have gone there.


The courts have shown flexibility in fixing the time at which the debtor must have regular income. It has been recognized that Chapter 13 debtors sometimes lose their jobs, draw unemployment, then find work again, and that eligibility for Chapter 13 can accommodate periods of unemployment.5 One court generously stated that it is appropriate to determine regular income at the time most favorable for the debtor, not necessarily the date of the petition.6 It has been held that a debtor must have regular income at the time of confirmation.7 Lack of regular income at conversion from Chapter 7 to Chapter 13 was cited by one court as a ground for reconversion to Chapter 7.8 A debtor’s death after filing may be cause for dismissal,9 but not because the debtor was ineligible for Chapter 13 earlier in the case.


Courts are reluctant to strictly apply a date-of-petition rule for regular income even though other eligibility criteria are measured as of the petition date.10 This reflects the likelihood that an unemployed debtor will become employed as well as the impracticality of dismissing a Chapter 13 case prior to confirmation when the debtor has reasonable prospects of becoming employed. Such a dismissal produces little benefit for creditors and imposes on the debtor the expense of refiling once employment is secured.


When the debtor seeks to convert a Chapter 7 case to Chapter 13,11 the debtor must have regular income at the time of conversion—not retrospectively to the date of the original Chapter 7 petition.12 In Santiago-Monteverde v. Pereira (In re Santiago-Monteverde),13the district court explained the “gatekeeping inquiry” at conversion is whether the debtor “has income that is sufficiently regular and stable to enable him or her to make payments under some hypothetical Chapter 13 plan.”14 To emphasize that this regular income determination is focused at the time of conversion and not the future, the court noted, “prospective feasibility of the Chapter 13 plan is appropriately considered as one of the factors in analyzing whether the debtor’s right to convert has been forfeited by bad faith conduct.”15


The 2005 amendments threaten to complicate the timing for determining whether a debtor has regular income for eligibility purposes in a Chapter 13 case. Detailed elsewhere,16 the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)17 substantially modified the projected disposable income test at confirmation in § 1325(b), creating a new platform—current monthly income (CMI), defined in § 101(10A).18 In most Chapter 13 cases after BAPCPA, the entitlement of unsecured creditors at confirmation will be based on the debtor’s income during the six months before the month in which the petition is filed.19 That a potential debtor may have been unemployed during part or all of the time leading up to the Chapter 13 petition will be accounted for at confirmation by the redesigned projected disposable income test—effectively reducing the amount that must be paid to unsecured creditors to accomplish confirmation.20 Similarly, a debtor unemployed at the petition who was employed or better employed during some or all of the six months before the petition will be required by the confirmation test in § 1325(b) to pay more to creditors than the debtor is actually able to pay. Curiously, a debtor with no income at all during the six months before the petition would have no projected disposable income for purposes of confirmation but could have “regular income” for eligibility purposes by becoming employed at or near the petition.


This disconnect between reality of a Chapter 13 debtor’s finances and BAPCPA-imposed conditions for confirmation in § 1325(b) should not pollute the determination whether an individual has regular income for eligibility purposes. BAPCPA did not redefine “individual with regular income” for purposes of eligibility.21 Section 101(30) still describes the individual with regular income who is eligible for Chapter 13 relief as an individual whose income is “sufficiently stable and regular to enable such individual to make payments under a plan under chapter 13 of this title.”22 After BAPCPA, the entitlement of unsecured creditors at confirmation under the projected disposable income test will be determined by the debtor’s income during the six months before the petition, but nothing in BAPCPA signals congressional intent to change the different timing for measuring whether the debtor has regular income sufficiently stable and regular to make payments under a plan.


1  See 11 U.S.C. §§ 109(e) and 101(30), discussed in § 11.1  What Is Regular Income?.


2  See, e.g., 11 U.S.C. § 506(a)(1) (“value shall be determined . . . in conjunction with any hearing.”).


3  See 11 U.S.C. § 1325(b) (“the court may not approve the plan unless, as of the effective date of the plan— . . . .”).


4  11 U.S.C. § 109(e), discussed in § 11.1  What Is Regular Income?.


5  See In re McMonagle, 30 B.R. 899 (Bankr. D.S.D. June 3, 1983) (Ecker).


6  In re Moore, 17 B.R. 551 (Bankr. M.D. Fla. Jan. 22, 1982) (Paskay). Accord In re Goodrich, 257 B.R. 101, 103–04 (Bankr. M.D. Fla. Dec. 13, 2000) (Proctor) (“This Court has determined that it is not limited to the date of the filing of the petition to determine whether the debtor has regular income but may view the circumstances prospectively, such as at the time of confirmation. . . . At the confirmation hearing Debtor was substantially current with his plan payments. The Court therefore finds that Debtor has the ability to make the payments under the plan. Accordingly, Debtor is eligible to be a debtor under Chapter 13.”); In re Baird, 228 B.R. 324, 328 (Bankr. M.D. Fla. Jan. 7, 1999) (Proctor) (“[Section] 109(e) does not state the date that the regular income requirement is determined. . . . The most consistent view is that the presence of regular income should be the date of the petition. However, it has been held that regular income should be determined at the time most favorable to the debtor, not necessarily the date of the petition. . . . If a debtor is not eligible for relief by reason of unstable or irregular income at the time of filing, he is entitled to have that aspect of eligibility determined at a more favorable time after filing. . . . To conclude otherwise would unnecessarily require a debtor to re-file and pay a second fee, simply to recognize as fact, the adequacy of income which the Court must ascertain for confirmation anyway.”).


7  In re Donohue, 81 B.R. 714 (Bankr. S.D. Fla. Dec. 22, 1987) (Britton) (Debtor who lost his employment and had been unable to obtain other employment at the time of the confirmation hearing was ineligible for Chapter 13 relief notwithstanding that the debtor expected to be employed within two months.); In re Cole, 3 B.R. 346 (Bankr. S.D. W. Va. Apr. 4, 1980) (Flowers).


8  In re Schauer, No. 99-31918, 2000 WL 33792712, at *7 (Bankr. D.N.D. Aug. 14, 2000) (unpublished) (Hill) (“Without regular income, Schauer does not satisfy the eligibility requirements of 11 U.S.C. § 109(e), and his apparent ineligibility may very well constitute additional cause for dismissal or conversion.”).


9  See In re Alvarez Diaz, No. 03-04398 SEK, 2006 WL 3898315 (Bankr. D.P.R. July 5, 2006) (unpublished) (DeJesus) (One factor in granting motion for voluntary dismissal was lack of regular income as result of death.). See also § 10.8  Eligibility of a Decedent’s Estate.


10  But see In re Smith, 234 B.R. 852, 854–55 (Bankr. M.D. Ga. June 2, 1999) (Walker) (Debtor must have regular income at the filing of the petition; debtor’s counsel sanctioned under Rule 9011 for filing a Chapter 13 case for an unemployed debtor. “The expectations that Debtor would be fully employed within a reasonable time following the filing of the case were unrealistic because Debtor had not been so employed in the two year period prior to the filing of the case. The representations that Debtor would receive financial assistance from her family were unreasonable and unsubstantiated. . . . [T]his case should have never been filed, and the filing of this case was a violation of Fed.R.Bankr.P. 9011 . . . . The Bankruptcy Code does not invite individuals to become debtors under Chapter 13 if the prospects for the success of the case are speculative and based on uncertain future developments . . . . The ‘regular income’ requirement of 11 U.S.C. § 109(e) anticipates that the income is sufficient to fund the debtor’s living expenses and the plan payments. The fact that Debtor in this case had a nominal ‘regular income’ in the form of public assistance did not render this individual eligible to be a debtor under Chapter 13 of the Code where that income was insufficient to support Debtor’s living expenses without regard to the amount of the plan payment. . . . 11 U.S.C. § 109(e) must be satisfied at the time of the filing of the case, not at some future time. . . . It is conceivable that the concept of ‘regular income’ could be interpreted to include an individual who is not employed at the time of the filing of the case if that individual’s employment history reflects a record of satisfactory and continuous prior employment so as to provide reasonable assurances that replacement employment will be obtained in the immediate future. Even that case should not be filed unless the circumstances of the debtor would be irreparably altered by some intervening circumstance such as a foreclosure or repossession.”).


11  See § 148.1  Procedure, § 148.2  Absolute Right of Debtor?, § 148.3  Effects of Conversion from Chapter 7 to Chapter 13 and § 148.4  Conversion to Chapter 13 after BAPCPA.


12  See In re Castro, No. 11-24287-SBB, 2011 WL 3205789 (Bankr. D. Colo. July 27, 2011) (unpublished) (Brooks) (Unemployed debtors without regular income could not convert from Chapter 7 to Chapter 13. Conversion was bad-faith effort to impede secured creditor’s collateral recovery.); In re Negosh, Nos. 06-CV-5617 (JS), 04-81073 (SB), 2007 WL 2445158 (E.D.N.Y. Aug. 22, 2007) (unpublished) (Seybert) (Conversion from Chapter 7 to Chapter 13 one year after discharge is denied when debtor did not prove regular income and ability to make proposed plan payments.); Gulley v. Depaola, 301 B.R. 361 (M.D. Ala. Nov. 5, 2003) (Albritton); In re Spurlin, 350 B.R. 716, 720, 721–22 (Bankr. W.D. La. Aug. 25, 2006) (Hunter) (Debtor not eligible to convert from Chapter 7 to Chapter 13 because debtor does not have regular income. Debtor was an “independent contractor” brokering the sale of “medium term notes . . . standby letters of credit or bank guarantees, you know, . . . oil and gas deals. . . . I help to broker, bring, just bring companies together.” Debtor admitted that he had no broker’s license, that he had no deals in the works and that his prior employer was in a Chapter 7 case. Although “[t]he regular income test is not a difficult one to pass[,] . . . these debtors . . . do not allege any source of regular income.”).


13  512 B.R. 432 (S.D.N.Y. June 27, 2014) (Castel).


14  In re Santiago-Monteverde, 512 B.R. at 443.


15  In re Santiago-Monteverde, 512 B.R. at 443 n.8.


16  See § 36.19  Form 122C-1: Statement of Current Monthly Income, § 92.1  In General, § 92.2  Projected Disposable Income: All Debtors and § 92.3  Current Monthly Income: The Baseline.


17  Pub. L. No. 109-8, 119 Stat. 23 (2005).


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


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


20  See § 92.2  Projected Disposable Income: All Debtors and § 92.3  Current Monthly Income: The Baseline.


21  See § 11.1  What Is Regular Income?.


22  11 U.S.C. § 101(30).