Cite as: Keith M. Lundin, Lundin On Chapter 13, § 111.2, at ¶ ____, LundinOnChapter13.com (last visited __________).
The requirement for confirmation in § 1325(a)(6) that the debtor “will be able to make all payments under the plan and to comply with the plan” was not amended by BAPCPA.1 However, BAPCPA dramatically changed the way bankruptcy courts evaluate whether a Chapter 13 plan is feasible.
Before BAPCPA, the feasibility test in § 1325(a)(6) measured the outer boundary of the effort permitted of a Chapter 13 debtor to pay creditors through a plan. The entitlements of secured and unsecured creditors were measured backward from an actual budget, and bankruptcy courts routinely denied confirmation of plans that too optimistically proposed payments to creditors from income that was not reasonably available to the debtor.
BAPCPA disconnects the requirements for confirmation in Chapter 13 cases from the reality of any actual budget for the debtors. Current monthly income (CMI)—the platform from which payments to creditors in Chapter 13 cases are calculated—bears no predictable relationship to the debtor’s actual financial circumstances at the time of confirmation.2 The “budget” that determines the entitlement of unsecured creditors under the disposable income test in § 1325(b) is artificially conceived by BAPCPA—especially with respect to Chapter 13 debtors with CMI greater than applicable median family income.3
The feasibility test in § 1325(a)(6) measures the debtor’s ability to make payments under the plan at the time of confirmation. CMI is based on static historical information—the debtor’s income during the six months prior to the month in which the Chapter 13 case was filed.4 After BAPCPA, some Chapter 13 debtors will have CMI greater than their actual ability to pay unsecured creditors.5 This will be an odd and fundamentally insulting outcome. Debtors who have experienced recent financial reverses or substantial increases in expenses will be unable to confirm a Chapter 13 plan because an irrelevant mathematical calculation of CMI based on facts that are distant in time says that the debtor should be able to pay more to unsecured creditors than the debtor is actually able to pay. There is no logic to this outcome.
The result is that the feasibility test in § 1325(a)(6) has been stripped of much of its meaning by BAPCPA. For under-median-income Chapter 13 debtors, the use of CMI as the financial measuring stick will distort the budgets in Chapter 13 cases. Chapter 13 trustees will still exercise some control over expenses. In under-median-income cases, § 1325(a)(6) will have some vitality as a test of whether the debtor can make payments under the plan.
For Chapter 13 debtors with CMI greater than applicable median family income, neither the income nor the expense side of the feasibility test will be based on financial reality. The amount the debtor must pay to unsecured creditors—determined by the disposable income test in § 1325(b)—has no certain relationship to the debtor’s actual income and expenses after BAPCPA.6 The demands of confirmation are no longer driven backward from the debtor’s actual budget. Feasibility will measure apples against oranges: the reality of the debtor’s true financial circumstances against the unreality of what BAPCPA says over-median-income debtors “should” pay creditors.
1 See § 198.1 [ Able to Make Payments and Comply with Plan ] § 111.1 Able to Make Payments and Comply with Plan.
2 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, 468.1 [ Current Monthly Income: The Baseline ] § 92.3 Current Monthly Income: The Baseline and 494.1 [ Projected Disposable Income ] § 101.1 What Do Unsecured Creditors Get?.
3 See discussion beginning at § 94.1 Big Picture: Too Many Issues.
4 See § 468.1 [ Current Monthly Income: The Baseline ] § 92.3 Current Monthly Income: The Baseline.
5 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.
6 See § 494.1 [ Projected Disposable Income ] § 101.1 What Do Unsecured Creditors Get?.