Cite as: Keith M. Lundin, Lundin On Chapter 13, § 112.2, at ¶ ____, LundinOnChapter13.com (last visited __________).

After BAPCPA, there are two new provisions of Chapter 13 that impact the length of a Chapter 13 plan, yet neither mandates plans of any certain length.

First, there is the “applicable commitment period” calculation in § 1325(b)(4).1 Triggered only upon objection to confirmation by the trustee or an allowed unsecured claim holder, § 1325(b)(4) provides:

(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.2

Under § 1325(b)(1), the applicable commitment period is a number of years that is multiplied by annualized disposable income to determine the amount of projected disposable income that must be paid to unsecured creditors to satisfy the confirmation test in § 1325(b)(1).3 The applicable commitment period does not require that the debtor actually make payments for any particular period of time. Rather, it is the multiplier in a formula that determines the *amount* of disposable income that must be paid to unsecured creditors.

The amount of disposable income determined by the formula in § 1325(b)(1) will bear no certain relationship to the debtor’s actual financial ability to make payments to unsecured creditors under a Chapter 13 plan.4 Because current monthly income (CMI) is based on an average of income during the six months before the month in which the petition is filed,5 and because the deductions from CMI to determine disposable income are artificial and not based on the debtor’s actual financial circumstances or actual plan,6 some debtors will be able to pay unsecured creditors the amount of projected disposable income required by § 1325(b)(1) in substantially fewer years than the applicable commitment period determined under § 1325(b)(4). Some debtors will not be able to pay the amount of disposable income calculated by § 1325(b) in any allowable period of time because actual income at confirmation will not be sufficient and the plan will not be feasible.

The applicable commitment period formula in § 1325(b)(4) is oddly based on the “combined” CMI of the debtor and the debtor’s spouse for married debtors without regard to whether the debtor’s spouse is a joint debtor. The Code does not reveal the proper methodology for determining the CMI of the debtor and the debtor’s spouse “combined.”7 There are problems of statutory interpretation because the definition of CMI in § 101(10A) excludes the income of a nonfiling spouse, yet § 1325(b)(4) uses the combined CMI of the debtor and the debtor’s spouse to determine applicable commitment period.8 There are several possible methods to calculate the combined CMI of the debtor and the debtor’s spouse—none of which is very satisfying.

Applicable commitment period is “not less than five years” if the CMI of the debtor (and the debtor’s spouse combined) is greater than applicable median family income under § 1325(b)(4). To determine applicable median family income, the debtor must pick an applicable state, must determine the *household* size of the debtor, then must pick a median family income amount from the Census Bureau charts based on *family* size.9 An individual debtor is directed to use the “one earner” column of the Census Bureau charts. Debtors with households of two, three or four individuals are instructed to pick the “highest” median family income for a family of the same number “or fewer” individuals as the debtor’s household. This could be interpreted to allow the debtor some choice of applicable median family income drawn from the Census Bureau charts.10

Applicable commitment period “shall be three years” if the CMI of the debtor (and the debtor’s spouse combined) is less than applicable median family income.11 Again, this three-year number is multiplied by disposable income to determine the amount of projected disposable income that must be paid to unsecured creditors through the plan.12 It tells us nothing about how long it will take the debtor to pay that amount through the actual plan.

Nothing in § 1325(b)(4) puts a cap on the applicable commitment period when the CMI of the debtor (and of the debtor’s spouse combined) is greater than applicable median family income. Applicable commitment period must be “not less than five years” but theoretically could be any larger number of years. It is not obvious why any Chapter 13 debtor with CMI greater than applicable median family income would select an applicable commitment period greater than five years; but there is nothing in the statute to prohibit use of a larger number. The effect would be to increase the required amount of projected disposable income that must be paid to unsecured creditors to satisfy an objection to confirmation under § 1325(b).

Depending on the relationship between the CMI of the debtor (and the debtor’s spouse combined) and applicable median family income, the applicable commitment period will be either “three years” or “not less than five years.” If the plan provides for “payment in full” of all allowed unsecured claims in a shorter period, then the applicable commitment period can be less than three years or five years.13

Prior to BAPCPA, because the disposable income test in § 1325(b) was based on the *actual* income of the debtor, the projected period under § 1325(b) was typically quite accurate of the actual time it would take the debtor to make the payments necessary to pay projected disposable income to creditors. But BAPCPA changed that. There is now a disconnect between the actual financial circumstances of the debtor at confirmation and the mathematical calculation that produces disposable income and applicable commitment period. The result is that it is very likely that there will be no certain relationship between the amount of money that must be paid to unsecured creditors to satisfy the disposable income test and the time it will take the debtor to pay that amount of money after confirmation.

The second provision of BAPCPA that addresses plan length is only slightly more predictive of how long the Chapter 13 debtor will make payments under a confirmed plan. New § 1322(d) provides as follows:

(d)(1) If the current monthly income of the debtor and the debtor’s spouse combined, when multiplied by 12, is not less than—

(A) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner;

(B) 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

(C) 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,

the plan may not provide for payments over a period that is longer than 5 years.

(2) If the current monthly income of the debtor and the debtor’s spouse combined, when multiplied by 12, is less than—

(A) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner;

(B) 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

(C) 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,

the plan may not provide for payments over a period that is longer than 3 years, unless the court, for cause, approves a longer period, but the court may not approve a period that is longer than 5 years.14

In some ways, § 1322(d) mimics § 1325(b)(4). The calculation in § 1322(d)(1) and (2) is based on the same comparison of the oxymoronic “current monthly income of the debtor and the debtor’s spouse combined” with applicable median family income.15 Applicable median family income requires the same judgments and choices about applicable state, household size, family size and selection from the highest amounts available in the Census Bureau charts.16

But unlike § 1325(b)(4), § 1322(d) then states the *maximum* period over which the plan may provide for payments. If the CMI of the debtor (and the debtor’s spouse combined) is less than applicable median family income, the plan “may not provide for payments over a period that is longer than three years” unless the court, for cause, approves a longer period, not to exceed five years under any circumstances.17 If the CMI of the debtor (and the debtor’s spouse combined) is greater than applicable median family income, the plan “may not provide for payments over a period that is longer than five years.”18

Section 1322(d) thus fixes maximum payment periods that may be provided for by Chapter 13 plans based on the mathematical relationship between applicable median family income and the CMI of the debtor (and the debtor’s spouse combined). This maximum is not related in any way to the terms of the proposed plan or the actual financial circumstances of the debtor at the time of confirmation. Because CMI is an artificial construct based on the historical income of the debtor during the six months before the month in which the petition was filed,19 there will be many Chapter 13 cases in which changed financial circumstances dictate a plan length that is longer or shorter than the maximum generated by § 1322(d).

To summarize, upon objection to confirmation by the trustee or the holder of an allowed unsecured claim, new § 1325(b)(4) calculates an applicable commitment period that will be either three years or not less than five years—depending on whether the CMI of the debtor (and the debtor’s spouse combined) is less than or greater than applicable median family income. The applicable commitment period number is then multiplied by disposable income to reveal the *amount* of money that must be paid to unsecured claim holders to accomplish confirmation of a plan.20 Section 1322(d) states that the plan may *not* provide for payments over a period “longer than 3 years” or “longer than 5 years” based on a similar determination whether CMI of the debtor (and the debtor’s spouse combined) is less than or greater than applicable median family income. The period determined under § 1325(b)(4) is a maximum that is not linked by any reality to either the amount of disposable income that must be paid to satisfy § 1325(b) or to the actual financial circumstances of the debtor at confirmation.

Because § 1322(d) fixes only maximum plan length, it is certain that some Chapter 13 debtors will propose plans that provide for payments for less than the maximum temporal period allowed. Sometimes, those plans will complete payments to secured, priority and unsecured creditors in less time than the maximum allowed. This will be true because after BAPCPA, the trustee and creditors cannot force a Chapter 13 debtor to pay unsecured creditors more than the amount mathematically calculated under § 1325(b) without regard to how long it takes the debtor to pay that amount. By disconnecting the disposable income test from the actual financial circumstances of the debtor at confirmation, BAPCPA neutralized the way the disposable income test empowered trustees and unsecured creditors under prior law to force debtors to commit all of their *actual* disposable income at confirmation to funding the plan for at least three years. The only compulsion remaining is not temporal and is not based in the reality of the debtor’s budget. Instead, it is an artificial mathematical calculation—disposable income multiplied by applicable commitment period—that will not produce a predictable plan length in Chapter 13 cases.

1 *See* **§ 493.1 [ Applicable Commitment Period Calculation ] § 100.1 Applicable Commitment Period Calculation.**

2 11 U.S.C. § 1325(b)(4), discussed in **§ 493.1 [ Applicable Commitment Period Calculation ] § 100.1 Applicable Commitment Period Calculation.**

3 *See* **§ 493.1 [ Applicable Commitment Period Calculation ] § 100.1 Applicable Commitment Period Calculation.**

4 *See* **§ 494.1 [ Projected Disposable Income ] § 101.1 What Do Unsecured Creditors Get?.**

5 *See* 11 U.S.C. § 101(10A), discussed in **§ 468.1 [ Current Monthly Income: The Baseline ] § 92.3 Current Monthly Income: The Baseline.**

6 *See* 11 U.S.C. §§ 1325(b)(2)(A), (B), 707(b)(2)(A) and (B), discussed beginning at § 92.1 In General.

7 This issue is discussed in detail in

8 This issue is discussed in **§§ 473.1 [ Accounting for Spouses ] § 94.3 Accounting for Spouses** and **493.1 [ Applicable Commitment Period Calculation ] § 100.1 Applicable Commitment Period Calculation.**

9 *See*

10 *Id.*

11 11 U.S.C. § 1325(b)(4)(A)(i), discussed in

12 *See* 11 U.S.C. § 1325(b)(1)(B).

13 *See* 11 U.S.C. § 1325(b)(4)(B).

14 11 U.S.C. § 1322(d).

15 *See* above in this section, and *see*

16 *See*

17 11 U.S.C. § 1322(d)(2).

18 11 U.S.C. § 1322(d)(1).

19 *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.**

20 *See* 11 U.S.C. § 1325(b), discussed in **§ 494.1 [ Projected Disposable Income ] § 101.1 What Do Unsecured Creditors Get?.**