§ 96.1     Average Monthly Payments on Account of Secured Debts
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 96.1, at ¶ ____, LundinOnChapter13.com (last visited __________).

After the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA),1 for Chapter 13 debtors with current monthly income (CMI)2 greater than applicable median family income,3 “amounts reasonably necessary to be expended—”4 are determined in accordance with § 707(b)(2)(A) and (B).5 In addition to the numerous categories of monthly expenses included in “amounts reasonably necessary to be expended—” by § 707(b)(2)(A)(ii),6 Chapter 13 debtors with CMI greater than applicable median family income also are allowed by clause (iii) of § 707(b)(2)(A) to reduce CMI by a monthly average of secured debt:

(iii) The debtor’s average monthly payments on account of secured debts shall be calculated as the sum of—
(I) the total of all amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the petition; and
(II) any additional payments to secured creditors necessary for the debtor, in filing a plan under chapter 13 of this title, to maintain possession of the debtor’s primary residence, motor vehicle, or other property necessary for the support of the debtor and the debtor’s dependents, that serves as collateral for secured debts;
divided by 60.7
[2]

This reduction in CMI for average monthly payments on account of secured debts in clause (iii) sharply illustrates that the calculation of disposable income for Chapter 13 debtors with CMI greater than applicable median family income is purely a mathematical calculation that bears no certain relationship to the financial reality of the debtor’s circumstances.

[3]

The debtor is instructed by clause (iii) to calculate the sum of “all amounts scheduled as contractually due to secured creditors” for the 60 months following the petition. The word “scheduled” could mean amounts listed by the debtor in the schedules filed as part of Official Form 6.8 Official Form 6 contains a Schedule D—“creditors holding secured claims”—on which the debtor lists each creditor holding a secured claim, including an “amount of claim without deducting value of collateral.” Perhaps “scheduled” in clause (iii) refers to Schedule D.

[4]

On the other hand, “scheduled” could refer to the words following—“as contractually due”—referring to the portion of a contract in which amounts due and the timing of payments are specified. Scheduled in this sense would not be what the debtor lists in Schedule D but what the contract actually provides.

[5]

On the third hand, “scheduled as contractually due” could be distorted to include consideration of events and outcomes during the Chapter 13 case itself. Discussed in detail below, that the debtor may surrender collateral, sell property, cram down or avoid liens or suffer stay relief are all events during the Chapter 13 case that courts have determined change the secured debts that are scheduled as contractually due for purposes of § 707(b)(2)(A)(iii). Underlying this inquiry is the question whether amounts scheduled as contractually due are determined at the petition or at some later date such as the effective date of the plan.9 This in turn is a species of the broader debate whether the disposable income test is a time-bound mathematical calculation or a “forward-looking” evaluation of circumstances that can change during the Chapter 13 case.10

[6]

This uncertainty about the meaning of “scheduled as contractually due” is crucial and has quickly produced widely divergent outcomes in reported cases. The sum of all amounts “scheduled” in Schedule D is likely to be different from the total of all amounts scheduled in contracts as amounts due to secured creditors. There will be discrepancies between the amounts listed by the debtor in Schedule D and amounts that secured creditors claim are due during the 60 months following the petition. There will be loan contracts that don’t “schedule” amounts contractually due with the specificity contemplated by clause (iii), and there will be schedules filed by debtors that don’t list amounts due for all secured debts. The amounts that debtors will actually pay to secured creditors through the confirmed plan are almost certainly different than either the amounts “scheduled” in Schedule D or the amounts “scheduled” in prepetition contracts. The cases discussed below demonstrate that the courts will not quickly or easily reach agreement about the meaning of “scheduled as contractually due” in § 707(b)(2)(A)(iii).

[7]

All amounts scheduled as contractually due to secured creditors during the 60 months following the petition are summed in § 707(b)(2)(A)(iii)(I). These amounts, of course, have no certain relationship to any other aspect of the Chapter 13 case. In particular, there is no mention in subclause (I) of the Chapter 13 plan. Although many courts have held otherwise,11 “all amounts scheduled as contractually due to secured creditors” include amounts that will never be paid through any Chapter 13 plan because the lien will be avoided, the debt will be crammed down at confirmation, the collateral will be surrendered, the property will be sold or there will be some other treatment that doesn’t include payment through the plan. There are no adjustments for reality in clause (iii) of § 707(b)(2)(A).

[8]

“Amounts . . . contractually due . . . in each month of the 60 months following the date of the petition” could be huge numbers. For example, imagine a Chapter 13 debtor with a home mortgage that was accelerated before the petition and, perhaps, reduced to a foreclosure judgment. The amount “contractually due” to the secured creditor may well be the full balance of the mortgage and that total amount would be included in the sum required by subclause (I).12 Also included would be any balloon payments, costs, fees and other adjustments allowed by contract that will be due in the 60 months following the petition.13

[9]

But the plan may actually require a completely different amount to be paid to the mortgage holder during the 60 months after confirmation. If the confirmed plan cures defaults and maintains payments consistent with § 1322(b)(5), the amount that will be paid will be substantially less than the balance due by contract after acceleration for purposes of § 707(b)(2)(A)(iii).14

[10]

It is not obvious how Chapter 13 debtors will determine the amounts contractually due during the 60 months after the petition for an adjustable rate mortgage that will change yearly, or perhaps more often. Some guesswork will be required to project these amounts.

[11]

Don’t forget nontraditional secured creditors such as a bank with a contractual right of setoff in a depository account or a credit union with a contractual security interest in “shares.” These secured creditors would be included in the sum of all amounts that would be contractually due during the 60 months after the petition. The amount scheduled as contractually due with respect to such non-installment debts would likely be the entire balance of the debt.

[12]

Secured claims in a bankruptcy case are determined under § 506(a).15 An allowed claim is a secured claim to the extent of the value of the creditor’s interest in the estate’s interest in the property subject to a lien. Because of changes by BAPCPA, there will be controversy in Chapter 13 cases about the extent of secured claims: There is a new hanging sentence at the end of § 1325(a) which states that § 506 “shall not apply” to purchase money car claims incurred within 910 days of the petition and to claims secured by any other thing of value incurred within a year of the petition.16

[13]

Are 910-day PMSI car claims secured debts for § 707(b)(2)(A)(iii) purposes even though § 506 cannot be used to determine whether or to what extent the debt is secured? If 910-day PMSI car claims are secured debts for § 707(b)(2)(A)(iii) purposes, is the amount scheduled as contractually due the entire debt or the value that would actually be secured if § 506 applied?17 Chapter 13 debtors will have to include hanging-sentence debts in the § 707(b)(2)(A)(iii) calculation or there is little hope that a feasible plan can be constructed. Excluding 910-day PMSI car claims from the secured debt payment average would overstate the disposable income available for unsecured creditors whenever the debtor proposes to keep the car through the plan.

[14]

The notion of “secured debts” in § 707(b)(2)(A)(iii) is probably broader than “secured claims” in this context. The calculation of “amounts reasonably necessary to be expended—” by a Chapter 13 debtor with CMI greater than applicable median family income takes place early in the Chapter 13 case, before claims disputes or other litigation would determine the allowable amounts of secured claims. As mentioned above, some secured claims will be bifurcated or crammed down as part of the confirmation process, resulting in allowed secured claims that are significantly less than the “amounts scheduled as contractually due to secured creditors” for purposes of § 707(b)(2)(A)(iii)(I).

[15]

Amounts “contractually due” to secured creditors may include amounts that are not just amortization of a loan. There will be other contractual obligations to secured creditors such as credit life or credit disability insurance, escrows for taxes and insurance, periodic assessments for common areas and condominium or association maintenance.18 In this context, it is hard to divine the meaning of the word “scheduled” in a temporal sense, but additional charges that are contractually due should at least be estimated for the calculation in subclause (I).

[16]

Subclause (II) of clause (iii) of § 707(b)(2)(A) adds to the contractual amounts due to secured creditors “any additional payments . . . necessary for the debtor, in filing a plan under chapter 13 of this title, to maintain possession” of a primary residence, a motor vehicle or “other property necessary for the support of the debtor and the debtor’s dependents.”19 The payments captured by subclause (II) need not be “scheduled” nor “contractually due.” Judgment liens, statutory liens and other interests in the debtor’s property that create secured debts without a contract would be eligible.

[17]

The phrase “in filing a plan under chapter 13 of this title” is contained only in subclause (II) of § 707(b)(2)(A)(iii) and is confined by language to the additional payments necessary to secured creditors. Detailed below, the absence of any mention of the plan in subclause (I) strongly argues that amounts scheduled as contractually due in § 707(b)(2)(A)(iii)(I) are determined as of the petition without consideration of treatments that may result through a confirmed plan.

[18]

The phrase “in filing a plan under chapter 13 of this title” is a generic reference to a Chapter 13 plan—not necessarily the plan contemplated or filed by the debtor. Subclause (II) invites a calculation of other payments to secured creditors that would be required in a hypothetical Chapter 13 plan to maintain possession of the debtor’s home, car or other necessary property. Although not without controversy,20 that the debtor might surrender the collateral or deal with a lien other than by full payment through the actual plan is not relevant to this calculation.

[19]

Subclause (II) draws into the calculation of average monthly payments for secured debts all amounts past due, all judgment amounts with or without an underlying contract and amounts to which a secured creditor might be entitled by statute. Tax liens—including all interest and penalties allowable under applicable law—would be included. Attorney fees and collection costs to a judgment creditor would be included. Mechanic’s liens, contractor’s liens and the like would be additional amounts the debtor might have to pay to secured creditors to maintain possession of collateral.

[20]

The condition that the property must be “necessary for the support of the debtor and the debtor’s dependents” appears in subclause (II) but not in subclause (I). In other words, the condition that payments to maintain possession must relate to property that is necessary for the support of the debtor and dependents only applies to the “additional payments to secured creditors” in § 707(b)(2)(A)(iii)(II) and does not apply to the potentially much larger amounts scheduled as contractually due to secured creditors under § 707(b)(2)(A)(iii)(I).

[21]

This lack of parallelism between subclauses (I) and (II) has quickly contributed to controversy in reported decisions with respect to whether the collateral for a secured debt must be “necessary” to the support of the debtor and the debtor’s dependents to qualify for deduction under § 707(b)(2)(A)(iii). This could be characterized as a subset of the broader question whether expense deductions from CMI in the calculation of disposable income must be reasonable and/or necessary for the maintenance or support of the debtor or the dependents of the debtor.21 For § 707(b)(2)(A)(iii) purposes, the statute answers the question, but the courts are not so sure.

[22]

A majority of courts addressing the issue have concluded that the “necessary” condition only applies to the additional payments to maintain possession in § 707(b)(2)(A)(iii)(II). For example, in In re Hays,22 the debtors proposed to keep a time-share property that was, without dispute, a luxury that was not necessary for the support of the debtor or the dependents of the debtor. The plan proposed to maintain monthly contract payments but did not propose to cure any arrearages or to pay any other amounts under subclause (II). The bankruptcy court concluded that the debt secured by the time-share was deductible without a determination of reasonableness or necessity notwithstanding that this outcome was not altogether consistent with BAPCPA:

Although the plain language clearly does not fit with the stated goal of Congress in passing BAPCPA—that of maximizing the amount a debtor must pay to his unsecured creditors[—]the language in § 707(b)(2)(A)(iii) is dispositive. Debtors are not trying to cure an arrearage on the timeshare, which sums would not be deductible from income because even Debtors do not argue that the timeshare is reasonable and necessary for their support. Instead, Debtors have only included the secured debt owed to the timeshare creditor, divided by 60, as allowed by subsection (I). The restriction Congress placed in § 707(b)(2)(A)(iii)(II) for delinquencies on secured debt where the property involved is necessary for the support of the debtor and the debtor’s dependents is clearly absent from § 707(b)(2)(A)(iii)(I) dealing with the monthly contractual payment due on the secured debt. . . . Congress, for some reason, chose to differentiate between secured debts upon which debtors were current as of the date the petition was filed, and those secured debts where the debtor would be required not only to pay the secured debt, but also a prepetition arrearage on that secured debt. . . . Although this Court does not fully understand why Congress deemed it appropriate to allow debtors to claim expenses for all of their secured debt that was current as of the date of filing—even for luxury items[—]but to limit the expenses necessary to cure pre-petition defaults on secured debt to only that property deemed necessary for the support of the debtor and the debtor’s dependents, it is clear that Congress did make that policy decision.23
[23]

The minority position finds that secured debt must be “necessary” before it is deductible from CMI on the way to disposable income under either subclause of § 707(b)(2)(A)(iii). The bankruptcy court in In re Owsley24 explained that the “necessary” condition in subclause (II) migrated to apply to amounts scheduled as contractually due under subclause (I) to avoid “absurd” outcomes. The debtor in Owsley wanted to keep a recreational vehicle securing debt that was not in default. The RV was not necessary to the support of the debtor or the debtor’s dependents and, as was the case with the time-share in Hays, the Owsley plan proposed only to maintain payments scheduled as contractually due under subclause (I). This outcome wasn’t palatable notwithstanding admittedly plain language in the statute:

[C]lause [§ 707(b)(2)(A)](iii) is a stand-alone clause that does not require secured debts to first qualify for deduction under clause (ii). . . . [S]ubclause (I) has no express requirement that the collateral securing the debt be necessary. However, such limitations are found in subclause (II). . . . [A]pplying routine canons of statutory construction, one could easily conclude that secured debts that are current on the day of filing may be deducted without regard to collateral type or any showing of necessity. However, the court does not reach that result here. . . . Even if clause (iii) could be said to be plain and to lack ambiguity, applying the limiting language of clause (II) only to defaulted obligations would produce an absurd result that is antithetical to congressional intent. . . . The court can find no compelling ground on which to exempt secured obligations from the limiting language of subclause (II) simply because they are current as of the date of the filing. . . . In order for a vehicle payment to be entitled to deduction under clause (iii), the collateral must be “necessary for the support of the debtor and the debtor’s dependents.” . . . [T]he debtors made no effort to establish the necessity of this vehicle.25
[24]

The condition that the property must be necessary for the support of the debtor and the debtor’s dependents shouldn’t be much of a problem for a principal residence and cars used by the debtor and the debtor’s dependents. But as demonstrated in the cases just discussed, subclause (II) may be more narrow than subclause (I) with respect to luxury property or goods such as a vacation home, a recreational boat or the like. The amounts scheduled as contractually due on account of debt secured by a luxury item would be included in the calculation in subclause (I), but “additional payments” to maintain possession of the luxury item are likely to fall outside the “necessary” condition in subclause (II). This will produce some strange calculations when there is both an amount “scheduled as contractually due” secured by a luxury item and “additional payments” necessary to maintain possession.

[25]

There is no mention of the debtor’s spouse in § 707(b)(2)(A)(iii). Discussed elsewhere,26 § 707(b)(2)(A)—and many other new provisions enacted by BAPCPA—are at least confused with respect to the debt and income of spouses in Chapter 13 cases. The failure to address the debtor’s spouse in clause (iii) leaves open whether a spouse is a separate “debtor” for purposes of this section and raises the possibility that this section accounts for only the secured debts of a debtor and the debtor’s dependents. Before BAPCPA, it would be an easy interpretation that the debtor and the debtor’s spouse are each “the debtor” for purposes of clause (iii). The use of new terms of art—the “spouse of the debtor” and the “debtor’s spouse”—in BAPCPA puts the easy interpretation in doubt and raises the possibility that clause (iii) captures only the debtor’s secured debts.

[26]

This interpretation would be punitive in joint cases. In a joint case, all of a spouse’s separate income is included in CMI by § 101(10A)(A).27 Spouses of Chapter 13 debtors will have secured debts that are not obligations of the debtor. Spouses of debtors will have secured debts that are necessary for the support of dependents that are not the debtor’s dependents. In joint cases, all separate secured debts of a spouse should be included in average monthly payments on account of secured debts, but other interpretations of clause (iii) are possible.

[27]

When the drafters of § 707(b)(2)(A) were constructing clause (iii), it is unfortunate they did not also address rental and leasing expenses.28 Many Chapter 13 debtors rent or lease homes, cars, appliances and other personal property. Rental and lease obligations typically are not “secured debts” in a bankruptcy case.29 There is no clause, subclause or sentence of § 707(b)(2)(A) that comfortably includes personal property rental and lease payments in “amounts reasonably necessary to be expended—.”30 This omission starkly illustrates that § 707(b)(2)(A) does not presume to be a family budget of the sort Chapter 13 practitioners are used to in the disposable income test context. Rather, § 707(b)(2)(A) is a mathematical construct that omits important items that would be in a typical budget and is over-inclusive of others.

[28]

Chapter 13 debtors’ attorneys should consider adding rental and lease payments to Official Form B22C—perhaps at Line 59.31 This is an aggressive position given the omission of such payments from § 707(b)(2)(A). It may be argued that some rental and lease payments are captured indirectly as monthly expenses under § 707(b)(2)(A)(ii)(I) within the Local Standards for Housing and Utilities and Transportation.32 The Local Standards for Housing and Utilities include “mortgage or rent.”33 The Local Standards for Transportation include “vehicle payment (lease or purchase)” according to the Internal Revenue Manual.34 Illogically, secured debt in excess of a Local Standards amount is allowed as a deduction from CMI by § 707(b)(2)(A)(iii), but “excess” rent or lease payment is not. If the debtor leases or rents appliances or other personal property, counsel will invent a way to claim those expenses as part of the § 707(b)(2)(A) calculation.

[29]

Subclauses (I) and (II) of § 707(b)(2)(A)(iii) generate numbers that are summed together and then “divided by 60.” The “average monthly payment” that results will both overstate and understate the amount of secured debt that the debtor will actually face either in or outside a Chapter 13 case. This is the nature of the § 707(b)(2)(A) calculation. It is not a “budget” in the traditional sense; it is a mathematical calculation. Dividing by 60 all amounts scheduled as contractually due to secured creditors during the five years after the petition mathematically accounts for secured debts that will be “paid off” before completion of payments under the plan,35 but it tells us nothing about the actual monthly debt load for the payment of secured debts in the Chapter 13 plan. It is just a number. Including additional payments to secured creditors necessary to maintain possession of a residence or car drags the number determined by clause (iii) further from reality given that liens may be avoided, property may be surrendered or crammed down and the power to “cure default” through a Chapter 13 plan may involve monthly payments quite different from “divided by 60.”

[30]

Clause (iii) will be the source of many battles with respect to “netting” or “subtracting” payments for secured debts from “amounts reasonably necessary to be expended—” allowed by other clauses, subclauses and sentences within § 707(b)(2)(A) and (B).36 The average monthly payments on account of secured debts allowed by clause (iii) will overlap and duplicate many allowances and deductions elsewhere in § 707(b)(2)(A) and (B). There is no statement in clause (iii) that these separate expense items that sometimes overlap are to be eliminated by some sort of netting or subtraction process. Elsewhere in § 707(b)(2)(A), Congress made explicit its intention that a specific item of expense would be allowed only if “not already accounted for” elsewhere in § 707(b)(2)(A) or (B).37

[31]

The mathematical amount determined under clause (iii) is allowed by the statute as an “amount reasonably necessary to be expended—” by a Chapter 13 debtor with CMI greater than applicable median family income without regard to debtor or creditor action in the Chapter 13 case. Seen in this light, it makes sense that there is no provision in clause (iii) that requires deducting or subtracting the made-up number that is “average monthly payments on account of secured debts” from any other allowance or expense appearing elsewhere in § 707(b)(2)(A) or (B). But it is likely that trustees and other parties in interest will argue otherwise.

[32]

Even a quick look at Official Form B22C reveals that the drafters believed that “average monthly payments on account of secured debts” calculated under clause (iii) of § 707(b)(2)(A) must be netted or subtracted from expenses and allowances elsewhere in § 707(b)(2)(A) as if this was a budget, not a mathematical calculation.38A few examples will illustrate the problems of this approach.

[33]

Imagine a Chapter 13 debtor with a car note with 24 months remaining and a monthly payment of $500. If the debtor has CMI greater than applicable median family income, this secured claim will be accounted for under clause (iii) of § 707(b)(2)(A) by multiplying $500 times 24 months and dividing by 60. The resulting “average monthly payment” is $200.

[34]

If the sentence in subclause (I) of clause (ii)—“notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts”—is interpreted to require netting or subtracting of payments like the car payment from allowances elsewhere in § 707(b)(2)(A)(ii),39 the debtor will be required to net or subtract the car payment from the “ownership costs” portion of allowable living expenses for transportation in the Local Standards issued by the IRS.40 At this writing, for one car, the Local Standards Transportation Ownership Costs allowance issued by the IRS is $489.41 If the debtor follows the instructions at Line 28 of Official Form B22C,42 the debtor will subtract $200 from $489 and will have a net transportation “allowance” for ownership of the car of $289.

[35]

None of these numbers bears any predictable relationship to the $500 per month that the debtor is contractually obligated to pay for the car. In a confirmable Chapter 13 plan, the monthly payment to the car lender might be more or less than the $289 remaining “ownership costs” component of the Local Standards or more or less than the $489 ownership costs component of the Local Standards Transportation. The expense deduction allowed by § 707(b)(2)(A)(iii) would extend to debts secured by a third, fourth or fifth car notwithstanding that transportation expenses beyond a second car are not contemplated by either the IRS or Official Form B22C.43 None of these numbers fit into any rational notion of a “budget.” Netting and subtracting the amounts calculated under the clauses and subclauses in § 707(b)(2)(A) in an effort to approximate a budget is badly missing the point of Congress’s choice to substitute a mathematical formula for the judicial discretion inherent in the phrase “amounts reasonably necessary to be expended—”.

[36]

The average monthly payments on account of secured debts subtracted from the Local Standards Transportation at Lines 28 and 29 of Official Form B22C are drawn from clause (iii), not from “this clause”—which is clause (ii) in § 707(b)(2)(A). To give meaning to “payments for debts” in the quoted sentence from clause (ii), the forms drafters chose to import the mathematical calculation of average monthly payments on account of secured debts contained in clause (iii). This is not required by the statute and further distorts the mistaken effort to use the mathematical calculation in clause (iii) as a budget item in Official Form B22C.

[37]

Imagine a Chapter 13 debtor who borrowed $100,000 to start a business and secured the loan with a mortgage on the debtor’s principal residence. When the business failed and the debtor ends up in a Chapter 13 case, that $100,000 mortgage is a secured debt that must be accounted for in clause (iii). Mathematically, the $100,000 plus interest, costs and attorney fees would be divided by 60,44 producing an average monthly payment of (more than) $1,666. This payment of debt secured by the debtor’s home has nothing whatsoever to do with the purchase of the home, but this mathematically determined amount is by statutory definition an “amount[ ] reasonably necessary to be expended—” for purposes of a Chapter 13 debtor with CMI greater than applicable median family income.

[38]

In the distorted mathematics of Official Form B22C, the entire $1,666 would be subtracted from the IRS Local Standards Housing and Utilities—wiping out that entire allowance.45

[39]

In a Chapter 13 case, if the business debt and other mortgages are secured only by real property that is the debtor’s principal residence, the debtor will be unable to modify these debts and will have to pay them according to contract terms.46 Those contract terms will bear no obvious relationship to the mathematical calculations in § 707(b)(2)(A) or in Official Form B22C.

[40]

The math will often produce the opposite effect of that just illustrated. Change the facts a bit: the business lender took a security interest in the debtor’s home and in business equipment. The mathematical calculation for purposes of clause (iii) remains the same—the $100,000 is a secured debt that would be divided by 60, producing an average monthly payment of $1,666. But in a Chapter 13 plan, the debtor can modify this secured claim—perhaps stripping off any unsecured portion of the debt.47 The resulting actual monthly payment through a plan might be substantially less than the mathematical calculation required by clause (iii). The difference will not be paid to unsecured creditors under BAPCPA’s configuration of the disposable income test.48 In other words, a large secured debt can reduce or eliminate a Chapter 13 debtor’s obligation to make payments to unsecured creditors through a plan when the debtor has CMI greater than applicable median family income even if the debtor has no intention of actually paying that debt through the plan. This is just the way the statute works. It is not a budget. It is not reality. The statute can’t be made to approximate a budget by fabricating subtractions within an Official Form.

[41]

Most of the cases interpreting the deduction from CMI for secured debts in § 707(b)(2)(A)(iii) address whether events after the petition affect whether a secured debt is scheduled as contractually due. As mentioned above, courts willing to slide past the petition to determine amounts scheduled as contractually due will not allow debtors to reduce CMI in the disposable income calculation for debts secured by property that is surrendered, with respect to which a lien is avoided, debts secured by property that is crammed down or “stripped off” and property with respect to which stay relief is granted during the Chapter 13 case. Courts that read § 707(b)(2)(A)(iii) to cabin amounts scheduled as contractually due to secured creditors at the petition do not allow events during the Chapter 13 case to change the mathematics of this deduction from CMI.

[42]

This debate about § 707(b)(2)(A)(iii) is a species of the larger issue whether the disposable income test is a mathematical calculation focused on circumstances at the petition or a “forward- looking” inquiry that can change between the petition and confirmation of a plan.49 This “bigger” issue has fractured the courts50 and is unlikely to be resolved short of a change in the statute or a decision by the Supreme Court.

[43]

The Bankruptcy Appellate Panel for the Sixth Circuit served up an excellent illustration of both the bigger and smaller problems with § 707(b)(2)(A)(iii). Discussed in detail elsewhere,51 in Hildebrand v. Petro (In re Petro),52 the BAP for the Sixth Circuit determined that “projected disposable income” is different from “disposable income” and “projected” requires “forward-looking” considerations, including changes in circumstances that occur during the Chapter 13 case.

[44]

Two weeks later, a slightly different panel of the BAP for the Sixth Circuit in Hildebrand v. Thomas (In re Thomas)53 faced the focused issue whether § 707(b)(2)(A)(iii) permits a deduction from CMI for debt secured by collateral that the debtor intends to surrender through the Chapter 13 plan. The BAP concluded that a Chapter 13 debtor with CMI greater than applicable median family income “may deduct, for purposes of determining disposable income under § 1325(b)(2), payments for collateral the debtor intends to surrender.”54 But then, citing Petro, the BAP remanded the calculation of projected disposable income to the bankruptcy court because the expense deduction allowed by § 707(b)(2)(A)(iii) might be wiped out by a plan that proposed to surrender collateral.

[45]

The question decided and then undecided by Thomas—whether a Chapter 13 debtor with CMI greater than applicable median family income can reduce CMI by debt secured by collateral surrendered after the petition—has mightily divided the courts. At this writing, more than 30 decisions address the issue and a slight majority holds that surrender of collateral forfeits the deduction in § 707(b)(2)(A)(iii).55 The majority courts offer several different rationales. Some cite the “effective date” language in § 1325(b)(1). Some of the majority courts apply the “forward-looking” notion of projected disposable income to overcome any contrary petition-date focus in § 707(b)(2)(A)(iii). A few of the majority courts find the deduction of expenses for surrendered property to simply be “absurd” or “incongruous.” Others cite the plan as a “new contract” for purposes of “contractually due” in § 707(b)(2)(A)(iii)(I).

[46]

A minority of courts hold that amounts scheduled as contractually due for purposes of § 707(b)(2)(A)(iii) are determined as of the petition and are not affected by subsequent surrender.56 These courts easily find a petition-date focus in the phrase “date of the petition” in § 707(b)(2)(A)(iii)(I). These courts don’t trump the words in § 707(b)(2)(A)(iii) with “forward-looking” notions of projected disposable income. “Scheduled as contractually due” has no nexus with the plan or with the surrender of collateral after confirmation according to the minority courts. Several of the minority courts point out that Congress knew how to signal when the content of the plan controlled a feature of confirmation and that there is no such language in § 707(b)(2)(A)(iii)(I).

[47]

Similar issues arise when the debtor avoids a lien, strips off an unsecured lien or crams down an undersecured lien as part of plan confirmation. Again, the question is whether postpetition events change the calculation of amounts scheduled as contractually due for purposes of § 707(b)(2)(A)(iii). Again, a majority of courts have concluded that events after the petition that eliminate or limit a lien reduce or eliminate the deduction for amounts scheduled as contractually due under § 707(b)(2)(A)(iii).57 A few courts have read § 707(b)(2)(A)(iii) more accurately to allow the deduction of secured debts that are scheduled as contractually due at the petition without regard to whether the underlying lien may be avoided or the allowed secured claim limited by some action during the Chapter 13 case.58 Measuring just the split in reported cases, the courts seem to find it easier to disallow the deduction of amounts scheduled as contractually due when the lien itself will be attacked by avoidance or cramdown than when the postpetition event is surrender of the collateral.

[48]

This deep split of authority is a testament to both the inartful wording of § 707(b)(2)(A)(iii) and the misguided incorporation of the abuse test in § 707(b)(2)(A) into the projected disposable income test in Chapter 13 cases. For the most part, there is no postpetition activity in a Chapter 7 case that would appropriately be considered to determine whether the filing of a Chapter 7 petition is abusive under § 707(b)(2)(A) and (B). To determine “amounts necessary to be expended—” for a Chapter 13 debtor with CMI greater than applicable median family income, the reference to § 707(b)(2)(A)(iii) has provoked the majority courts cited above to give § 707(b)(2)(A)(iii) a completely different meaning in Chapter 13 cases than in cases under Chapter 7. There is certainly nothing in the Bankruptcy Code to suggest that difference, and the minority courts are quick to point out many good reasons why consideration of postpetition events is both unwarranted and unwise.


 

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

 

2  11 U.S.C. § 101(10A), discussed in § 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

3  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).

 

4  See 11 U.S.C. § 1325(b)(2) and (3), discussed in § 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors.

 

5  See 11 U.S.C. § 1325(b)(3), discussed in § 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

6  The many categories are listed in § 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

7  11 U.S.C. § 707(b)(2)(A)(iii).

 

8  See § 35.5 [ Schedule D—Secured Claims ] § 36.11  Schedule D—Secured Claims.

 

9  See below in this section. See also § 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors.

 

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

 

11  See below in this section.

 

12  But see In re Willette, 395 B.R. 308 (Bankr. D. Vt. 2008) (Brown) (Amount scheduled as contractually due is not accelerated balance of mortgage when plan will cure default, reinstating note and original monthly payment.).

 

13  See also 11 U.S.C. § 707(b)(2)(A)(iii)(II), discussed below in this section.

 

14  See In re Willette, 395 B.R. 308 (Bankr. D. Vt. 2008) (Brown) (Mortgage payments are scheduled as contractually due and are deductible expenses for debtor with CMI greater than applicable median family income when plan proposes to cure default consistent with § 1322(b)(5)—without regard to other postpetition events such as relief from the stay.).

 

15  See § 106.1 [ Is Claim Secured, and By What? ] § 76.2  Is Claim Secured, and By What?.

 

16  See discussion beginning at § 75.1  In General: Modification Without § 506.

 

17  See below in this section.

 

18  See, e.g., In re Bermann, 399 B.R. 213, 216, 217, 218 (Bankr. E.D. Wis. 2009) (McGarity) (Notwithstanding continuing ambiguity at Line 47 of Official Form B22C—and without regard to whether there is an escrow account requirement—real estate taxes and insurance are allowed amounts contractually due to secured creditors. The April 2007 version of Official Form B22C at Line 47 provided, “Mortgage debts should include payments of taxes and insurance required by the mortgage.” The January 1, 2008, version of Line 47 differently instructed, “[C]heck whether the payment includes taxes or insurance.” In both versions, the Advisory Committee on Bankruptcy Rules “coyly refuses to tell us whether the deductions would be allowable to reduce projected disposable income if the amounts are found to be valid.” The IRS in its Financial Analysis Handbook includes taxes and insurance in the Local Standards for Housing and Utilities. “I believe that a payment requirement in a mortgage that inures to the financial benefit of the lender is a payment ‘to’ that lender, as that term is used in 11 U.S.C. § 707(b)(2)(A)(iii). . . . The existence of an escrow is immaterial since payments are only funneled through the escrow account and are not actually a payment to or for the benefit of the creditor until they ultimately reach the insurance provider or the taxing authority. . . . Such payments are required by the contract that creates the security interest, so they can be included in required payments on Line 47.”).

 

19  11 U.S.C. § 707(b)(2)(A)(iii)(II).

 

20  See below in this section.

 

21  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, 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues, 474.1 [ In General ] § 95.1  In General and 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

22  No. 07-41285, 2008 WL 1924233 (Bankr. D. Kan. Apr. 29, 2008) (unpublished) (Karlin).

 

23  2008 WL 1924233, at *4–*6. Accord In re Musselman, 379 B.R. 583, 591 (Bankr. E.D.N.C. 2007) (Doub) (For debtor with CMI greater than applicable median family income, average monthly payments on account of secured debt allowed under § 707(b)(2)(A)(iii)(I) need not be necessary for support of debtor or a dependent because “necessary for support” requirement only applies to additional payments allowed by § 707(b)(2)(A)(iii)(II). “[T]he plain language of § 707(b)(2)(A)(iii) makes a distinction between its two subsections, requiring only the debts in subsection (II) to be necessary for the support of the debtor and the debtor’s dependents. Therefore, this debtor is not under an obligation to show that the [travel trailer] is necessary for his support or for the support of his dependents.”), aff’d in part, rev’d in part, 394 B.R. 801 (E.D.N.C. 2008); In re Moore, No. 07-11528C-13G, 2008 WL 895668, at *3–*4 (Bankr. M.D.N.C. Apr. 2, 2008) (Stocks) (Debt secured by boat, motor and trailer is deductible under § 707(b)(2)(A)(iii) without regard to reasonableness or necessity because debt is current and debtor need not prove necessity with respect to contractual secured debt under § 707(b)(2)(A)(iii)(I). “There is no requirement under subsection (iii) or elsewhere in section 707(b)(2)(A) that regular monthly payments on secured debts be necessary in order to be deductible under subpart (I) of subsection (iii). . . . [T]he presence of the language requiring that property be ‘necessary for the support of the debtor and the debtor’s dependents’ in section 707(b)(2)(A)(iii)(II), and the absence of that language in section 707(b)(2)(A)(iii)(I), reflects that Congress did not intend that a debtor must prove that property is necessary before being allowed to take a deduction for secured debt, as long as the debtor was current on the debt at the time of filing the bankruptcy petition. . . . A debtor need only show that property is necessary when trying to reduce current monthly income by taking a deduction for arrearage payments on secured debt.”); In re Franco, No. 07-30741, 2008 WL 444679, at *1 (Bankr. S.D. Ill. Feb. 12, 2008) (Meyers) (Chapter 13 debtors with CMI greater than applicable median family income are permitted secured debt deduction in § 707(b)(2)(A)(iii) without regard to reasonableness or necessity of multiple cars. Citing In re Sallee, No. 07-30776, 2007 WL 3407738 (Bankr. S.D. Ill. Nov. 15, 2007) (unpublished): “[T]he Court determined that post-BAPCPA, the [In re Rybicki, 138 B.R. 225 (Bankr. S.D. Ill. 1992),] holding—that expense deductions must be reasonably necessary—was irrelevant to the question of whether above-median income debtors could retain encumbered property and pay for it through their chapter 13 plan. . . . Under [§ 707(b)(2)(A)(iii)(I)], if an expense deduction is a secured debt payment, ‘it meets the new definition of “reasonably necessary” and no subjective review of the expense by the Court is permitted.’”); In re Jones, No. BK07-81646, 2007 WL 4893472, at *3 (Bankr. D. Neb. Dec. 14, 2007) (unpublished) (Saladino) (Chapter 13 debtor with CMI greater than applicable median family income is entitled to average monthly payments on account of secured debts under § 707(b)(2)(A)(iii)without regard to reasonableness or necessity. Trustee challenged $2,400-per-month mortgage and condominium dues. “[T]he form allows the deduction of the debtor’s average monthly payments on account of secured debts as specified in 11 U.S.C. § 707(b)(2)(A)(iv). Congress apparently made the decision to allow the deduction of secured debt obligations without regard to whether such expenses are actually reasonable or necessary. . . . [T]he Trustee’s argument that Debtors’ housing expenses are not reasonably necessary must fail.”); In re Kain, No. 07-40922, 2007 WL 2851612, at *2–*3 (Bankr. W.D. Wash. Sept. 11, 2007) (unpublished) (Mortgage and arrearage expenses are fully deductible under § 707(b)(2)(A)(iii) notwithstanding that total exceeds IRS Local Standards for Housing and Utilities. Mortgage payments and mortgage arrearage payments totaled $5,162.85 per month. The IRS Local Standards for Housing and Utilities allowance was $1,318 per month. “Debtors are authorized to deduct their contractually due secured payments for their residence in accordance with 11 U.S.C. § 707(b)(2)(A)(iii), even though the IRS Standard housing expense is limited to $1,318 per month. . . . [A]fter the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), a court has no authority to question the reasonableness and necessity of secured debt that is contractually due for an above-median income debtor. . . . The arrearage payments proposed by the Debtors in their Plan . . . fall under 11 U.S.C. § 707(b)(2)(A)(iii)(II) . . . . [T]here has been no contention that the Debtors’ arrearage payments on the home mortgages are not necessary for the Debtors to maintain possession of their residence for the support of themselves and their dependents.”); In re Hylton, 374 B.R. 579, 585–86 (Bankr. W.D. Va. 2007) (Debtor with CMI greater than applicable median family income is entitled to deduct average monthly payment for debt secured by boat that is luxury good that would not be allowed as deduction by IRS. “[W]hile certain secured debts accounted for in Section 707(b)(2)(A)(iii) may also be accounted for in Section 707(b)(2)(A)(ii), there is no requirement for Section 707(b)(2)(A)(iii) debt to also be of an expense described in Section 707(b)(2)(A)(ii).”); In re Gehrke, No. 06-27265-svk, 2007 WL 2318479, at *2 (Bankr. E.D. Wis. Aug. 9, 2007) (unpublished) (Debtor with CMI greater than applicable median family income is allowed secured debt deduction for motorcycle that is luxury item; § 707(b)(2)(A)(iii) is not limited to secured claims that are “necessary” or “reasonable.” “Subsection II allows the deduction of certain ‘additional payments,’ specifically tailored to include arrearage payments on property necessary for support, i.e., not luxury items. Congress’s failure to limit subsection (I) with such specific, explicit qualifiers . . . is evidence of Congress’s failure to intend that result. It follows that scheduled payments on all secured debts are included under subsection (I), regardless of whether the Trustee considers the property a luxury item. In short, the disposable income test for above-median debtors does not require that a debtor can only deduct a secured debt on items such as homes or ‘reasonable’ cars. Rather, a debtor can deduct any secured debt under 11 U.S.C. § 707(b)(2)(A)(iii).”); In re Martin, 373 B.R. 731 (Bankr. D. Utah 2007) (For debtor with CMI greater than applicable median family income, secured debt deduction allowed by § 707(b)(2)(A)(iii) requires only that debt be owing, not that it be reasonable or necessary; secured debt deduction for $21,350 ski boat is allowed but is substantial evidence that plan is not proposed in good faith.); In re Austin, 372 B.R. 668, 680–81 (Bankr. D. Vt. 2007) (Reasonableness or necessity of secured debts is no longer a consideration with respect to expense deduction for secured debt for a debtor with CMI greater than applicable median family income. Trustee objected to $195 per month for backhoe that was not used for production of income. “BAPCPA has removed the bankruptcy courts’ discretion to consider the reasonableness of the expenses set forth in Schedule J in above-median cases. . . . [W]hen confronted with a question concerning whether the deduction for a particular secured debt of an above-median debtor is reasonable and necessary, [the court] will refrain from interposing its judgment if the debtor is current on the payment obligation in question.”); In re Carlton, 370 B.R. 188, 191–92 (Bankr. C.D. Ill. 2007) (Because “reasonably necessary” standard does not apply to secured debt payments in § 707(b)(2)(A)(iii), debtor gets secured debt deduction for three vehicles, including an expensive Cadillac Escalade. “[B]y the insertion of the reasonable and necessary language in just a few of the sections of § 707(b)(2), Congress intended courts to do a ‘reasonable and necessary’ review of only those specific expense deductions where that language is expressly inserted. Some of the provisions of § 707(b)(2) refer to IRS national and local standards, and Congress did not insert the reasonable and necessary language in those sections of the statute. That makes sense because reference to the IRS standards alone provides a fixed amount for those allowed deductions. . . . With respect to the deduction of the secured debt payments at issue here, Congress did not include the reasonable and necessary standard in § 707(b)(2)(A)(iii)(I) which provides for the deduction of the ‘total of all amounts scheduled as contractually due’ during the five-year commitment period. . . . [T]he court in [In re Devilliers, 358 B.R. 849 (Bankr. E.D. La. 2007),] seems to endorse the notion that scrutiny of the reasonableness and necessity of certain expenses is appropriate when a court makes its analysis of disposable income under § 1325(b)(3). Devilliers does not, however, provide any direct support for denial of the deductions for the payment of secured debts.”).

 

24  384 B.R. 739 (Bankr. N.D. Tex. 2008) (Nelms).

 

25  384 B.R. at 746–49. Accord In re Namie, 395 B.R. 594, 597–98 (Bankr. D.S.C. 2008) (Waites) (Actual monthly mortgage expense of $5,376.54 is allowed by § 1325(b)(3) but fails reasonableness and necessity review. “[T]hough 11 U.S.C. § 1325(b)(3) allows for the categorical deduction of certain actual expenses, those expenses must be ‘reasonably necessary’ regardless of whether Debtor is above the median income. . . . Debtor’s housing expense is more than five times that allowed by the I.R.S. and is not reasonable or necessary considering Debtor’s family size, income level, location, and lack of other special needs.”); In re McGillis, 370 B.R. 720, 753 (Bankr. W.D. Mich. 2007) (For Chapter 13 debtor with CMI greater than applicable median family income, expense side of disposable income test is measured against both reasonably necessary test in § 1325(b)(2) and amounts allowed by § 707(b)(2)(A) and (B); deduction of amounts contractually scheduled for time-share and second mortgage may be deductible under § 707(b)(2)(A), but those expenditures are not reasonable and necessary when debtor proposes to surrender time-share and to avoid mortgage through plan. “Debtors’ formulation of the required [Form B22C] calculation is correct and Debtors’ determination of the income component to this formula is also correct. However, Debtors have grossly overstated the expense component of the equation by including within its calculations expenditures for a Florida timeshare and a second home mortgage that Debtors in fact do not intend to pay if their plan is confirmed. While it may be appropriate to include these expenditures in connection with whether Debtors could pass the means test were Debtors instead seeking relief under Chapter 7, Debtors are seeking relief under Chapter 13 and the additional requirements imposed by Section 1325(b) regarding the calculation of the expense component of the statutory equation precludes [sic] the inclusion of any expenditure that Debtors in fact do not actually need for the post-confirmation support and maintenance of their family under the plan they are proposing.”). See § 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues for further discussion whether expense deductions must be “reasonable” and/or “necessary.”

 

26  See § 473.1 [ Accounting for Spouses ] § 94.3  Accounting for Spouses.

 

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

 

28  A similar bias against renters appears in § 707(b)(2)(A)(ii)(I) and in Official Form B22C with respect to the treatment of residential leases and the Local Standards Housing and Utilities. See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

29  Unless, of course, the lease or rental contract is a disguised security interest. See § 175.1 [ Fake Leases and Rental Agreements ] § 102.8  Fake Leases and Rental Agreements.

 

30  Rent for housing may be accounted for, but inaccurately, by the Local Standards Housing and Utilities allowance discussed in § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation. The unlikely possibility that personal property rental or lease expenses would fall within the categories of Other [Necessary] Expenses for “Secured or Legally Perfected Debts” or “Unsecured Debts” is discussed in §§ 477.11 [ Other [Necessary] Expenses—Secured or Legally Perfected Debts ] § 95.14  Other [Necessary] Expenses—Secured or Legally Perfected Debts and 477.12 [ Other [Necessary] Expenses—Unsecured Debts ] § 95.15  Other [Necessary] Expenses—Unsecured Debts.

 

31  See below in this section, and see § 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation.

 

32  See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

33  I.R.M. 5.15.1.9 (May 9, 2008). See also I.R.M. 5.15.1.9 (May 1, 2004), available at 2007 WL 2646965.

 

34  Id.

 

35  See, e.g., In re Williams, 394 B.R. 550 (Bankr. D. Colo. 2008) (Brown) (No “step-up” of payments to trustee is necessary to satisfy disposable income test when secured debt is repaid during Chapter 13 plan because amount contractually due to secured creditors is already adjusted for the completion of payments in the formula in § 707(b)(2)(A)(iii).); In re McLain, 378 B.R. 39, 44 (Bankr. N.D.N.Y. 2007) (Plan need not step up payment to unsecured creditors when car loans being paid directly by debtor are paid off because average amounts contractually due on car loans have already been factored into disposable income analysis. “[E]ven if the early payoff of secured loans were relevant to a disposable income analysis, the Form B22C process has already factored that in by calculating the amounts contractually due on the Debtors’ automobile loans in the 60 month period following commencement of their case divided by 60.”).

 

36  “Netting” issues are discussed in § 94.2  Netting Issues, Including Exclusion of Payments for Debts, § 95.2  National Standards,  § 95.3  Local Standards: Housing and Transportation and beginning at § 95.4  Other [Necessary] Expenses—In General; All Categories

 

37  See, e.g., 11 U.S.C. § 707(b)(2)(A)(ii)(IV), discussed in § 483.1 [ Education Expenses ] § 95.26  Education Expenses.

 

38  See § 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation.

 

39  See §§ 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts and 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

40  This is exactly what most courts have concluded. See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

41  See http://www.irs.gov/businesses/small/article/0,,id=104623,00.html, discussed in § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

42  See §§ 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation and 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

43  See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation. See, e.g., In re Carlton, 362 B.R. 402, 410–11 (Bankr. C.D. Ill. 2007) (The automobile ownership expense deduction allowed to debtors with CMI greater than applicable median family income is limited to two cars, but this limitation does not apply to secured debt expense deduction in § 707(b)(2)(A)(iii). “[T]he deduction for secured debt payments is taken at line 47. The ability to deduct the average monthly payments on secured debts is separate and distinct from the deductions for ownership expenses at lines 28 and 29. . . . [Section 707(b)(2)(A)(iii)(I)] is a broad provision which includes all amounts due on secured debts regardless of the type of collateral pledged. Nothing in this section suggests that only two vehicle debts may be included. . . . If Congress had wanted to limit the secured debts to be deducted for vehicles to only two such debts, Congress could have done so by expressly saying so at line 47. . . . Nowhere does the statute state that only two vehicle debts are deductible at line 47.”), on reconsideration, 370 B.R. 188 (Bankr. C.D. Ill. 2007) (Because “reasonably necessary” standard does not apply to secured debt payments in § 707(b)(2)(A)(iii), debtor gets secured debt deduction for three vehicles, including an expensive Cadillac Escalade.).

 

44  This assumes that the $100,000 will become due in full during the 60 months after the petition by contract or otherwise under subclause (I) or (II) of § 707(b)(2)(A)(iii).

 

45  At this writing, the Local Standards Housing and Utilities issued by the IRS are not broken down into mortgage and nonmortgage components; thus the calculation required at Line 25B of Official Form B22C is not possible. See §§ 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation and 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation for further discussion of this issue.

 

46  See § 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.

 

47  See § 126.2 [ Claims Secured by Fixtures, Furniture, Equipment, Appliances, Machinery, Easements, Appurtenances, Mineral Rights, Water Rights and the Debtor’s First Born ] § 80.11  Claims Secured by Fixtures, Furniture, Equipment, Appliances, Machinery, Easements, Appurtenances, Mineral Rights, Water Rights and the Debtor’s First Born.

 

48  Cases reaching a contrary result are discussed below in this section and in § 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors.

 

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

 

50  See § 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors. See, e.g., Hamilton v. Lanning (In re Lanning), 545 F.3d 1269 (10th Cir. 2008) (Murphy, Brorby, Tymkovich) (Statutory calculation of current monthly income for a debtor with CMI greater than applicable median family income in § 101(10A) and expenses allowed by § 707(b)(2)(A) and (B) are a presumption that can be overcome by a showing of “substantial change in circumstances.”); Coop v. Frederickson (In re Frederickson), 545 F.3d 652 (8th Cir. 2008) (Wollman, Beam, Riley) (“Disposable income” using the statutory calculation is only a “starting point” or a “presumption” for a Chapter 13 debtor with CMI greater than applicable median family income.); Maney v. Kagenveama (In re Kagenveama), 541 F.3d 868 (9th Cir. 2008) (Pregerson, Siler, Bea) (For a Chapter 13 debtor with current monthly income greater than applicable median family income, “projected disposable income” means what the statute says: calculate disposable income using the formula based on current monthly income less expenses determined in accordance with § 707(b)(2)(A) and (B) and then multiply—project—that amount by the applicable commitment period of five years.).

 

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

 

52  395 B.R. 369 (B.A.P. 6th Cir. 2008) (Fulton, McIvor, Shea-Stonum).

 

53  395 B.R. 914 (B.A.P. 6th Cir. 2008) (Gregg, McIvor, Shea-Stonum).

 

54  395 B.R. at 922.

 

55  See In re Rahman, 400 B.R. 362, 370 (Bankr. E.D.N.Y. 2009) (Grossman) (Adopting “forward-looking” approach to expense side of disposable income calculation, debtor cannot deduct future payments on house and car that plan proposes to surrender. “[I]t would go against the very essence of Chapter 13 to allow a debtor to deduct an expense that he has stated he does not intend to actually pay during the life of the plan. . . . [T]he Chapter 13 plan states the Debtor’s intention to surrender[.]”); In re Miller, No. 07-22927, 2008 WL 5539804 (Bankr. D. Kan. Dec. 31, 2008) (Somers) (Because “forward-looking” approach in Hamilton v. Lanning (In re Lanning), 545 F.3d 1269 (10th Cir. 2008), applies to both income and expense sides of projected disposable income calculation, surrender of collateral through proposed plan is a substantial change in circumstances which excludes debt secured by surrendered property.); In re Marchionna, 393 B.R. 512, 520 (Bankr. N.D. Ohio 2008) (Baxter) (Debtor with CMI greater than applicable median family income cannot deduct secured debt payments with respect to real property that the plan proposes to surrender. “Since the Debtor’s Plan calls for surrender of the Property in full satisfaction of the mortgage claim, there will not be any ‘amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the petition.’ . . . Where relief from the automatic stay or confirmation of the proposed plan will eliminate the need to make future payments to a secured creditor, the amounts will no longer be scheduled as contractually due and will no longer be within the meaning of an eligible deduction for secured debt pursuant to § 1325(b)(3).”); In re Koch, 391 B.R. 230 (Bankr. N.D.N.Y. 2008) (Cangilos-Ruiz) (Debtor not entitled to expense deduction for contractually due payments on car loan when plan proposes to surrender the collateral.); In re Long, 390 B.R. 581 (Bankr. E.D. Tex. 2008) (Parker) (Allowances in § 707(b)(2)(A) limit expense deductions for debtor with CMI greater than applicable median family income and are not automatically allowed when actual expenses are less; debtor cannot deduct contractually scheduled payments on debt secured by collateral surrendered through plan.); In re Gonzalez, 388 B.R. 292, 302–03 (Bankr. S.D. Tex. 2008) (Isgur) (Debtor with CMI greater than applicable median family income cannot deduct contractually due debt secured by home mortgage when property is surrendered after petition and before confirmation. “Section 1325(b)(3)’s use of ‘shall’ refers to ‘amounts,’ not determination of whether an expenditure should or should not be allowed in the first place. . . . [T]he expenditure must be actually projected to be paid if it is to qualify as an allowed expenditure during the debtor’s plan period. . . . The debtor must actually intend to incur expenses on the allowed expenditure during the debtor’s plan period. The Gonzalezes’ surrendered home does not qualify as a projected allowed expenditure under § 1325(b)(1)-(2).”); In re Suess, 387 B.R. 243, 247–48 (Bankr. W.D. Mo. 2008) (Dow) (Adopting In re Burden, 380 B.R. 194 (Bankr. W.D. Mo. 2007), debtor cannot deduct payments on home mortgage when plan surrenders property. “[Section] 1325(b)(1) specifically states that upon objection, the Court is to make the determination whether the debtor is committing all projected disposable income ‘as of the effective date of the plan.’ This has been construed to mean as of the date of confirmation of the proposed plan. . . . A debtor whose plan proposes to surrender property subject to a security interest will not therefore make payments on the associated debt during the course of the plan. . . . In a Chapter 13 case, . . . the debtor’s plan modifies the arrangement between the debtor and the creditor. It creates a new contract with new provisions for payment of the claim. If the plan proposes a surrender of the collateral, no payments are scheduled to be made under the plan to the creditor. For that reason, no further amounts are contractually due and the secured debt deduction is inappropriate.”); In re Vernon, 385 B.R. 342, 345 (Bankr. M.D. Fla. 2008) (Paskay) (Debtor not entitled to deduction for secured debt payment on property that will be surrendered through plan. “[T]he disposable income shall be determined by applying 11 U.S.C. §§ 707(b)(2)(A) and (B) according to the pertinent circumstances existing on the date of the confirmation hearing.”), granting leave to appeal interlocutory order, Nos. 2:08-cv-280-FtM-29, 9:07-bk-5638-ALP, 2008 WL 1882599 (M.D. Fla. Apr. 24, 2008) (Steele) (Granting leave to appeal interlocutory order with respect to whether secured debt can be deducted when plan proposes to surrender collateral.); In re Graham, No. 07-42934-DML-13, 2008 WL 1775003, at *3 (Bankr. N.D. Tex. Apr. 15, 2008) (Lynn) (Debtors with CMI greater than applicable median family income cannot deduct secured debt payments with respect to collateral that will be surrendered through plan. “Under the ‘forward-looking’ approach to §§ 702(b)(2) and 1325(b), secured payments deducted on Form [B]22C cannot continue to be deducted for disposable income purposes if the collateral is to be surrendered.”); In re Kalata, No. 07-21710, 2008 WL 552856 (Bankr. E.D. Wis. Feb. 27, 2008) (McGarity) (When plan provides for surrender of residence, debtor with CMI greater than applicable median family income is not entitled to expense deduction for debt secured by the home.); In re Van Bodegom Smith, 383 B.R. 441, 452–55 (Bankr. E.D. Wis. 2008) (Pepper) (Debtors with CMI greater than applicable median family income cannot deduct monthly payments on mortgage when plan proposes to surrender property. “[T]his Court agrees with [In re Crittendon, No. 06-10322 C-13G, 2006 WL 2547102 (Bankr. M.D.N.C. Sept. 1, 2006) (unpublished),] that one looks at whether mortgage payments are ‘scheduled as contractually due’ as of the effective date of the plan, and not as of the date the petition was filed, in determining whether those payments can be subtracted from current monthly income to obtain projected disposable income. . . . [U]pon confirmation, this plan would constitute a new agreement between the debtors and the secured lenders, and their payments no longer would be ‘scheduled as contractually due.’ . . . ‘The term ‘projected’ contemplates forward looking or future oriented approach. One would not project or anticipate that a payment would be made on a secured indebtedness where the collateral had been returned.’ . . . [T]o give the word ‘projected’ in § 1325(b)(2) meaning, this Court agrees that it must take a forward looking view of whether the debtors in this case will, over the life of their plan, have to make the mortgage payments on the home they are surrendering. They will not. Therefore, they cannot subtract those payments from their current monthly income in order to determine their ‘projected’ disposable income. . . . The phrase ‘to be received[]’ . . . refers to projected disposable income that the debtor will receive in the future. If the debtor will not be making mortgage payments to the secured lenders in the future, then it stands to reason that, absent some intervening new expense, those funds will be ‘disposable’ income that will be ‘received’ in the future. . . . [I]f a debtor intends to surrender collateral, then the payments on that debt are not amounts reasonably necessary ‘to be expended’ in the future for the maintenance and support of the debtor.”); In re Coleman, 382 B.R. 759, 762–64 (Bankr. W.D. Ark. 2008) (Barry) (Debtors with CMI greater than applicable median family income cannot take expense deduction for ownership of car that plan will surrender. “[T]he means test required by a chapter 7 debtor under § 707(b)(2) and the means test required under § 1325(b)(3) are not the same even though they both encompass § 707(b)(2). . . . For chapter 13 cases, § 1325(b)(2)(A) further refines the amounts ‘reasonably necessary to be expended’ to reflect only payments that first become payable after the petition is filed to more accurately reflect the debtor’s disposable income in relation to a proposed plan. . . . If the debtor proposed to surrender the collateral in his proposed plan, payment will no longer be made on that particular debt, and there would be ‘no amounts contractually due in the future based on that contract.’ . . . [I]t is no longer a debt that first becomes payable after the date the petition [and plan are] filed.”); In re Spurgeon, 378 B.R. 197, 202–06 (Bankr. E.D. Tenn. 2007) (Average monthly payments on account of secured debts under § 707(b)(2)(A)(iii) are calculated without considering secured debt that will be resolved through plan by surrender of collateral. “The court is supposed to use the means test provisions to determine the amounts reasonably necessary ‘to be expended’ for maintenance and support of the debtor or the debtor’s dependents. . . . The use of ‘to be expended’ generally requires the court to determine actual future expenses instead of being bound to assume that past expenses will continue. . . . [P]rojecting disposable income allows the court to apply the deduction statute on the basis of events in the chapter 13 case and the terms of the proposed plan. Specifically, the order lifting the stay and the plan provision for surrender of the mobile home mean that the deduction should not include the post-filing installment payments to Green Tree that were called for by the contract.”); In re Edmondson, 371 B.R. 482, 485–86 (Bankr. D.N.M. 2007) (Debtor with CMI greater than applicable median family income is allowed expense deduction by § 707(b)(2)(A)(iii) for full amount of contractual mortgage payment notwithstanding that contract amount is greater than Local Standards under § 707(b)(2)(A)(ii)(I); debtor is not allowed deduction for debt associated with rental property to be surrendered through plan. “Debtors’ actual monthly mortgage payment is a payment on a secured debt within the meaning of 11 U.S.C. § 707(b)(2)(A)(iii) which may be deducted as an expense when computing the Debtors’ projected disposable income. . . . 11 U.S.C. § 707(b)(2)(A)(iii) allows for the deduction of debtor’s average monthly payments on secured debts, and because the mortgage payment is for the Debtors’ primary residence, such expense also appears to fit within 11 U.S.C. § 707(b)(2)(A)(iii)(II) as an additional payment to a secured creditor ‘necessary for the debtor, in filing a plan under chapter 13 of this title to maintain possession of the debtor’s primary residence.’ . . . [T]he Debtors’ mortgage payment on their primary residence is not restricted to the IRS Standard. The full amount may be deducted from Debtors’ income under 11 U.S.C. § 707(b)(2)(A)(iii). However, the mortgage payment associated with the rental property which the Debtors will surrender, and from which the Debtors no longer receive income, cannot be included in the expenses deducted in computing the Debtors’ projected disposable income.”); In re McGillis, 370 B.R. 720 (Bankr. W.D. Mich. 2007) (Deduction of amounts contractually scheduled for time-share are not reasonable and necessary when debtor proposes to surrender time-share.); In re Edmunds, 350 B.R. 636, 645 (Bankr. D.S.C. 2006) (Deduction for average monthly payments on account of secured debts in § 707(b)(2)(A)(iii) is limited to secured debts treated through Chapter 13 plan. “Debtors may only take a deduction to the extent that Debtors are treating these creditors as secured creditors scheduled for payment by Debtors in their chapter 13 plans.” Car that will be surrendered through plan is neither “applicable” expense under Local Standards nor part of calculation of secured debts under § 707(b)(2)(A)(iii).); In re Crittendon, No. 06-10322 C-13G, 2006 WL 2547102, at *3–*5 (Bankr. M.D.N.C. Sept. 1, 2006) (unpublished) (Secured debts deductible under § 707(b)(2)(A)(iii) are determined as of effective date of plan and must be adjusted to reflect collateral disposed of between petition and confirmation and collateral surrendered through plan. At petition, debtors had two mortgages on a residence, a debt secured by a horse trailer and a debt secured by a boat. Between petition and confirmation, residence was sold and mortgages paid off. Plan surrendered horse trailer and boat. Form B22C reflected two mortgages and two secured debts. “‘[D]isposable income’ will be determined . . . by applying section 707(b)(2)(A) and (B) according to the pertinent circumstances existing on the date of the confirmation hearing, rather than on the basis of the circumstances existing on the petition date. . . . Section 707(b)(2)(A)(iii) applies to the monthly payments ‘scheduled as contractually due to the secured creditors in each month of the 60 months following the date of the petition.’ Under this language, the payments must be scheduled as contractually due in the future and the payments must be payments to secured creditors in order to be deductible under section 707(b)(2)[A](iii). . . . [T]he terms of the plan determine whether payments have been scheduled for payment in the future and also establishes [sic] the classification of creditors on the effective date of the plan. . . . [T]he Debtors’ plan does not propose to make these payments during the plan period. The payments therefore are not scheduled for payment in the future. . . . [S]uch payments may not be included as part of the ‘amounts reasonably necessary to be expended’ in computing Debtors’ disposable income under section 1325(b)(2).”); In re Love, 350 B.R. 611, 613–14 (Bankr. M.D. Ala. 2006) (For debtor with CMI greater than applicable median family income, secured debts that are deductible do not include debts with respect to collateral that will be surrendered through plan. “[A] Chapter 13 Plan is necessarily a forward looking document. . . . The term ‘scheduled’ in terms of § 707(b)(2)(A)(iii) also contemplates a forward looking approach. That is, one schedules something which one expects to take place in the future and not an event which one plans to avoid. The terms ‘scheduled as contractually due’ should be interpreted in a way which is consistent with the underlying Chapter 13 Plan as well as text of the Code. As it is the debtor’s plan to surrender certain collateral, payments which will be avoided should not be said to be scheduled within the meaning of § 707(b)(2)(A)(iii).”).

 

56  See Hildebrand v. Thomas (In re Thomas), 395 B.R. 914, 922–23 (B.A.P. 6th Cir. 2008) (Gregg, McIvor, Shea-Stonum) (To determine disposable income for debtor with CMI greater than applicable median family income, amount scheduled as contractually due on account of secured debt is deductible notwithstanding that plan proposes to surrender collateral. Applying Hildebrand v. Petro (In re Petro), 395 B.R. 369 (B.A.P. 6th Cir. 2008), remand is necessary because bankruptcy court did not consider that “projected disposable income” is different from “disposable income” and surrender of collateral through plan may change entitlement of unsecured creditors. “[T]he means test is a mechanical, formulaic approach that as applied is no different in chapter 7 than it is in chapter 13. The Panel has not located any clearly expressed legislative intention that secured debt expenses deducted from the means test in chapter 7 should be different from secured debt expenses deducted from the disposable income test in chapter 13. . . . [A] chapter 13 debtor may deduct, for purposes of determining disposable income under § 1325(b)(2), payments for collateral the debtor intends to surrender. . . . [T]hat disposable income must then be compared to the Debtors’ projected disposable income, as reflected in Debtors’ income and expenses as of the effective date of the plan, as required by § 1325(b)(1)(B). . . . [T]he court may not confirm the plan if the court finds that debtor’s schedules or other credible evidence require [sic] a reassessment of disposable income as determined by the means test under § 1325(b)(2) and (b)(3).”); In re Richardson, No. 08-82000, 2009 WL 65178, at *1–*2 (Bankr. C.D. Ill. Jan. 8, 2009) (Perkins) (Mortgage payments scheduled as contractually due are allowed expenses notwithstanding that plan proposes to surrender property. “This Court agrees with those courts that construe the phrase ‘scheduled as contractually due’ as referring to the secured debt payment schedule, not to the debtor’s bankruptcy schedules. . . . Contractual liability is not eliminated by a mere intent or proposal to surrender the collateral. . . . [T]he TRUSTEE’S argument that the phrase ‘contractually due’ must be given a different meaning in Chapter 13 does not hold water.”); In re Smith, 401 B.R. 469, 475 (Bankr. W.D. Wash. 2008) (Snyder) (Applying Maney v. Kagenveama (In re Kagenveama), 541 F.3d 868 (9th Cir. 2008), debtor with CMI greater than applicable median family income is entitled to deduct secured debt payments contractually due at the petition with respect to two homes and a car that will be surrendered through the plan. “This Court respectfully disagrees with the position that the term ‘as of the effective date of the plan’ in § 1325(b)(1), requires the Court to determine what payments are scheduled as contractually due at or after confirmation. . . . [Section] 707(b)(2)(A)(iii)(I) specifically states that the secured payments are those scheduled as contractually due ‘following the date of the petition.’ Evaluating whether secured payments are instead scheduled as contractually due as of the effective date, would render the specific language of § 707(b)(2)(A)(iii)(I) meaningless.”); Dehart v. Hay (In re Hay), No. 1:08-bk-00474MDF, 2008 WL 5158577, at *2–*4 (Bankr. M.D. Pa. Nov. 13, 2008) (France) (Secured debt scheduled as contractually due is determined at the petition and includes debt with respect to collateral that the debtor intends to surrender. “[P]ayments that are ‘scheduled as contractually due’ are payments that a debtor is required to make on certain future dates under the terms of the contract in existence on the petition date. . . . The requirement that projected disposable income be committed to the plan ‘as of the effective date’ only refers to when the income must be committed. . . . [D]escribing a plan as a ‘new contract’ is a useful analogy, but equating one with the other is inaccurate. . . . The petition date, not the effective date of the plan, is the point in time at which the deductions are calculated using Form [B]22C as required by § 1325(b)(3).”); In re Degrosseilliers, No. 08-10942-SSM, 2008 WL 2725808 (Bankr. E.D. Va. July 11, 2008) (Mitchell) (Debtors with CMI greater than applicable median family income are entitled to deduct secured debt payments notwithstanding intent to surrender collateral.); In re Hoskings, No. 07-13785-RGM, 2008 WL 2235350, at *5–*6 (Bankr. E.D. Va. May 29, 2008) (Mayer) (“Scheduled as contractually due” secured debts are determined as of petition without regard to surrender or other provisions in plan. “There is no reason why the phrase ‘scheduled as contractually due’ should mean one thing when applying § 707(b)(2) in a chapter 13 case and another in a chapter 7 case. . . . [A]n above-median chapter 13 debtor’s deductions . . . should be determined as of the petition date and without regard to whether the debtor intends to surrender the collateral for any secured debt.”); In re Quigley, 391 B.R. 294, 301–16 (Bankr. N.D. W. Va. 2008) (Flatley) (Intent to surrender collateral is not relevant to whether contractually due payments on secured debt are deductible expenses under § 707(b)(2)(A)(iii), nor is it relevant that a nondebtor third party will be paying for collateral that will not be surrendered. “[I]t is not appropriate to interpret the term ‘scheduled as’ in § 707(b)(2)(A)(iii)(I) as making reference to a debtor’s schedules and statements . . . . [T]he act of surrendering property does not change the debtor’s obligation to make payments under the pre-petition contract. . . . [E]ven if a debtor surrenders collateral and receives a discharge, the debt is still ‘contractually due.’ . . . [T]he term ‘scheduled as contractually due’ means those secured debt obligations incurred by the debtor pre-petition, for which installment payments are scheduled to be due post-petition under the applicable debt instrument. . . . Nothing in § 707(b)(2)(A)(iii)(I) references a debtor’s potential surrender of collateral post-petition. . . . [I]nterpreting § 707(b)(2)(A)(iii)(I) as providing for a ‘snapshot’ of a debtor’s liabilities as of the petition date is consistent with the preceding subparagraph, § 707(b)(2)(A)(ii)(I) . . . . Using a ‘snapshot’ of the debtor’s financial circumstances as of the petition date is also consistent with Congress’s goal to limit judicial discretion in determining if abuse is present in a Chapter 7 case. . . . Section 1325(b)(3) is not written to be a presumption that may be overcome with evidence of the debtor’s state of affairs as of the confirmation date—its language is mandatory. . . . [Section] 1325(b)(3) does not alter the language, or the application of § 707(b)(2). . . . The court has not located any clearly expressed legislative intention that secured debt expenses deducted from the means test in Chapter 7 should be different from secured debt expenses deducted from the disposable income test in Chapter 13. . . . [Section] 707(b)(2)(A)(iii)(I), as made applicable to the Debtor’s Chapter 13 case by § 1325(b)(3), does not require that a debtor actually be making payments on secured debts. All it requires is that payments on secured debts be contractually due.”); In re Turner, 384 B.R. 537, 541–42 (Bankr. S.D. Ind. 2008) (Coachys) (Debtor with CMI greater than applicable median family income is entitled to home mortgage deduction for secured debt under § 707(b)(2)(A)(iii) notwithstanding that residence is surrendered through plan. “Regardless of whether the phrase ‘scheduled as’ was intended to have its common, dictionary meaning or to refer instead to a debtor’s bankruptcy schedules, the crucial fact is that neither construction compels the conclusion that a debtor must continue to pay the amounts due under the contract in order to claim the expense. If Congress intended for the expense deduction allowed under § 707(b)(2)(A)(iii) to be conditioned on continued payment of the expense, it presumably knew how to draft such a provision.”); In re Anderson, 383 B.R. 699, 707–08 (Bankr. S.D. Ohio 2008) (Humphrey) (Secured debt expense on property to be surrendered through plan is scheduled as contractually due for purposes of § 707(b)(2)(A)(iii)(I). “[T]he Bankruptcy Code and Bankruptcy Rules specifically differentiate between ‘schedules’ and ‘statements’ and in referencing ‘scheduled’ secured debt in § 707(b)(2)(A)(iii)(I) the most logical construction of that phrase is to construe it as meaning contractually incurred debt scheduled on ‘Schedule D-Creditors Holding Secured Claims’ . . . [and to construe] ‘contractually due’ as modifying ‘secured debt’ to differentiate between voluntarily secured debts such as mortgages and security agreements and involuntarily secured debts such as judgment liens and statutory liens. . . . [T]he intention to surrender . . . in a proposed Chapter 13 plan . . . does not change that such debts are contractually due at filing. . . . [T]he result is not absurd, or even unique . . . . Congress created a multitude of expenses that are determined at the petition date which include, at the least, all the IRS National Standards, Local Standards and Other Necessary Expenses.”); In re Burmeister, 378 B.R. 227, 229–31 (Bankr. N.D. Ill. 2007) (Goldgar) (Debtors with CMI greater than applicable median family income are entitled to deduct contractually due payments for mortgage on real property that debtors will surrender through plan. Debtors owned two pieces of real property, both subject to mortgages. Plan proposed to surrender one property and to keep the other. Debtors stopped making payments on property surrendered through plan, and relief from stay was granted to mortgage holder. “[S]ection 707(b)(2)(A)  . . . not only permitted but compelled the Burmeisters to take deductions based on payments of all their mortgages—the Vernon Hills mortgage included—because those payments were ‘contractually due’ when the petition was filed. . . . [‘C]ontractually due’ in section 707(b)(2)(A)(iii)(I) means a legal obligation under a contract, an obligation the debtor owes. . . . It makes no difference whether the debtor has actually been paying the obligation or intends to keep paying it. . . . Nor does it make a difference whether the debtor intends to surrender the collateral securing the obligation. . . . Amounts ‘scheduled as contractually due’ are determined as of the petition date. . . . [W]hen the Burmeisters filed their petition, they owned the Vernon Hills property, were still parties to the mortgage on the property, and were still contractually obligated to make the mortgage payments. Because they were legally bound by the mortgage on the petition date, they were obligated to deduct those payments when calculating their disposable income on Form [B]22C. That the Burmeisters had stopped making the payments and intended to surrender the property securing the mortgage is beside the point. The payments were nonetheless ‘contractually due’ and so had to be deducted under section 707(b)(2)(A)(iii)(I). . . . [T]he calculation is made as of the petition, not the confirmation date.”); In re Ries, 377 B.R. 777, 783–84 (Bankr. D.N.H. 2007) (Chapter 13 debtor with CMI greater than applicable median family income can deduct average monthly payment on account of secured debt notwithstanding that collateral is surrendered after petition. “The determination of Disposable Income under § 707(b)(2)(A) is mechanical in nature and is computed by the Debtors through the completion of the means test . . . . [Section] 707(b)(2)(A)’s mechanical test does not allow for consideration [of] post-petition events. . . . Debtors correctly included the two secured payments on real property which the Debtors owned on the Petition Date but have subsequently surrendered as deductions on Form B22C for the purpose of determining Disposable Income.”); In re McDevitt, No. 07-20273, 2007 WL 2479322 (Bankr. D. Kan. Aug. 28, 2007) (unpublished) (Because secured debts for debtor with CMI greater than applicable median family income are determined under § 707(b)(2)(A)(iii) and not under § 707(b)(2)(A)(ii)(I), debtor can deduct payments for residence, lake home and pontoon boat notwithstanding that plan surrenders residence and boat.); In re Oliver, No. 06-30076RLD13, 2006 WL 2086691, at *3 (Bankr. D. Or. June 29, 2006) (unpublished) (Expense deduction for payment of secured debts in § 707(b)(2)(A)(iii) includes debts that will not actually be paid through plan because collateral will be surrendered or lien avoided under § 522(f). Applying “the plain meaning of the phrase ‘scheduled as contractually due,’” in completing Form B22C, “debtors are entitled to deduct from current monthly income the average payments on debts secured by collateral with respect to which they have expressed an intent to surrender. I agree with [In re Walker, No. 05-15010, 2006 WL 1314125 (Bankr. N.D. Ga. May 1, 2006) (unpublished),] and find that it extends to average payments on debts secured by collateral as to which debtors have moved to avoid the applicable liens postpetition. . . . If Congress intended to limit secured debt payments contractually due from debtors on the petition date to those where actual future payments will be made in Form B22C calculations, it knew how to do so, as reflected, for example, by the inclusion of the terms ‘actual monthly expenses’ and ‘actual expenses’ elsewhere within section 707(b)(2)(A)(ii)(I) and (II).”)

 

57  See In re Terrell, No. 08-60172, 2008 WL 4488924, at *4 (Bankr. N.D. Ohio Sept. 30, 2008) (Kendig) (Debtor cannot deduct payments on second mortgage when there is no value to secure the mortgage and lien will be stripped off at confirmation. “[T]here is something innately incongruous in allowing a debtor to deduct an expense which will not be paid. . . . [T]he effective date of the plan is the controlling date for the determination of the amount of disposable income. When a lien has been avoided, the payments on that lien cannot be used to reduce a debtor’s current monthly income on the means test.”); In re Holmes, 395 B.R. 149, 151–52 (Bankr. M.D. Fla. 2008) (Funk) (Debtor with CMI greater than applicable median family income is not entitled to secured debt deduction for underwater second mortgage that plan proposes to strip off. “The first line of cases reasons that the plain language of § 707(b)(2)(A)(iii)(I) was meant to create a ‘snapshot’ of the debtor’s finances as of the petition date and does not factor into consideration a debtor’s future intentions. . . . The second line of cases utilizes a ‘future oriented’ approach, in which only those expenses which the debtor reasonably expects to pay over the sixty month period may be properly deducted. . . . This Court . . . sees the ‘snapshot’ approach as being directly at odds with § 1325(b)(1)(B) which requires a debtor to fund a plan with all of his or her disposable income. . . . [D]eductions may only be taken for payments scheduled in the chapter 13 plan. . . . [I]t would go against the very essence of Chapter 13 to allow a debtor to deduct an expense that is non-existent at the time of confirmation.”); In re Hoss, 392 B.R. 463, 471–74 (Bankr. D. Kan. 2008) (Nugent) (“[A]mounts scheduled as contractually due” in § 707(b)(2)(A)(iii) do not include payments that would have been made to a secured creditor but for cramdown or stripoff in the Chapter 13 plan. Plan proposed to cram down car loan that was not protected by hanging sentence and, in companion case, plan proposed to strip off wholly unsecured second, third and fourth mortgages. Projected disposable income calculation was based on original contract payments. Acknowledging split between “Actual Payment Deduction courts” and “Full Deduction courts,” “this Court opts to resolve the conflict by attempting . . . to honor the obvious Congressional preference that chapter 13 debtors pay their unsecured creditors what they are able. . . . [T]he Court concludes after reading § 1325(b)(1) in concert with § 707(b), that Congress intended courts to project a debtor’s disposable income in a chapter 13 case at the time of confirmation. . . . [T]he amounts ‘contractually due’ means the secured debt payments as modified by the plan. . . . [D]isallowance of a deduction for secured debt payments that have been modified in a chapter13 plan is more in tune with the forward-looking view of projecting disposable income expressed by the Tenth Circuit Bankruptcy Appellate Panel in [In re Lanning, 380 B.R. 17 (B.A.P. 10th Cir. 2007)]. . . . [A]bove-median chapter 13 debtors who intend to retain collateral may only deduct as § 707(b)(2)(A)(iii) secured debt payments on Line 47 of Form B22C the amounts the secured creditors will be paid under the plan as opposed to what the secured creditors’ original contracts provided.”); In re Fager, No. BK07-81411-TJM, 2008 WL 2497694, at *2 (Bankr. D. Neb. June 18, 2008) (Saladino) (Debtor with CMI greater than applicable median family income is not entitled to secured debt expense deduction for wholly unsecured second mortgage that is stripped off by confirmation. “The projected disposable income calculation clearly refers to the effective date of the plan. . . . [T]he plan and the order avoiding lien change the contractual obligation to the creditor. . . . [I]t would be nonsensical to allow the debtor a secured debt deduction for a mortgage loan that they will not actually be paying under the plan.”); In re Marciniak, No. BK08-80351-TJM, 2008 WL 2497690, at *2 (Bankr. D. Neb. June 18, 2008) (Saladino) (When plan crams down car lender’s claim, deduction allowed by § 707(b)(2)(A)(iii) is based on reduced amount to be paid under plan, not secured debt due by contract. “The projected disposable income calculation clearly refers to the effective date of the plan. . . . [T]he plan changes the contractual obligation to the creditor. . . . [I]t would be nonsensical to allow the debtors a secured debt deduction in an amount that is greater than what they will actually be paying under the plan.”); In re Sackett, 374 B.R. 70, 73 (Bankr. W.D.N.Y. 2007) (Effective date of plan, not petition date, determines debts scheduled as contractually secured for purposes of deduction in § 707(b)(2)(A)(iii)(I) and § 1325(b)(1)(B); when second mortgage is wholly unsecured and avoidable under Pond v. Farm Specialist Realty (In re Pond), 252 F.3d 122 (2d Cir. 2001), debt is properly listed as contractually secured on Form B22C but cannot be deducted as of effective date of plan for purposes of § 1325(b)(1)(B) because plan avoided lien. “Section 1325(b)(1)(B) specifically provides that any Means Test objection in Chapter 13 is determined as of the effective date of the Plan. Although when computing the amounts reasonably necessary to be expended for above median income debtors, Section 1325(b)(3) refers back to Section 707(b)(2) to determine the average monthly payments contractually due to secured creditors, in this Court’s view, the applicable date in Chapter 13 to determine whether a creditor is a secured creditor is the effective date of the Plan. . . . By the terms of the Plan, HFC is not treated as a secured creditor because the Plan specifically indicates that the HFC Mortgage lien will be avoided . . . the HFC Mortgage lien has been determined by this Court to be void. . . . [N]o deduction is permissible for what may have been a contractually due monthly second mortgage payment at the time the Debtor’s Chapter 13 Means Test Form was completed and filed with their petition.”); In re McGillis, 370 B.R. 720 (Bankr. W.D. Mich. 2007) (Second mortgage that will be avoided through the plan is not reasonable and necessary expense and cannot be deducted under § 707(b)(2)(A).); Beskin v. McPherson (In re McPherson), 350 B.R. 38, 43–47 (Bankr. W.D. Va. 2006) (Deduction for average monthly payments on account of secured debts in § 707(b)(2)(A)(iii) only applies to secured debts that will be paid through plan. Debtor owed Best Buy $4,056 secured by a computer valued at $100. Plan proposed to pay Best Buy $100. Debtor deducted $4,056 divided by 60 from CMI in Form B22C. “The word ‘projected’ in the phrase ‘projected disposable income’ modifies each of the component parts of ‘disposable income,’ that is, it modifies ‘current monthly income’ and it modifies ‘amounts reasonably necessary to be expended for support.’ . . . Payments that a debtor does not propose to make during the pendency of the plan and that a debtor is not required to make under the plan cannot be said to be reasonably necessary for the support of that debtor. Thus any deductions from income based on the ‘amounts’ in question must be payments that will be made pursuant to the confirmed plan of reorganization. . . . The ‘amounts’ referred to in Paragraph 1325(b)(2) are amounts that a debtor will make in the future as provided in the debtor’s plan. They are not amounts that are provided for in pre-petition contracts that give rise to both secured and unsecured claims. . . . The term ‘contractually due[]’ . . . does not carry the same meaning in a chapter 13 case as in a chapter 7 case. The chapter 13 plan constitutes a new agreement between the debtor and each secured creditor. A debtor’s obligations under the plan are substituted for his or her obligations under the original contract with each secured creditor. . . . The term ‘amounts contractually due,’ as used in the context of this chapter 13 case, cannot refer to amounts due under the Best Buy Contract because there are no amounts contractually due in the future based on that contract.”).

 

58  See, e.g., In re Allen, No. 07-41327, 2008 WL 451053, at *3–*6 (Bankr. D. Kan. Feb. 15, 2008) (Karlin) (“‘[S]cheduled as contractually due’” in § 707(b)(2)(A)(ii) permits Chapter 13 debtor with CMI greater than applicable median family income to deduct full amount of car lender’s secured debt, divided by 60—notwithstanding that debt is not protected from § 506 by hanging sentence at the end of § 1325(a) and that plan proposes to cram down secured claim to value of collateral. “Some courts conclude that ‘scheduled’ refers to a debtor’s obligation to make payments in the future under its pre-petition contract with the lender. These courts conclude that debtors may deduct the full amount of their secured debt on Form [B]22C, irrespective of any future intent to pay a lesser amount through their Chapter 13 plan, or no amount at all in the case of an intent to surrender the collateral. Other courts, however, conclude that ‘scheduled’ refers to the debtor’s bankruptcy schedule. These courts hold that debtors who intend to surrender collateral securing a claim may not deduct the full amount of their pre-bankruptcy secured obligation, divided by 60, because such payments will no longer be ‘scheduled as contractually due’ after the plan is confirmed. . . . ‘The common meaning of “as contractually due” is that the debtor is legally obligated under the contract . . . . [P]ayments that are “scheduled as contractually due” are those payments that the debtor will be required to make on certain dates in the future under the contract.’ . . . ‘[N]othing the debtor does or does not do changes the fact that scheduled payments remain contractually due.’ . . . Congress . . . used the word ‘scheduled’ in two instances where the Bankruptcy Code clearly intended the word to mean ‘listed on the bankruptcy schedules’ . . . . The Code contains two other instances where the word ‘scheduled’ clearly does not mean ‘listed on the bankruptcy schedules’ . . . . ‘This exercise in statutory analysis compels the conclusion that “scheduled as contractually due” does not refer to the bankruptcy schedules. When describing the bankruptcy schedules, Congress included in the statute a reference to the schedules, either directly by name or indirectly by reference to § 521 . . . . In this case, Congress made no reference, either directly or indirectly, to the bankruptcy schedules, lending further support for the proposition that Congress did not intend the term “scheduled as contractually due” to mean items as listed in the debtor’s bankruptcy schedules.’”); In re Oliver, No. 06-30076RLD13, 2006 WL 2086691, at *3 (Bankr. D. Or. June 29, 2006) (unpublished) (Expense deduction for payment of secured debts in § 707(b)(2)(A)(iii) includes debts secured by collateral even when lien will be avoided under § 522(f). “If Congress intended to limit secured debt payments contractually due from debtors on the petition date to those where actual future payments will be made in Form B22C calculations, it knew how to do so, as reflected, for example, by the inclusion of the terms ‘actual monthly expenses’ and ‘actual expenses’ elsewhere within section 707(b)(2)(A)(ii)(I) and (II).”).