§ 97.1     Total Priority Debts and Divide by 60
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 97.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

For Chapter 13 debtors with current monthly income (CMI) greater than applicable median family income,1 “amounts reasonably necessary to be expended—”2 are determined in accordance with § 707(b)(2)(A) and (B).3 In addition to the 10 classes of monthly expenses allowed by § 707(b)(2)(A)(ii),4 and the average monthly payments on account of secured debts allowed by § 707(b)(2)(A)(iii),5 clause (iv) of subparagraph (A) of § 707(b)(2) includes in the debtor’s expenses the payment of all priority debts as follows:

The debtor’s expenses for payment of all priority claims (including priority child support and alimony claims) shall be calculated as the total amount of debts entitled to priority, divided by 60.6
[2]

Clause (iv) instructs the debtor to total all debts entitled to priority and divide by 60 to determine the debtor’s “expenses for payment of all priority claims.” In contrast to clauses (ii) and (iii), clause (iv) does not describe this calculation as a “monthly expenses” or “average monthly payment,” but the instruction to divide by 60 is consistent with the calculation of average monthly payments on account of secured debts in § 707(b)(2)(A)(iii).7

[3]

Debts entitled to priority in a bankruptcy case are listed in § 507 of the Code.8 After BAPCPA, the priority claims most common in Chapter 13 cases are domestic support obligations (DSOs),9 administrative expenses,10 taxes,11 and claims for death or personal injury resulting from operating a motor vehicle or vessel while intoxicated.12 From time to time, Chapter 13 debtors will also have priority debts for employee wages, salaries, commissions or benefits.13 Because “including” is not limiting,14 the specific mention of priority child support and alimony claims in the parenthetical in clause (iv) is perhaps redundant or surplusage but does not limit the reach of the section.

[4]

Clause (iv) instructs the debtor to total all priority debts and divide by 60. This calculation could become complicated with respect to DSOs and taxes in Chapter 13 cases. DSO is broadly defined by BAPCPA to include all debts in the nature of alimony, maintenance or support that accrue before or after the petition, including postpetition interest.15 DSO includes that the debtor is obligated to pay specified debts or to hold a former spouse harmless for those debts. All such amounts are priority debts for purposes of clause (iv).

[5]

Taxes are problematic because debtors often don’t know what they owe or schedule an amount that is substantially different from an assessment by a taxing authority. Section 707(b)(2)(A)(iv) is worded in terms of the total of all priority debts—there is no condition that the debtor count only allowed or allowable priority claims.

[6]

As with all the clauses, subclauses and sentences of § 707(b)(2)(A), calculation of the debtor’s expenses for payment of priority claims in clause (iv) is a purely mathematical exercise that is unrelated to any Chapter 13 plan and bears no certain relationship to the priority debts that will actually be paid by the debtor during the Chapter 13 case. Allowed priority claims, of course, are entitled to full payment through any confirmed Chapter 13 plan.16 The priority debts used for purposes of the calculation in clause (iv) may or may not be the priority claims ultimately allowed in the Chapter 13 case. Priority claim holders can and often do consent to treatment other than full payment through the Chapter 13 plan.

[7]

Once again, there is no mention of the debtor’s spouse in clause (iv).17 Especially in a joint case, bankruptcy courts may interpret “debtor’s” in clause (iv) to include both debtors in a joint case; inconsistent treatment of the debtor’s spouse throughout BAPCPA may lead courts to conclude that only the debtor’s priority debts are included in the calculation in clause (iv). Debtors and their spouses in Chapter 13 cases sometimes have separate or different priority claims—for example, arising from former marriages or tax claims that are specific to a debtor or spouse. Because all of the income of the debtor and the debtor’s spouse is accounted for as CMI in a joint case,18 it would be strange to exclude from the determination of “amounts reasonably necessary to be expended—” the separate priority debts of a debtor’s spouse in a joint case. On the other hand, the separate treatment of the debtor’s spouse in the clauses, subclauses and sentences throughout § 707(b)(2)(A) suggests that Congress did not intend consistent treatment of the income and debts of a debtor’s spouse.

[8]

Because priority debts overlap and duplicate several of the categories and allowances in other parts of § 707(b)(2)(A), accounting for priority debts in clause (iv) generates many of the same “netting” issues discussed above with respect to secured debts.19 For example, the priority debts in the clause (iv) calculation include child support and alimony debts that will also be “court-ordered payments”—a category of Other Necessary Expenses specified by the IRS and allowed as a component of the debtor’s monthly expenses under subclause (I) of clause (ii) of § 707(b)(2)(A). Unlike other monthly expenses allowed by clause (ii), there is no mandate in clause (iv) that priority debts expensed by clause (iv) must be netted or subtracted from similar or overlapping expenses allowed elsewhere in § 707(b)(2)(A).

[9]

Official Form B22C deals in a curious way with the overlap between “court-ordered payments” in the Other Necessary Expenses issued by the IRS in clause (ii) and the payment of all priority debts in clause (iv). At Line 33 of Official Form B22C, the instructions state “do not include payments on past-due support obligations included in Line 49.”20 Line 49 tells the debtor to “enter the total amount of all priority claims (including priority child support and alimony claims), divided by 60.” DSOs that will be priority debts for purposes of Line 49 and that will also be court-ordered payments for purposes of the Other Necessary Expenses in Line 33 will include more than just “past due” support obligations. Official Form B22C invites Chapter 13 debtors to include DSO debts that are not past due in both Line 33 and Line 49. No matter what your view of netting under § 707(b)(2)(A),21 this partial exclusion of priority DSO debt at Line 33 isn’t logical or true to the statute.

[10]

This incongruity does serve to illustrate, once again, that § 707(b)(2)(A) is not a budget or a reasoned statement of actual financial circumstances. It is simply a mathematical calculation with elements that do not fit into any conception of a budget for a real person or family.

[11]

A debtor who has been ordered to pay for health insurance as part of a DSO would be entitled to include the cost of that health insurance as a priority debt in the calculation in clause (iv). That health insurance cost would also be an expense allowable as part of the debtor’s monthly expenses by subclause (I) of clause (ii).22 Is the payment for health insurance a “payment for debt” for purposes of the exclusion in clause (ii)?

[12]

There will be overlaps between the average monthly payments on account of secured debts allowed by clause (iii) and the payment of all priority debts under clause (iv). For example, a debtor contractually obligated to pay a car note who is also ordered by a domestic relations court to hold an ex-spouse harmless with respect to that car note has a DSO for purposes of clause (iv) and a secured debt for purposes of clause (iii). There is nothing in either clause (iii) or (iv) to suggest that this debt is allowable in only one category or that the debt should be netted or subtracted across the categories. Section 707(b)(2)(A) is simply a mathematical formula with many entries that overlap and duplicate. If the exclusion of “payments of debt” in clause (ii) is broadly interpreted to require netting or subtracting of all debts from any amount included in monthly expenses by clause (ii),23 then no similar exclusion appears in clauses (iii) or (iv)—strongly supporting the inference that no similar netting or subtracting between these other clauses was intended.

[13]

Similar issues of overlapping arise when a debtor is obligated to hold harmless a former spouse with respect to a home mortgage. The DSO between the debtor and the former spouse is unsecured and entitled to priority under § 507(a)(1). The debtor’s direct obligation to the mortgage holder would be a contractual secured debt that must be accounted for in the manner described in clause (iii). The statute instructs the debtor to total all priority debts for purposes of clause (iv). Included in that total will be the debtor’s obligation to hold the former spouse harmless from the mortgage. Arguably, that DSO debt is the entire amount of the mortgage—perhaps a larger amount than the portion of the mortgage that would be contractually due in each of the 60 months following the petition under § 707(b)(2)(A)(iii)(I). The statute does not require the debtor to subtract or net these amounts between clauses (iii) and (iv).

[14]

Although Official Form B22C repeatedly attempts to eliminate overlaps and redundancies that are contained in the statute,24 overlaps and redundancies between clauses (iii) and (iv) are not among them. There are no instructions at Lines 47 or 49 requiring debtors to net or subtract payments on secured claims from payments on priority claims, or vice versa. This is consistent with the statute.

[15]

It bears repeating that the number that results from totaling all priority debts and dividing by 60 for purposes of clause (iv) is in no way a “payment for debt.” That number is just a number—a mathematical representation of total priority debt divided by 60. It will bear no certain relationship to the payment of priority debts that is proposed or ultimately confirmed as part of a Chapter 13 plan.


 

1  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).

 

2  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.

 

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

 

4  The 10 classes are listed in § 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

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

 

6  11 U.S.C. § 707(b)(2)(A)(iv).

 

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

 

8  11 U.S.C. § 507 is discussed in §§ 99.1 [ What Claims Are Priority Claims? ] § 73.2  What Claims Are Priority Claims? and 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA.

 

9  11 U.S.C. § 507(a)(1) is discussed in § 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after BAPCPA.

 

10  See 11 U.S.C. § 507(a)(2), discussed in §§ 514.1 [ Trustees’ Fees and Expenses ] § 136.5  Trustees’ Fees and Expenses after BAPCPA, 515.1 [ Debtors’ Attorneys’ Fees ] § 136.7  Debtors’ Attorneys’ Fees after BAPCPA and 523.1 [ Miscellaneous Administrative Expenses and Priority Claims ] § 136.15  Miscellaneous Administrative Expenses and Priority Claims after BAPCPA.

 

11  11 U.S.C. § 507(a)(8).

 

12  See 11 U.S.C. § 507(a)(10), discussed in § 522.1 [ The New DWI Priority ] § 136.22  The Driving or Boating while Intoxicated Priority after BAPCPA.

 

13  See 11 U.S.C. § 507(a)(4) and (5), discussed in § 523.1 [ Miscellaneous Administrative Expenses and Priority Claims ] § 136.15  Miscellaneous Administrative Expenses and Priority Claims after BAPCPA.

 

14  See 11 U.S.C. § 102(3).

 

15  11 U.S.C. § 101(14A), discussed in §§ 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA and 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after BAPCPA.

 

16  See 11 U.S.C. § 1322(a)(2), discussed in §§ 98.1 [ Plan Must Provide Full Payment ] § 73.1  Plan Must Provide Full Payment and 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6  Treatment of Priority Claims Changed by BAPCPA.

 

17  See further discussion of this issue in § 473.1 [ Accounting for Spouses ] § 94.3  Accounting for Spouses.

 

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

 

19  See §§ 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts and 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.

 

20  Line 33 of Official Form B22C discussed in § 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation.

 

21  See discussion of netting in § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts.

 

22  See § 478.1 [ Health and Disability Insurance ] § 95.21  Health and Disability Insurance.

 

23  See § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts.

 

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