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In Re: Cesar Ivan Flores v. Cesar Ivan

August 31, 2012


D.C. No. 6:10-29956-MJ Appeal from the United States Bankruptcy Court for the Central District of California Meredith A. Jury, Bankruptcy Judge, Presiding

The opinion of the court was delivered by: Chen, District Judge:



Argued and Submitted May 11, 2012-Pasadena, California

Before: Harry Pregerson and Susan P. Graber, Circuit Judges, and Edward M. Chen,*fn1 District Judge.

Opinion by Judge Chen;

Dissent by Judge Graber



This bankruptcy appeal concerns confirmation of a Chapter 13 plan of reorganization. The debtors, Cesar and Ana Flores, proposed a three-year plan. Rod Danielson, the Chapter 13 Trustee ("Trustee"), objected and argued that a five-year plan was required. The relevant legal question is whether, under 11 U.S.C. § 1325(b), a debtor with no "projected disposable income" may confirm a plan that is shorter in duration than the "applicable commitment period" found in § 1325(b).

Current Ninth Circuit precedent plainly allows debtors to confirm a shorter plan (e.g., a three-year plan) under the facts of this case. See Maney v. Kagenveama (In re Kagenveama), 541 F.3d 868, 872 (9th Cir. 2008). However, Trustee argued, and the bankruptcy judge agreed, that the Supreme Court's intervening decision in Hamilton v. Lanning, 130 S. Ct. 2464 (2010), is irreconcilable with and thus implicitly overruled Kagenveama's construction of "applicable commitment period," which permits shorter Chapter 13 plans. The question before this court is whether the bankruptcy judge erred when it declined to follow this court's otherwise controlling holding in Kagenveama because the bankruptcy judge deemed Kagenveama irreconcilable with Lanning. We disagree and hold that Lanning is not clearly irreconcilable with Kagenveama's construction of "applicable commitment period." Accordingly, we reverse and remand to the bankruptcy court for further proceedings consistent with this opinion.


Cesar and Ana Flores ("Debtors") filed a petition for relief under Chapter 13 of the Bankruptcy Code. Debtors proposed a plan of reorganization with a duration of 36 months, calling for a monthly payment of $122. Trustee objected to the plan, arguing that the Bankruptcy Code requires a minimum plan duration of 60 months and that Ninth Circuit precedent to the contrary had been implicitly overruled by an intervening Supreme Court decision. The Bankruptcy Court sustained the objection and confirmed a 60-month plan calling for a monthly payment of $148.*fn2

Debtors timely appealed to the Bankruptcy Appellate Panel ("BAP"). The bankruptcy court then certified the plan duration issue for direct appeal to this court, pursuant to 28 U.S.C. § 158(d)(2).*fn3

The relevant facts are not disputed: Debtors' "current monthly income," as that term is defined in the Bankruptcy Code, is above the median income for their locality. Debtors' monthly "disposable income," as that term is defined in the Bankruptcy Code, is negative. Debtors have unsecured debts. Debtors' proposed plan would pay 1% of allowed, unsecured, non-priority claims.


Questions of "statutory interpretation and Ninth Circuit precedent" are questions of law, which this court reviews de novo. Lyon v. Chase Bank USA, N.A., 656 F.3d 877, 883 (9th Cir. 2011); see also Baker v. Delta Air Lines, Inc., 6 F.3d 632, 637 (9th Cir. 1993) ("Whether stare decisis applies . . . [is an] issue[ ] of law, reviewable de novo.").


We begin with a review of the statutory framework at issue in this case, as well as a discussion of this court's prior ruling in Kagenveama and the Supreme Court's intervening decision in Lanning.

A. Statutory Framework

[1] The Bankruptcy Code imposes a number of conditions on confirmability of a plan of reorganization under Chapter 13. Among those conditions is the requirement that debtors pay any "projected disposable income" to unsecured creditors. See 11 U.S.C. § 1325(b)(1)(B). The statute establishing such a requirement reads in relevant part as follows:

If the trustee or the holder of an allowed unse-cured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan-

(A) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or

(B) the plan provides that all of the debt-or's projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.

Id. § 1325(b)(1) (emphasis added). Thus, for a given debtor, this subsection involves two threshold determinations: (1) the debtor's "projected disposable income," and (2) the debtor's "applicable commitment period."

In order to apply the above requirements, a court must first classify the debtor as either "above-median" or "below-median." See, e.g., In re Mattson, 456 B.R. 75, 82 (Bankr. W.D. Wash. 2011) (using the quoted terminology for the purposes of determining the "applicable commitment period"); In re Diaz, 459 B.R. 86, 91 & n.6 (Bankr. C.D. Cal. 2011) (using the quoted terminology for the purposes of "projected disposable income"). As discussed in more detail below, the calculation of "disposable income" depends on whether a debtor has above-median or below-median income. § 1325(b)(3).*fn4 The "applicable commitment periods" in which a debtor must pay her "projected disposable income" also differ for above-median versus below-median debtors. § 1325(b)(4). In this case, Debtors are above-median. We therefore focus on the requirements for above-median debtors.

1. Disposable Income and Projected Disposable Income

"The [Bankruptcy] Code [does] not define the term 'projected disposable income . . . .' " Lanning, 130 S. Ct. at 2469. However, the Code does define "disposable income." Section 1325(b)(2) provides, in relevant part:

For purposes of this subsection, the term "disposable income" means current monthly income received by the debtor . . . less amounts reasonably necessary to be expended (A)(i) for the maintenance or support of the debtor or a dependent of the debtor

. . . . (Emphases added.) For an above-median debtor such as the Debtors in this case, § 1325(b)(3) provides:

Amounts reasonably necessary to be expended under paragraph (2) . . . shall be determined in accordance with subparagraphs (A) and (B) of section 707(b)(2) . . . .

Section 707(b)(2), in turn, sets forth a "formula . . . known as the 'means test' and is reflected in a schedule (Form 22C) that a Chapter 13 debtor must file." Lanning, 130 S. Ct. at 2470 n.2. Thus, the statute prescribes a formula to calculate an above-median debtor's disposable income. From that formula, a debtor's "projected disposable income" is then projected into the future to determine what monthly payment the debtor owes to unsecured creditors. § 1325(b)(1)(B). As we discuss infra, the exact method by which one calculates "projected disposable income" - a term undefined in the statute - from "disposable income" has been a topic of vigorous debate among courts until the Supreme Court's recent decision in Lanning.

Because the "means test" imposed by the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA") of 2005, Pub. L. No. 109-8, 119 Stat. 23, calculates expenses using formulaic categories keyed to local data rather than the actual expenses of an individual debtor, sometimes, as in this case, an above-median debtor who is capable of pledging a monthly sum to repayment for the benefit of creditors has negative disposable income. See 8 Collier on Bankruptcy ¶ 1325.11[4][c][I] (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2010); cf. In re Alexander, 344 B.R. 742, 750 (Bankr. E.D.N.C. 2006) ("Because the pre-BAPCPA definition of 'disposable income' calculated a real number rather than a statutory artifact, . . . a debtor with no positive number simply had no means to fund the added costs of a Chapter 13 plan."). Negative disposable income under BAPCPA can in turn result in a negative "projected disposable income," under the statute.

In the instant case, it is undisputed that Debtors have negative projected disposable income.

2. Applicable Commitment Period

Unlike "projected disposable income," for which the meaning must be deduced from "disposable income," the Bankruptcy Code provides a precise definition for "applicable commitment period." Section 1325(b)(4) provides in relevant part:

For purposes of this subsection, the "applicable commitment period" . . . shall be- (i) 3 years; or (ii) not less than 5 years, if [the debtor is above median]; and . . . may be less than 3 or 5 years, whichever is applicable . . . , but only if the plan provides for ...

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