Supreme Court Decides Skilling Case

In an offshoot from the collapse of Enron Corporation, the Supreme Court has ruled that the conviction of Jeffrey Skilling for conspiracy to commit "honest-services" wire fraud must be reversed. However, it rejected his contention that he should have been granted a change of venue. The Supreme Court ruled that in order to bring a criminal charge for deprivation of honest services, the defendant must have received bribes or kickbacks from a third party which caused him to deprive his employer of honest services. Merely engaging in self-dealing is not sufficient to invoke the criminal penalty. The opinion can be found here. United States v. Skilling, 561 U.S. ____ (6/24/10).

Barbara Houser Like You've Never Seen Her Before

For those of you familiar with Barbara Houser as a serious, scholarly judge, you might want to check out her wilder side. She is having way too much fun in this video promoting the 2010 National Conference of Bankruptcy Judges in New Orleans.

Do Bankruptcy Judges Have Class (Certification Ability)?

While bankruptcy has been described as the epitomy of a class action (that is, an action by the debtor against all of his creditors), there has been some controversy over whether a bankruptcy court could certify a class consisting of debtors against a single lender. In a new opinion, the Fifth Circuit has held that Bankruptcy Judges may certify a class consisting of debtors, but not in the specific case. Matter of Wilborn, No. 09-20415 (5th Cir. 6/18/10).

In Wellborn, several debtors claimed that Wells Fargo was charging post-petition fees and expenses in chapter 13 cases without obtaining court approval. They sought to obtain certification of a class of debtors who had filed chapter 13 bankruptcy in the Southern District of Texas over a five year period where Wells Fargo was the lender or servicer. The Bankruptcy Court granted class certification as to a class consisting of 1,236 members.

The Fifth Circuit found that the Bankruptcy Court could certify a class of debtors within the same district even if they did not have the same judge. The court found this based upon the application of Fed.R.Bankr.P. 7023, which makes class actions applicable in bankruptcy court.

However, the Fifth Circuit found that the particular class action failed the requirements of Rule 23(b). Where the circumstances of the individual debtors varied, it was not proper to certify a class. The Court ruled:

Plaintiffs’ claims here fail under the predominance and superiority inquiries because individual issues for each class member, particularly with respect to damages, override class concerns when we consider how the case must be tried. As noted above, the claim that Wells Fargo charged, or charged and collected, undisclosed fees is based on § 506(b) of the Bankruptcy Code and Rule 2016. There is disagreement among the bankruptcy courts as to the scope of the requirement under § 506(b) and Rule 2016 for lenders to obtain court approval before assessing contractually-allowed fees.19 For purposes of reviewing the certification order, we will assume, without deciding, that prior disclosure and approval are necessary. See Langbecker v. Elec. Data Sys. Corp.20 However, when we “evaluate with rigor,” as we must, the claims and the Rule 23 requirements, we conclude that class adjudication of the case is not warranted. The cases of the individual named plaintiffs show how the circumstances of the fees charged by or paid to Wells Fargo may vary from debtor to debtor and illustrate the many underlying circumstances of the charges that would need to be considered. In the case of Wilborn, the parties entered into an agreed order to modify the stay after Wilborn defaulted on her loan post-petition. The agreed order required Wilborn to resume payments to Wells Fargo, but when Wilborn could not comply with the order, the automatic stay terminated under the terms of the order. In order to avoid the resulting foreclosure, Wilborn agreed to a loan modification, pursuant to which she agreed to pay certain fees and costs in addition to the delinquency. The Flournoys also defaulted on their loan postpetition, but the bankruptcy court entered an agreed order modifying the stay to allow the Flournoys to cure post-petition delinquencies and to pay fees and costs, which were then approved by the court. Finally, the bankruptcy court allowed Martin to sell her home outside of bankruptcy and all fees and costs accrued to the loan were paid at the closing.

The bankruptcy court certifying this class action recognized that differing events had occurred within each individual debtor’s bankruptcy case, but the court held that because all plaintiffs had fees and costs charged to their accounts by Wells Fargo during the pendency of the bankruptcies, common issues of law or fact predominate over individual issues. But this ignores how and why certain fees were charged or paid. The circumstances surrounding the charging of fees require an individual assessment of the claims. It appears that some debtors, like Wilborn, may have agreed to certain fees as an inducement to Wells Fargo for a loan modification and provided additional consideration for the modification. In other cases at least partial fees were approved for some debtors.

Such varying circumstances will require the court to examine each individual bankruptcy case. The bankruptcy court cannot require Wells Fargo to simply disgorge all fees that were not previously approved because it is evident that there has been a wide “array of charges tailored” to each individual debtor. See Maldonado, 493 F.3d at 525–26.

In some cases it may be appropriate to require Wells Fargo to disgorge fees, but we think that is for the bankruptcy court to decide. The differing circumstances of the debtors render the reasonableness of the individual charges a fact-specific inquiry rather than a class-oriented decision. See Maldonado, 493 F.3d at 526. In some instances, it may also be necessary to determine whether fees were actually imposed on the debtors or merely recorded on internal records. See In re Padilla, 379 B.R. 643, 662 (Bankr. S.D. Tex. 2007) (“The Bankruptcy Code does not prohibit [creditors] from maintaining internal records of costs incurred.”). Furthermore, where fees have been imposed Wells Fargo may have viable defenses to some plaintiffs’ claims, such as waiver or estoppel. See In re Monumental Life Ins. Co. Finally, the rulings of different 22 bankruptcy judges during their cases may affect the computation of allowable charges by Wells Fargo. In short, the myriad issues that may arise in each case as towhether and how fees and costs were imposed preclude a class-wide disposition of the case under Rule 23(b)(3).

For similar reasons, class certification is improper under Rule 23(b)(2). The Rule 23(b)(2) inquiry focuses on whether the putative class defendant “has acted or refused to act on grounds that apply generally to the class” so that injunctive or declaratory relief is appropriate for the class as a whole. See FED. R. CIV. P. 23(b)(2). Again, the circumstances and court orders differ between the judges and cases. And the injunctive or declaratory relief sought by the plaintiffs must predominate over claims for monetary relief. Maldonado, 493 F.3d at 524. This requires that requests for monetary relief be incidental to the class-wide injunctive or declaratory relief so that plaintiffs will be automatically entitled to the monetary remuneration once liability is established for the class. See Allison, 151 F.3d at 416. The monetary relief must be “capable of computation by means of objective standards and not dependent in any significant way on the intangible, subjective differences of each class member’s circumstances.” Id. at 415. The Plaintiffs’ request for disgorgement of fees is not merely incidental to the sought-after injunction and declaration. The amount that each plaintiff was charged, perhaps the amount that is “reasonable,” and any amount to be disgorged will depend on the specific circumstances of each class member and whether and how fees were imposed. See Maldonado, 493 F.3d at 524. We therefore disagree with the bankruptcy court’s determination that disgorgement amounts may be determined with mathematical certainty absent individual hearings. The class certification under Rule 23(b)(2) was therefore improper.

Opinion, at 11-13.

The conclusion from this opinion seems to be that class actions in bankruptcy are permissible, but that the requirements of Rule 23 still control. Merely because a practice affects multiple parties does not justify a class action.

Fifth Circuit Finds Bad Faith Exception to Absolute Right to Dismiss Chapter 13 Case

In a decision extending the reach of Marrama v. Citizens Bank of Massachusetts, the Fifth Circuit has concluded that a debtor's absolute right to dismiss a chapter 13 petition is subject to an exception for bad faith. Matter of Jacobsen, No. 09-40023 (5th Cir. 6/16/10).

The debtor in the Jacobsen case was a real estate broker who filed for chapter 13 relief after being sued for large amounts of money. His wife, who was born in Afghanistan and spoke little English,was not a party to the bankruptcy. After investigation by the Chapter 13 trustee determined that the non-filing spouse owned substantial properties acquired during marriage which were not listed on the debtor's schedules, he moved to convert the case to chapter 7. The debtor moved to dismiss. The Bankruptcy Court ruled that notwithstanding the absolute right to dismiss under Sec. 1307(b) that the court could deny the motion based on bad faith.

The Fifth Circuit was asked to decide whether the Marrama decision could be extended from its original context, the right to convert a chapter 7 case to chapter 13, to the right to dismiss a chapter 13 case. While Marrama seemed to establish a generally applicable principal, Texas Bankruptcy Courts had split on whether it applied to the right to dismiss a chapter 13 petition.

The Fifth Circuit held that:

Following the Supreme Court’s decision in Marrama, we hold that a bankruptcy court has the discretion to grant a pending motion to convert for cause under § 1307(c) where the debtor has acted in bad faith or abused the bankruptcy process and requested dismissal under § 1307(b) in response to the motion to convert. In doing so, we join the Ninth Circuit 15 in finding that Marrama’s “rejection of the ‘absolute right’ theory as to § 706(a) applies equally to § 1307(b)” because “there is no analytical distinction” between the two statutes. In re Rosson, 545 F.3d at 773. We thereby reject a construction of the statute that would afford an abusive debtor an escape hatch, and we sanction the limited exception that lower courts within our boundaries have accorded the statute for nearly two decades.

Opinion, at 20.

The only surprise here is that the Fifth Circuit followed the Ninth Circuit.

Supreme Court Rules for Trustee in Exemption Dispute

The Supreme Court ruled today that when claiming Federal Exemptions, the Debtor is entitled to the dollar amount claimed rather than the actual property. As a result, a trustee could sell property claimed by the debtor as exempt where it proved to be more valuable than the amount claimed by the debtor. Schwab v. Reilly, 560 U.S. ___ (6/17/10).

The majority opinion was written by Justice Thomas and joined by Justices Stevens, Scalia, Kennedy, Alito and Sotomayor. Justice Ginsberg wrote a dissent which was joined by Chief Justice Roberts and Justice Breyer. This was another case of strange judicial bedfellows as conservative and liberal justices signed on to both opinions. The competing opinions each parsed the legislative language to arrive at their conclusions.

What Happened

Nadejda Reilly filed a petition for chapter 7 and claimed equipment from her catering business as exempt. She valued the property at $10,718. She claimed an exemption of $1,850 for tools of the trade under Sec. 522(d)(6) and $8,868 under the wildcard exemption under Sec. 522(d)(5). Thus, the debtor claimed the entire scheduled value as exempt. During the time for filing objections to exemptions, the Trustee obtained an appraisal valuing the equipment at $17,200. However, the Trustee did not object. Instead, the Trustee subsequently filed a motion to auction off the equipment and pay the Debtor the amount claimed as exempt.

The Trustee's request was rebuffed by the Bankruptcy Court, the District Court and the Third Circuit, but not the Supreme Court.

The Statutory Language

Both the majority and the dissent focus on the language of Sec. 522(l) which states that "Unless a party in interest objects, the property claimed on such list is exempt." However, they disagreed about what "the property claimed on such list" referred to.

The dissent contended that "the property claimed on such list" referred to the actual items listed on Schedule C and that when a Debtor claimed the full value as exempt, that the property would be exempt absent a timely objection.

The majority required several more steps to parse the language.

1. Section 522(l) allows the debtor to "file a list of property that the debtor claims as exempt under subsection b of this section."

2. Section 522(b) allows the debtor to claim property exempt under state law or other applicable law or under Section 522(d).

3. If the Debtor claims Federal Exemptions under Section 522(d), the exemptions in Sec. 522(d)(1)-(8) and 11(C) are defined in terms of "the debtor's aggregate interest, not to exceed $____ in value." On the other hand, the exemptions in Sec. 522(d)(9), (10), (11)(A)-(C) and 12 are not defined in terms of value.

4. If the Debtor claims a value limited exemption, the Debtor's exemption is in the value, not the property.

5. So long as the Debtor claims a dollar amount which is within the statutory limits, the Trustee is not required to object, because the Debtor has claimed a value allowed by law and only the value.

The majority rejected the Third Circuit's contention that "an unstated premise" of Taylor v. Freeland & Kronz was that a debtor who claims the full value of an item of property claims the property itself.

What It Means

In her dissent, Justice Ginsberg stated that:

In addition to departing from the prevailing understanding and practice, the Court's decision exposes debtors to protracted uncertainty concerning their right to to retain exempt property, thereby impeding the "fresh start" exemptions are designed to foster.

While the majority claims that its decision did not do violence to its prior holding in Taylor v. Freeland & Kronz, the practical problems are clear.

Under Section 541 of the Bankruptcy Code, all of the debtor's interests in property enter the estate. Under Section 522(b)and(l), property successfully claimed as exempt is no longer property of the estate. However, if the exemption applies to property subject to a dollar value limitation, the property doesn't leave the estate, merely the value. This means that the property (the res, as opposed to the value) remains property of the estate until it is abandoned under Section 552.

Under Section 552(a), the Trustee can voluntarily abandon a piece of property which is burdensome or of inconsequential value. If the property is properly scheduled and the court does not order otherwise, the property is automatically abandoned to the debtor when the case is closed. Furthermore, the debtor may request that the trustee be ordered to abandon the property under Section 552(b). Thus, the practical import is that if a debtor claims a value limited item of property as exempt and wants to dispose of the property, the debtor would need to file a motion to compel abandonment.

The new rule creates possibilities for mischief and malpractice. Assume that the debtor files bankruptcy and claims federal exemptions with regard to their homestead. At the time that they file, they believe that the value of the homestead is within the exemption limit. The trustee neither objects to the exemption nor closes the case. Two years later, the trustee files a motion to sell the debtor's home because values have gone up dramatically. Has the debtor's attorney committed malpractice by not filing a motion to compel abandonment? The trustee's gambit shouldn't work because Section 522(a)(2) defines value in terms of the petition date. However, if the debtor has an appraisal from a year prior to bankruptcy and the trustee has one from a year after the bankruptcy, how certain can the parties be about what the value was on the petition date. Will it be necessary to get an appraisal as of the petition date to protect the debtor?

Here is another facet. Under 11 U.S.C. Section 363(b), the trustee can lease property of the estate. If the homestead remains as property of the estate, could the trustee evict the debtors and lease the property out even if the value of the exemption exceeded the value of the property? If the exemption is in the value rather than the property, does the debtor have to be compensated for use of the property by the trustee?

Taking it further, let's assume that the house burns down without either the debtor or the trustee having insured it. Is the trustee subject to a claim on his bond?

As a practical matter, trustees will likely be motivated to close questionable value estates in order to receive their commission. However, the potential for trouble is tremendous.

50 Best Blogs Written By Lawyers

OnLineCollege.org has listed its top 50 blogs written by lawyers. Six bankruptcy blogs made the list, including:

37. Bankruptcy and Restructuring Blog: Whether you need to file for bankruptcy or are a legal professional looking for resources, this blog is a fantastic tool.

38. Bankruptcy Prof Blog: This blog is run by an adjunct faculty member of the University of West Los Angeles' School of Law.

39. New York Bankruptcy Blog: A helpful blog run by a New York firm.

40. A Texas Lawyer's Bankruptcy Blog: This blog is run by a bankruptcy lawyer in Austin and provides insight and analysis on the latest happenings in the field.

41. Total Bankruptcy Blog: The Total Bankruptcy Blog makes use of a helpful tagging system to sort posts into a variety of categories, including identity theft and mortgage foreclosure.

42. The Bankruptcy Lawyers Blog: A great blog for bankruptcy lawyers who want to stay ahead of the curve.

In addition to the bankruptcy blogs, there are a lot of other worthwhile blogs on the list.

How Do Judges Determine Credibility of Witnesses?

One difference between Bankruptcy Court and other courts is that the facts are frequently not in dispute and the trial revolves around the meaning of the facts. Other times, the witnesses together present different pieces of a puzzle without directly contradicting each other. However, every once in a while, there is a trial where the witness testimony is so irreconcilable that someone has to be lying. In those rare cases, the Court has to determine who is credible and who is not. In the recent case of Wallace v. Perry, Adv. No. 08-3299 (Bankr. S.D. Tex. 2/3/10), Judge Jeff Bohm had to weigh the credibility of some 26 witnesses. He judged the witnesses in terms of both credibility and weight. So what can we learn from the Judge’s examination? (This is the second in a series of posts about Judge Bohm’s remarkable 118 page opinion in this case.).

Consistency Counts

In this case, the Court found that the defendant was not credible. The Judge made extensive findings as to his lack of credibility. Among other things, the Court stated:

After this initial attempt to appear credible, however, Perry frequently had difficulty telling the truth, the whole truth and nothing but the truth. Perry’s lack of credibility was obvious throughout his testimony. He often answered “I don’t know” and “I don’t remember” when asked questions by opposing counsel. Moreover, his testimony changed as need dictated. His answers were highly contradictory throughout the course of questioning. Perry’s lack of credibility spanned nearly every topic that counsel raised.

Opinion, p. 33. In case there was any question, the judge followed up with six pages of examples.

Obviously, it’s a problem when the judge finds that the witness “had difficulty telling the truth, the whole truth, and nothing but the truth.” In this case, the debtor lost credibility by both contradicting his own testimony and by answering his own counsel’s questions directly, but not knowing anything when questioned by opposing counsel. Frequently, I will advise clients to answer yes, no or I don’t know whenever possible in responding to opposing counsel. This is helpful in focusing the client on answering the question and only the question. However, this advice must be balanced with instructions to always answer questions directly and not to develop a convenient memory.

In contrast, the Court found the following witness to be credible:

While Wallace was slightly guarded in some of his answers as the trial progressed, he did not evade questions posed to him; rather, he responded clearly. Indeed, even when he knew that answers to certain questions posed to him were not favorable to his position, Wallace answered honestly. This Court gives significant weight to Wallace’s testimony and considers him to be a credible witness.

Opinion, p. 45.

Everyone Has a Bias; Deal With It

The Court made extensive findings as to the bias of various witnesses. However, some witnesses lost credibility due to bias, while others held up despite bias. Here are some examples.

Overcome by Bias

While Hoffman claimed that she does not like Perry, she still refused to bite the hand that fed her. . . . Though she attempted to be credible, her priority was protecting her former employer, Perry. Overall, Hoffman’s testimony lacked credibility and the Court gives little weight to her testimony.

Opinion, p. 39.

Frishberg attempted to answer questions truthfully, but his answers were colored by his bias. Frishberg was very angry at Wallace, Bajjali and Perry for the failure of the Partnership, and this bias was reflected in many of his responses. Given these circumstances, the Court gives some, but not significant, weight to his testimony.

Opinion, p. 43.

Overcoming Bias

Not surprisingly, because Bob Perry is the father of Perry and no doubt loves his son, Bob Perry was hesitant to speak negatively of his son. Indeed, he quite justifiably tried to avoid admitting that his son could have lied. The Court does not view Bob Perry any less credible for this attitude. Any loving father would take the same approach. Overall, Bob Perry’s testimony is very credible, and the Court gives significant weight to his testimony.

Opinion, p. 45.

Despite this potential for bias, the Court found Prestage to be honest. He answered questions directly and in a forthright manner.

Opinion, p. 40.

While he could have been biased due to his personal connection with Wallace and Wallace’s family, he did not show any bias whatsoever and made every attempt to answer all questions honestly and to the best of his ability.

Opinion, p. 44.

While Bejjali had reason to be biased against Perry, he demonstrated through his testimony that he was not vindictive.

Opinion, p. 45.

“I Think I Don’t Remember”

Memory is a funny thing. In this case, some witnesses had convenient memory:

He often answered “I don’t know and “I don’t remember” when asked questions by opposing counsel.

Opinion, p. 33.

He was unable to remember facts and occurrences that he deemed to be unfavorable to Perry’s defense. This Court gives little weight to Tielke’s testimony due to both his bias and his unwillingness to be forthright.

Opinion, p. 40.

Another witness gained credibility by admitting what he did not know:

He honestly admitted when he could not remember specific details of conversations and occurrences.

Opinion, p. 39.

Finally, a witness just couldn’t remember:

The Court finds Jacob a credible witness, but cannot give significant weight to his testimony because his recollection was poor.

Opinion, p.42.

Thus, there is an important distinction between convenient memory, poor memory and nuanced memory.

Attitude: Open or Defensive?

Attitude is important. One reason that factual findings will not be overturned unless they are clearly erroneous is that the judge gets to observe the witness and his demeanor. Here are a few excerpts:

Hoffman was defensive when questioned regarding a number of topics.

Opinion, p. 39.

While Tisch appeared honest in his testimony, he was very tight lipped and unwilling to freely disclose information.

Opinion. P. 42.

Although Perry attacked Keller's character and raised the possibility of bias in Keller's testimony, Keller remained neutral during the testimony. He answered questions directly and truthfully.

Opinion, p. 44.

Summing It Up

When preparing a witness for trial, the following attributes will help their credibility:

1. Be consistent. Spend enough time with the witness so that he is prepared for the questions that will come up and won't be caught trying to improvise badly. Additionally, impress upon the witness that knowledge does not take sides. If he knows the answer to the question on direct examination, he had better know the answer on cross-examination.

2. Bias is part of human nature. However, a witness gains credibility by acknowledging their point of view. A loving father will not be expected to impeach his wayward son. Similarly, an aggrieved party will be more credible if he is not vindictive or angry.

3. Figure out what you know and what you don't know. An honest admission that some details are not remembered will be more credible than a convenient memory.

4. Finally, direct, responsive answers are best. Being overly tight-lipped or non-responsively expansive diminishes credibility.

Interesting Finding of Fact

I am reading the Court's opinion in Wallace v. Perry, Adv. No. 08-3299 (Bankr. S.D. Tex. 2/3/10) for an article about blogging, politics, defamation and dischargeability. At 118 pages, the opinion will take take a little while to digest. However, one finding of fact jumped out at me:

15. Contrary to statements made about him, Wallace also convincingly testified that he was never involved in a plot to overthrow the government of Equatorial Guinea. [June 5, 2009, Tr. 6:4-9]. This Court finds that not only were the statements published by Perry about Wallace involving himself in a plot to overthrow the government of Equatorial Guinea false, but all of the defamatory allegations made or published by Perry against Wallace were false.

While I am sure that Mr. Wallace would just as soon not been involved in controversy, at least he has a judicial finding that the statements about him trying to overthrow the government of Equatorial Guinea were not only false but defamatory. Look for more to come on this case.

Representing A-Rod

Bankruptcy can frequently be a dull business, buried in details and paperwork. However, every once in a while, a lawyer gets a case which carries a little excitement. Joe Wielebinksi,with the Dallas office of Munsch Hardt, had one of those moments recently when he was hired to represent Alex Rodriquez as a member of the creditors' committee in the Texas Rangers case. According to a story in the Dallas Morning News, A-Rod was appointed to the Committee and Joe is his lawyer. That means that Joe is representing someone who knows Madonna. Pretty cool.

Supreme Court Rules That "Projected Disposable Income" Is Forward Looking

In an 8-1 decision, the Supreme Court ruled today that “projected disposable income” under Chapter 13 may take into account “changes in the debtor’s income or expenses that are known or virtually certain at the time of confirmation.” Hamilton v. Lanning, 560 U.S. ___ (June 7, 2010). The opinion drew a spirited dissent from Justice Scalia, who argued that merely because Congress chose a poor measure for predicting future income did not give the court license to ignore the statutory text.

The Issue

Stephanie Kay Lanning’s trip to the Supreme Court began when she filed for chapter 13 in October 2006. During the six months prior to filing, Ms. Lanning had received a one-time buyout from her former employer. This inflated her "current monthly income" (an amount calculated by averaging her income for the six months prior to bankruptcy) $5,343.70, even though her actual income at the time of filing was only $1,922.00. If she was required to make plan payments based on the historical average, her payment would have been $756 per month, while her actual income would have required a payment of $144 per month.

This raised the issue of whether the Bankruptcy Court was required to use the historical but outdated income amount or the current amount in confirming a plan. The Bankruptcy Court, the Tenth Circuit BAP and the Tenth Circuit all agreed that the Debtor was not required to make payments based upon a one-time occurrence which was not going to recur. The Tenth Circuit found that the court should start with the presumption that the historical number was the correct amount but that this figure could be rebutted by evidence of a substantial change in the debtor’s circumstances.

“Words, Words, Words”—Hamlet, Act II, Scene 2.

The issue in the case arises from the use of the words “projected disposable income” in 11 U.S.C. Sec. 1325(b)(1)(B). In the face of an objection, a chapter 13 debtor must pay the lesser of the allowed unsecured claims or the debtor’s “projected disposable income” for a defined period of time. The term “projected disposable income” was already used in the statute prior to BAPCPA. It relied in turn upon a definition of “disposable income.” The definition of “disposable income” was changed by BAPCPA. However, neither version of the law defined “projected.”

Prior to BAPCPA, “disposable income” referred to the debtor’s income less amounts necessary for the maintenance or support of the debtor and the debtor’s dependents as well as business expenses. BAPCPA made two changes to this definition. First, it replaced the term “income” with the defined term “current monthly income.” The term “current monthly income” was defined as the average of the debtor’s income during the six months prior to bankruptcy. 11 U.S.C. Sec. 101(10A). Second, the expenses allowed to be deducted for maintenance or support of the debtor would be determined under the chapter 7 means test if the debtor’s “current monthly income” exceeded the median income.

Thus, the revised statute included a new formula for determining both income and expense as components of “disposable income” but did not expressly define “projected disposable income.”

Two lines of cases developed. The “mechanical approach” applied “projected disposable income” to mean “disposable income” multiplied by the number of months of the “applicable commitment period.” The “forward looking approach” started with “disposable income,” but allowed the court to make adjustments based upon changes in income or expenses which are known or virtually certain to occur.

The Majority Opinion

Eight Justices agreed that the “forward looking approach” was the best way to give meaning to the term “projected disposable income.” Justice Alito noted that when words are not defined, that they are given their usual meaning.

“When terms used in a statute are undefined, we give them their ordinary meaning.” (citation omitted) . Here, the term “projected” is not defined, and in ordinary usage future occurrences are not “projected” based on the assumption that the past will necessarily repeat itself. For example, projections concerning a company’s future sales or the future cash flow from a license take into account anticipated events that may change past trends. (citations omitted). On the night of an election, experts do not “project” the percentage of the votes that a candidate will receive by simply assuming that the candidate will get the same percentage as he or she won in the first few reporting precincts. And sports analysts do not project that a team’s winning percentage at the end of a new season will be the same as the team’s winning percentage last year or the team’s winning percentage at the end of the first month of competition. While a projection takes past events into account, adjustments are often made based on other factors that may affect the final outcome. (citation omitted).

Hamilton v. Lanning, slip op., pp. 6-7.

The majority also noted that it could not find any other federal statutes in which the word "projected" referred to a mechanical calculation and stated that its use of the word "projected" was consistent with the manner in which it had been used prior to BAPCPA.

The majority opinion also argued that the structure of Sec. 1325(b)(1)(B) was forward-looking. It refers to "income to be received" and dictates that the determination be made "as of the effective date of the plan." Additionally, projected disposable income "will be applied to make payments." The Court noted that "when, as of the effective date of a plan, the debtor lacks the means to do so, this language is rendered a hollow command." Slip Opinion, at 12.

The majority opinion is also noteworthy for its recognition of the practical realities of bankruptcy. In rejecting an argument that a debtor whose income was artificially inflated could simply wait six months to file, the court quoted from Keith Lundin's treatise on chapter 13 as follows:

“Potential Chapter 13 debtors typically find a lawyer’s office when they are one step from financial Armageddon: There is a foreclosure sale of the debtor’s home the next day; the debtor’s only car was mysteriously repossessed in the dark of last night; a garnishment has reduced the debtor’s take-home pay below the ordinary requirements of food and rent. Instantaneous relief is expected, if not necessary.” K. Lundin & W. Brown, Chapter 13 Bankruptcy §3.1[2] (4th ed. rev.2009), http: // www.ch13online.com / Subscriber / Chapter _13_ Bankruptcy_4th_Lundin_Brown.htm.

See also id. , §38.1 (“Debtor’s counsel often has little discretion when to file the Chapter 13 case”).

Slip Op., p. 15.

As a result, the Supreme Court concluded that a one-time aberration in income would not require a chapter 13 debtor to propose a plan based on projections of non-existent income. However, the forward-looking approach cuts both ways. The Supreme Court cited the Fifth Circuit's opinion in In re Nowlin, 576 F.3d 258 (5th Cir. 2009) with approval. In Nowlin, the Fifth Circuit held that a debtor would be required to increase his chapter 13 payments when a permissible expense would terminate during the period of a plan. Under the same logic, a debtor whose contract provided for guaranteed increases in pay could be required to devote these sums to the plan.

The Testament of the Textualist

Not content with the reasoning of his other eight colleagues, Justice Scalia wrote a 14 page dissent which argued that the court was not being faithful to the words used by Congress.

He argued that the word "projected" did not give the court latitude to "fiddle" with the formula provided by Congress, since the use of a formula provided the means for the projection.

This definition of “disposable income” applies to the use of that term in the longer phrase “projected disposable income” in §1325(b)(1)(B), since the definition says that it applies to subsection (b). Cf. §1129(a)(15)(B) (referring to “the projected disposable income of the debtor (as defined in section 1325(b)(2))”). The puzzle is what to make of the word “projected.”

In the Court’s view, this modifier makes all the difference. Projections, it explains, ordinarily account for later developments, not just past data. (citation omitted). Thus, the Court concludes, in determining “projected disposable income” a bankruptcy court may depart from §1325(b)(2)’s inflexible formula, at least in “exceptional cases,” to account for “significant changes” in the debtor’s circumstances, either actual or anticipated. (citation omitted).

That interpretation runs aground because it either renders superfluous text Congress included or requires adding text Congress did not. It would be pointless to define disposable income in such detail, based on data during a specific 6-month period, if a court were free to set the resulting figure aside whenever it appears to be a poor predictor. And since “disposable income” appears nowhere else in §1325(b), then unless §1325(b)(2)’s definition applies to “projected disposable income” in §1325(b)(1)(B), it does not apply at all.

The Court insists its interpretation does not render §1325(b)(2)’s incorporation of “current monthly income” a nullity: A bankruptcy court must still begin with that figure, but is simply free to fiddle with it if a “significant” change in the debtor’s circumstances is “known or virtually certain.” (citation omitted). That construction conveniently avoids superfluity, but only by utterly abandoning the text the Court purports to construe. . . . The Court, in short, can arrive at its compromise construction only by rewriting the statute.

Dissent, at 2-4.

Next, he argued that projections could be made solely on historical data if that is how Congress said to do it.

The only reasonable reading that avoids deleting words Congress enacted, or adding others it did not, is this: Setting aside expenses excludable under §1325(b)(2)(A) and (B), which are not at issue here, a court must calculate the debtor’s “projected disposable income” by multiplying his current monthly income by the number of months in the “applicable commitment period.” The word “projected” in this context, I agree, most sensibly refers to a calculation, prediction, or estimation of future events, see Brief for United States as Amicus Curiae 12–13 (collecting dictionary definitions); see also Webster’s New International Dictionary 1978 (2d ed. 1957). But one assuredly can calculate, predict, or estimate future figures based on the past. And here Congress has commanded that a specific historical figure shall be the basis for the projection.

The Court rejects this reading as unrealistic. A projection, the Court explains, may be based in part on past data, but “adjustments are often made based on other factors that may affect the final outcome.” (citation omitted). Past performance is no guarantee of future results. No gambler would bet the farm using “project[ions]” that are based only on a football team’s play before its star quarterback was injured. And no pundit would keep his post if he “projected” election results relying only on prior cycles, ignoring recent polls. So too, the Court appears to reason, it makes no sense to say a court “project[s]” a debtor’s “disposable income” when it considers only what he earned in a specific 6-month period in the past. (citation omitted).

Such analogies do not establish that carrying current monthly income forward to determine a debtor’s future ability to pay is not a “projection.” They show only that relying exclusively on past data for the projection may be a bad idea. One who is asked to predict future results, but is armed with no other information than prior performance, can still make a projection; it may simply be off the mark. Congress, of course, could have tried to prevent that possibility by prescribing, as it has done in other contexts, that a debtor’s projected disposable income be determined based on the “best available evidence,” (citation omitted) or “any … relevant information,” (citation omitted). But it included no such prescription here, and instead identified the data a court should consider. Perhaps Congress concluded that other information a bankruptcy court might consider is too uncertain or too easily manipulated. Or perhaps it thought the cost of considering such information outweighed the benefits. (citation omitted). In all events, neither the reasons for nor the wisdom of the projection method Congress chose has any bearing on what the statute means.

The Court contends that if Congress really meant courts to multiply a static figure by a set number of months, it would have used the word “multiplied,” as it has done elsewhere—indeed, elsewhere in the same subsection, (citation omitted)—instead of the word “projected.” (citation omitted). I do not dispute that, as a general matter, we should presume that Congress does not ordinarily use two words in the same context to denote the same thing. But if forced to choose between (A) assuming Congress enacted text that serves no purpose at all, (B) ascribing an unheard-of meaning to the word “projected” (loaded with made-to-order restrictions) simply to avoid undesirable results, or (C) assuming Congress employed synonyms to express a single idea, the last is obviously the least evil.

* * *

In short, a debtor’s projected disposable income consists of two parts: one (current monthly income) that is fixed once for all based on historical data, and another (the enumerated expenses) that at least arguably depends on estimations of the debtor’s future circumstances. The statute thus requires the court to predict the difference between two figures, each of which depends on the duration of the commitment period, and one of which also turns partly on facts besides historical data. In light of all this, it seems to me not at all unusual to describe this process as projection, not merely multiplication.

Dissent, at 4-7 (emphasis added).

He also responded to the majority's criticism of the mechanical approach.

The Court’s remaining arguments about the statute’s meaning are easily dispatched. A “mechanical” reading of projected disposable income, it contends, renders superfluous the phrase “to be received in the applicable commitment period” in §1325(b)(1)(B). (citation omitted). Not at all. That phrase defines the period for which a debtor’s disposable income must be calculated ( i.e. , the period over which the projection extends), and thus the amount the debtor must ultimately pay his unsecured creditors.

Similarly insubstantial is the Court’s claim regarding the requirement that the plan provide that the debtor’s projected disposable income “will be applied to make payments” toward unsecured creditors’ claims, §1325(b)(1)(B). The Court says this requirement makes no sense unless the debtor is actually able to pay an amount equal to his projected disposable income. (citation omitted). But it makes no sense only if one assumes that the debtor is entitled to confirmation in the first place; and that assumption is wrong. The requirement that the debtor pay at least his projected disposable income is a prerequisite to confirmation. The “will be applied” proviso does not require a debtor to pay what he cannot; it simply withholds Chapter 13 relief when he cannot pay.

Dissent, at 7 (emphasis added).

Justice Scalia also found that the ability to modify a chapter 13 plan provided an answer to the problem which concerned the majority.

In any event, the effects the Court fears are neither as inevitable nor as “senseless” as the Court portrays. The Court’s first concern is that if actual or anticipated changes in the debtor’s earnings are ignored, then a debtor whose income increases after the critical 6-month window will not be required to pay all he can afford. (citation omitted). But as Lanning points out, (citation omitted), Chapter 13 authorizes the Bankruptcy Court, at the request of unsecured creditors, to modify the plan “[a]t any time after confirmation” to “increase … the amount of payments” on a class of claims or “reduce the time for such payments.” (citation omitted). The Court offers no explanation of why modification would not be available in such instances, and sufficient to resolve the concern.

The Court also cringes at the prospect that a debtor whose income suddenly declines after the 6-month window or who, as in this case, receives a one-off windfall during that window, will be barred from Chapter 13 relief because he will be unable to devote his “disposable income” (which turns on his prior earnings) to paying his unsecured creditors going forward. (citation omitted). At least for debtors whose circumstances deteriorate after confirmation, however, the Code already provides an answer. Just as a creditor can request an upward modification in light of postconfirmation developments, so too can a debtor ask for a downward adjustment. (citation omitted).

Moreover, even apart from the availability of modification it requires little imagination to see why Congress might want to withhold relief from debtors whose situations have suddenly deteriorated (after or even toward the end of the 6-month window), or who in the midst of dire straits have been blessed (within the 6-month window) by an influx of unusually high income. Bankruptcy protection is not a birthright, and Congress could reasonably conclude that those who have just hit the skids do not yet need a reprieve from repaying their debts; perhaps they will recover. And perhaps the debtor who has received a one-time bonus will thereby be enabled to stay afloat. How long to wait before throwing the debtor a lifeline is inherently a policy choice. Congress confined the calculation of current monthly income to a 6-month period (ordinarily ending before the case is commenced), but it could have picked 2 or 12 months (or a different end date) instead. Whatever the wisdom of the window it chose, we should not assume it did not know what it was doing and accordingly refuse to give effect to its words.

Dissent, at 9-10.

Justice Scalia's modification argument may cut against his position. If a plan could be modified immediately after confirmation to reflect changed circumstances, why is it unreasonable to give effect to those circumstances at confirmation?

In conclusion, Justice Scalia noted the importance of following the language used by Congress even when that appears that Congress was mistaken.

Underlying the Court’s interpretation is an understandable urge: Sometimes the best reading of a text yields results that one thinks must be a mistake, and bending that reading just a little bit will allow all the pieces to fit together. But taking liberties with text in light of outcome makes sense only if we assume that we know better than Congress which outcomes are mistaken. And by refusing to hold that Congress meant what it said,(citation omitted), we deprive it of the ability to say what it means in the future. It may be that no interpretation of §1325(b)(1)(B) is entirely satisfying. But it is in the hard cases, even more than the easy ones, that we should faithfully apply our settled interpretive principles, and trust that Congress will correct the law if what it previously prescribed is wrong.

Dissent, at 13-14.

Final Thoughts

I have admittedly given more space to Justice Scalia's words than to those of the majority. While the majority's view is the law and provides the more workable solution for bankruptcy practitioners, Justice Scalia's words have a seductive quality. The majority wants the Bankruptcy Code to make sense. Justice Scalia is willing to be a minority of one for the proposition that when Congress passes laws that are foolish or just plain wrong, that the courts have an obligation to throw their words back at them and yield a foolish judgment. As an agile advocate, he did include multiple arguments for why his view of what Congress said is not foolish (particularly in sections that I did not quote). However, he is at his most eloquent when he argues that Congress should be allowed to, in the words of the Talking Heads, "Stop Making Sense."

The problem here is that Justice Scalia may well have the better argument for what Congress meant. However, the language they used didn't completely do the job. Congress intended to replace the court's discretion with an objective formula. In the case of Sec. 1325(b)(1)(B), Congress inserted the objective look-back provision in the definition of "disposable income" but not "projected disposable income." Additionally, taking away discretion on initial confirmation but leaving it in place for modification seems to be an invitation to reintroducing discretion in general.

Hamilton v. Lanning provides a practical solution which does not do obvious violence to the text, Justice Scalia notwithstanding. However, it is also a prime example of the imprecision with which BAPCPA was drafted.

Supreme Court to Decide Whether Means Test Allows Ownership Expense Deduction for Vehicle Owned Free and Clear

This article appears in the June 2010 edition of the American Bankruptcy Institute Journal.

“(T)he code is more what you’d call ‘guidelines’ than actual rules.”(1)

The Supreme Court has agreed to hear a case which raises the issue of whether the collection standards contained within the IRS Financial Analysis Handbook (2), as incorporated into the Chapter 7 Means Test (3), are more of a code than a guideline(4). Three circuits and a Bankruptcy Appellate Panel have held that under a “plain meaning” reading of the Code, a debtor may claim an ownership expense deduction under the Means Test regardless of whether there is a debt or lease payment with regard to the vehicle (5), while the Ninth Circuit, adopting what is known as the IRM approach, has reached a contrary result (6). However, another way to describe the split is whether the IRS Collection Standards (hereafter IRS Standards)(7) as incorporated into the Means Test are more of a Code (the plain language approach) or a guideline (the IRM approach)(8). This article will examine how the search for an objective standard may lead to unintended consequences.

The Search for an Objective Standard

Prior to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), a debtor’s bankruptcy case could only be dismissed based on a finding of “substantial abuse,”(9) a standard which was not defined in the statute. BAPCPA changed this standard to one of “abuse” and provided for a presumption of abuse based on a formula that has become known as the Means Test (10). The purpose of the Means Test “is to determine if the debtors can repay a portion of their debt” (11). The Means Test applies to debtors with primarily consumer debts whose “current monthly income” exceeds the median income for a family of their size (12).

The Means Test is based on an elaborate formula found at 11 U.S.C. §707(b)(2). A bankruptcy filing is presumed to be abusive if the debtor can afford to pay the lesser of 25% of his nonpriority unsecured debts or $7,025, whichever is greater, or $11,725 (13). The Means Test determines this ability to pay by taking the debtor’s “current monthly income” and deducting categories of allowed expenses and multiplying by 60 (14). Like prior case law under the substantial abuse test, the Means Test looks at the debtor’s ability to pay his debts (15). However, the Means Test does not rely on the debtor’s current monthly income and expense. Instead, it uses an average of the debtor’s income for the preceding six months (16) and subtracts certain defined expenses.

Among other things, the Means Test allows deduction of

. . . the debtor's applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor's actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides. . . . Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.(17)

Separate provisions of the Means Test allows the debtor to deduct payments for secured debts scheduled to come due during the 60 months after the petition date as well as priority claims divided by 60(18).

The Means Test represents an attempt to replace the subjective “substantial abuse” test with a more objective standard. The IRS standards refer to such sources as Census Bureau and Bureau of Labor Statistics data (19). However, as used by the IRS, they are more of a guideline than a code (20). According to the Financial Analysis Handbook:

The standard amounts set forth in the national and local guidelines are designed to account for basic living expenses. In some cases, based on a taxpayer's individual facts and circumstances, it may be appropriate to deviate from the standard amount when failure to do so will cause the taxpayer economic hardship (see Note below bullet list). The taxpayer must provide reasonable substantiation of all expenses claimed that exceed the standard amount.(21)

The National and Local standards consist of tables of data. However, they are used in the context of the Financial Analysis Handbook which provides guidelines as to how they should be applied.

Furthermore, the standards consist of aggregate amounts for categories, including debt payments(22). However, the Means Test considers secured debts separately. This means that a debtor with a high mortgage payment or car payment could be allowed to deduct more than the amount allowed under the standards.

The Problem of Vehicle Ownership Expenses

Vehicle ownership expenses pose a potential conflict between the language of the Means Test and the IRM. Under the Means Test, the debtor may deduct

the debtor's applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor's actual monthly expenses for the categories specified as Other Necessary Expenses. . . . (23)

The Local Standards include both ownership and operating expenses (24). The IRM specifies that in determining a taxpayer’s ability to pay "[t]axpayers will be allowed the local standard or the amount actually paid, whichever is less."(25) In the specific case of vehicle payments, the IRM states "(i)f a taxpayer has a car, but no car payment [sic] only the operating cost portion of the transportation standard is used to figure the allowable transportation expense."(26)

The conflict arises because the statute refers to the Local Standards. The Local Standards consist of a table of expenses broken down by number of vehicles owned (27). Furthermore, under the Means Test, ownership costs and debt payments are separate allowances. Thus, since ownership costs and debt amounts are distinct allowances, it would be possible to have an ownership costs without a debt payment. However, the purpose of the Means Test is to "to ensure that debtors repay creditors the maximum they can afford."(28) The IRS standards have a similar purpose. Since the IRM would not allow an expense which was not an “actual” expense, neither should the Means Test.

What Expenses Are Applicable?

Both approaches seek to apply the plain meaning of the statute, particularly the word “applicable.”(29)

The Ninth Circuit quoted its Bankruptcy Appellate Panel as stating:

The ordinary, common meaning of "applicable" further impels us to this conclusion. "Applicable," in its ordinary sense, means "capable of or suitable for being applied."(Citation omitted). Given the ordinary sense of the term "applicable," how is the vehicle ownership expense allowance capable of being applied to the debtor if he does not make any lease or loan payments on the vehicle? In other words, how can the debtor assert a deduction for an expense he does not have? If we granted the debtor such an allowance, we would be reading "applicable" right out of the Bankruptcy Code (30).

In contrast, the Seventh Circuit applied “applicable” to mean:

707(b)(2)(A)(ii)(I) is more strongly supported by the language and logic of the statute. In order to give effect to all the words of the statute, the term "applicable monthly expense amounts" cannot mean the same thing as "actual monthly expenses." Under the statute, a debtor's "actual monthly expenses" are only relevant with regard to the IRS's "Other Necessary Expenses;" they are not relevant to deductions taken under the Local Standards, including the transportation ownership deduction. Since "applicable" cannot be synonymous with "actual," applicable cannot reference what the debtor's actual expense is for a category, as courts favoring the IRM approach would interpret the word. We conclude that the better interpretation of "applicable" is that it references the selection of the debtor's geographic region and number of cars.(31)

Thus, two circuits have reached diametrically opposed views of what the word “applicable” means in the applicable statute.

Going Beyond Applicable

If the plain meaning of the word “applicable” is not sufficient to resolve the debate, what other factors might illuminate the issue?

The courts taking the “plain meaning” approach add several other arguments in favor of their position. Among them, a prior version of the bankruptcy reform legislation included an express reference to the Internal Revenue Manual, a provision which was not included in the final bill (32); the Internal Revenue Manual itself includes a disclaimer that it is only to be used for tax collection purposes and not for purposes of bankruptcy (33); that it would be prudent to allow a debtor with no car payment to save for a new vehicle (34); that it would be absurd to allow a debtor with $1 in debt against the vehicle to take the ownership expense while denying it to a debtor without a car payment (35); and that the Bankruptcy Code provided for both an ownership expense and a secured debt deduction as separate items (36).

On the other hand, the Ninth Circuit looked to the purpose of the deduction. It quoted its Bankruptcy Appellate Panel as stating:

Congress has deemed the expense of owning a car to be a basic expense that debtors can deduct in calculating what they can afford to pay to their creditors. However, in making that calculation, what is important is the payments that debtors actually make, not how many cars they own, because the payments that debtors make are what actually affect their ability to make payments to their creditors.

The statute is only concerned about protecting the debtor's ability to continue owning a car, and if the debtor already owns the car, the debtor is adequately protected . . . . When the debtor has no monthly ownership expenses, it makes no sense to deduct an ownership expense to shield it from creditors. (37)

It also looked to the general purpose of BAPCPA.

This approach also is arguably supported by Congress's intent in implementing the means testing as part of BAPCPA--"to ensure that debtors repay creditors the maximum they can afford." (38)

Finally, it questioned the wisdom of allowing a debtor to subtract a “fictitious expense not incurred by the debtor” under the Means Test (39).

Finding an Answer

The ownership deduction cases illustrate the practical difficulties in using the IRS Standards as the basis for calculating an above median income debtor’s eligibility for chapter 7 or determining the amount that an above median debtor must pay under a chapter 13 plan. While the reference to tables of data based upon Census Bureau and Bureau of Labor Statistics figures appears objective and therefore practical to apply, the Internal Revenue Manual within which they appear is full of nuances. To further complicate the matter, Congress included numerous modifications to the IRS Standards within the text of Section 707(b). It is safe to say that Congress created ambiguity when it sought to graft a guideline into a Code.

In the conclusion to its opinion, the Ninth Circuit recognized the difficulty of the issue and suggested that Congress take action to clarify the legislation.

The "correct" answer to the question before us, which the courts have been struggling with for years--at the unnecessary cost of thousands of hours of valuable judicial time--depends ultimately not upon our interpretation of the statute, but upon what Congress wants the answer to be. We would hope, in this regard, that we the judiciary would be relieved of this Sisyphean adventure by legislation clearly answering a straightforward policy question: shall an above-median income debtor in chapter 13 be allowed to shelter from unsecured creditors a standardized vehicle ownership cost for a vehicle owned free and clear, or not? Because resolution of this issue rests with Congress, we have taken the unusual step of directing the Clerk of the Court to forward a copy of this opinion to the Senate and House Judiciary Committees.(40)

The Ninth Circuit makes a good point. While Congress may have intended the more parsimonious approach adopted in Ransom, numerous courts have concluded that the language they used does not accomplish that result. Thus, the unintended consequence of seeking an objective standard is that in this one case, debtors may receive a more generous allowance than they would have been granted under the Internal Revenue Manual or prior bankruptcy law.

Pending an answer from Congress, the Supreme Court will have to untangle the legislative knot. On April 19, 2010, the Supreme Court agreed to consider the following question:

Whether, in calculating the debtor's "projected disposable income" during the plan period, the bankruptcy court may allow an ownership cost deduction for vehicles only if the debtor is actually making payments on the vehicles.(41)

While this will be the third case that the Supreme Court has accepted with regard to BAPCPA, it will likely not be the last(42).
____________________________________________________

1. Pirates of the Caribbean: The Curse of the Black Pearl, quoted at http://www.imdb.com/title/tt0325980/quotes. The quote originally appears near the beginning of the movie when Elizabeth Swann invokes the Code of the Brethren to Captain Barbossa. Throughout the movie, characters use the guideline reference as a rationale to disregard the Code.
2. Internal Revenue Manual, §5.15.1, found at www.irs.gov/irm.
3. 11 U.S.C. §707(b).
4. In re Ransom, 577 F.3d 1026 (9th Cir. 2009), cert granted, 2010 U.S. LEXIS 3359 (2010).
5. In re Washburn, 579 F.3d 934 (8th Cir. 2009)(with dissenting opinion); Tate v. Bolen, 571 F.3d 423 (5th Cir. 2009); In re Ross-Tousey, 549 F.3d 1148 (7th Cir. 2008); In re Kimbro, 389 B.R. 518 (6th Cir. BAP 2008).
6. In re Ransom, supra.
7. The Collection Standards consist of the National Standards, Local Standards and Other Necessary Expenses.
8. The two approaches are described in more detail below.
9. In re Rudler, 576 F.3d 76 (1st Cir. 2009).
10. “The heart of the bill’s consumer bankruptcy reforms consists of the implementation of an income/expense screening mechanism (‘‘needs-based bankruptcy relief’’ or ‘‘means testing’’), which is intended to ensure that debtors repay creditors the maximum they can afford.” Report on the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, H.R. Rept. 109-31, 109th Cong., 1st Sess. (April 8, 2005).
11. Tate v. Bolen, at 425.
12. The requirement that debts be primarily consumer debts is found in 11 U.S.C. §707(b)(1), while exclusion for below median income debtors is contained in §707(b)(7).
13. 11 U.S.C. §707(b)(2)(A)(i). These amounts are adjusted for inflation and were most recently adjusted on April 1, 2010.
14. Id.
15. In re Goble, 401 B.R. 261 (Bankr. S.D. Ohio 2009).
16. 11 U.S.C. §101(10A) containing definition of “current monthly income.”
17. 11 U.S.C. §707(b)(2)(A)(i)(I).
18. 11 U.S.C. §707(b)(2)(A)(iii) and (iv).
19. IRM, §5.15.1.7.
20. http://www.irs.gov/individuals/article/0,,id=96543,00.html.
21. IRM, §5.15.1.7.6.
22. For example, the standards for housing state:

Housing and Utilities. Housing expenses include: mortgage (including interest) or rent, property taxes, necessary maintenance and repair, homeowner's or renter's insurance, homeowner dues and condominium fees. The utilities include gas, electricity, water, heating oil, bottled gas, trash and garbage collection, wood and other fuels, septic cleaning, telephone and cell phone.

IRM, §5.15.1.9.1.A
23. 11 U.S.C. §707(b)(2)(A)(i)
24. IRM §5.15.1.
25. IRM §5.15.1.7.
26. Id.
27. In re Kimbro, at 527.
28. H.R. Rep. 109-31(I), at 1.
29. In re Ransom, at 1030 ("As did our BAP, we decide this issue not on the IRS's manual, but instead on the "statutory language, plainly read."); In re Ross-Tousey, at 1158 ("To analyze this issue, we begin with the language of the statute. When the language is plain, the sole function of the courts is to enforce the statute according to its terms.”).
30. In re Ransom, at 1030-31.
31. In re Ross-Tousey, at 1158.
32. In re Ross-Tousey, at 1159; Tate v. Bolen, at 427.
33. In re Kimbro, at 527.
34. Tate v. Bolen, at 428; In re Ross-Tousey, at 1160.
35. In re Ross-Tousey, at 1161.
36. In re Kimbro, at 523.
37. In re Ransom, at 1030-31.
38. In re Ransom, at 1030.
39. In re Ransom, at 1030.
40. In re Ransom, at 1031-32.
41. http://www.supremecourt.gov/qp/09-00907qp.pdf.
42. The others are Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. __ (2010) and In re Lanning, 545 F.3d 1269 (10th Cir. 2009), cert. granted, 2009 U.S. LEXIS 7655 (2009).