Thomas William Gaeir and Patricia Ann Gaeir

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
THOMAS and PATRICIA GAIER, 	No. 08-12330
Debtor(s).
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Memorandum re Chapter 13 Plan
_________________
In a Chapter 7 case, the debtor must “pass” a mechanical means test computed using statutory
deductions. If a debtor cannot pass the means test and cannot show special circumstances, the debtor
is ejected from bankruptcy and must deal with creditors without bankruptcy relief. Not surprisingly,
this court and most others which have interpreted the means test in Chapter 7 have allowed a deduction
for mortgage payments even if the debtor cannot afford to actually pay them and must abandon the
property; that is the literal reading of the law, and there is no equitable reason to deviate from it.
This is a Chapter 13 case. 	Debtors Thomas and Patricia Gaier and objecting creditor JP
Morgan Chase Bank, N.A., disagree as to whether the same rule applies in Chapter 13. That is,
whether in determining how much a debtor needs to pay to the Chapter 13 trustee for the benefit of
creditors the debtor may deduct a mortgage payment the debtor is not actually going to make.
The fairest result, for both debtor and creditors, is to base what a Chapter 13 debtor has to pay
on the debtor’s actual income and expenses rather than the mechanical means test. To do otherwise
gives some debtors a windfall and spits out other debtors in desperate need of relief without any
Entered on Docket
May 14, 2009
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 08-12330 Doc# 41 Filed: 05/14/09 Entered: 05/14/09 16:10:15 Page 1 of 2

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1Creditor JP Morgan Chase cites numerous lower court cases as standing for the proposition
that secured debt payment on real property which the debtor intends to surrender are not deductible by
a Chapter 13 debtor. The problem with these cases is they may be from jurisdictions which follow
Frederickson instead of Kagenveama. If Frederickson were the law in this circuit, then the court
would not allow the phantom deduction. However, Kagenveama compels a different result.
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benefit to creditors. However, in a case with ramifications the court did not appear to consider, the
Circuit in In re Kagenveama, 541 F.3d 868 (9th Cir, 2008), ruled that the monthly payment a debtor
must pay in a Chapter 13 case is the mechanical means test amount without regard to actual income
and expenses. The law is different in other circuits. In re Frederickson, 545 F.3d 652 (8th Cir. 2008);
In re Lanning, 380 B.R. 17 (10th Cir. BAP 207), aff’d 545 F.3d 1269 (10th Cir. 2008); In re Kibbe, 361
B.R. 302 (1st Cir. BAP 2007).
Were it not for Kagenveama, the court would rule that only actual expenses can be deducted in
Chapter 13 in determining how much a debtor needs to pay to the Chapter 13 trustee. However,
Kagenveama compels the court to deal in mechanical numbers rather than reality. Since that is the
case, and since there is no appellate case in this circuit to the contrary, the court will apply the same
rule it has applied in Chapter 7 cases and allow the deduction of a mortgage payment the debtor is not
actually going to pay. 1 If Chapter 13 payments are computed using only a mechanical test without
regard to actual expenses, then “phantom deductions” are permitted. In re Pearson, 390 B.R. 706, 714
(10 th Cir. BAP 2008)(concurring opinion).
For the foregoing reasons, the objection will be overruled and the debtors’ plan will be
confirmed. Counsel for the debtors shall submit a form of order.
Dated: May 14, 2009
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 08-12330 Doc# 41 Filed: 05/14/09 Entered: 05/14/09 16:10:15 Page 2 of 2