John Pak

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26 	1The Office of the United States Trustee (the “UST”) also
filed an objection. 	The Debtor contends that the UST has no
standing to object. 	This dispute need not be resolved since the
Court concludes, in any event, that the Plan may not be confirmed.
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 05-49326 TG
Chapter 13
JOHN PAK,
Debtor.
___________________________/
AMENDED MEMORANDUM OF DECISION
The above-captioned debtor (the “Debtor”) seeks confirmation of
his 	amended 	chapter 	13 	plan, 	filed 	on 	August 	1, 	2006 	(the 	“Plan”).
The 	chapter 	13 	trustee 	(the 	“Trustee”) 	and 	an 	unsecured 	creditor
(“American Express”) object to confirmation. 1 	Section 	1325(b)(1)(B)
provides that, when the chapter 13 trustee or an unsecured creditor
objects 	to 	confirmation, 	the 	plan 	may 	not 	be 	confirmed 	unless 	it
provides that all of the debtor’s “projected disposable income” will
be used to pay unsecured creditors during the term of the plan. 	11
U.S.C. 	§ 	1325(b)(1)(B). 	The 	parties 	disagree 	about 	the 	meaning 	of
Signed: December 14, 2006
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
December 14, 2006
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 05-49326 Doc# 78 Filed: 12/14/06 Entered: 12/14/06 14:21:55 Page 1 of 9

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2This Court’s opinion as to the meaning of this phrase will
presumably have a short shelf-life. 	It is the Court’s
understanding that the Ninth Circuit Court of Appeals has accepted
a direct appeal of this issue in In re Laura F. Kagenveama, No. 05-
28079 PHX-CGC.
3Thus, this case is subject to the amendments made by the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
2
“projected 	disposable 	income.” 2 	As 	discussed 	below, 	based 	on 	the
Court’s construction of this phrase, the Plan may not be confirmed.
DISCUSSION
A. 	BACKGROUND
The 	Debtor 	filed 	a 	chapter 	7 	petition 	on 	October 	31, 	2005. 3
Shortly 	thereafter, 	the 	UST 	filed 	a 	motion 	to 	dismiss 	the 	case 	as
abusive under 11 U.S.C. § 707(b)(3)(B): i.e., based on the totality
of 	circumstances 	of 	the 	Debtor’s 	financial 	condition. 	Because 	the
Debtor 	was 	unemployed 	for 	the 	bulk 	of 	the 	six 	months 	preceding 	the
filing, 	the 	“current 	monthly 	income,” 	as 	defined 	by 	11 	U.S.C. 	§
101(10A), 	placed 	him 	below 	the 	median 	of 	income 	earners 	in 	the
applicable geographical area. 	Thus, he was not subject to the “means
test” for purposes of determining whether the case was abusive. 	See
11 U.S.C. § 707(b)(2) and (b)(7)(A). 	However, he was subject to the
test for abuse set forth in 11 U.S.C. § 707(b)(3)(B).
At 	the 	time 	the 	bankruptcy 	petition 	was 	filed, 	the 	Debtor 	was
earning over $100,000 a year. 	Examining the Debtor’s Schedules I and
J, the Court concluded that the Debtor could afford to pay unsecured
creditors approximately 19 percent of their claims through a chapter
13 	plan. 	As 	a 	result, 	the 	Court 	found 	the 	case 	to 	be 	abusive 	and
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subject to dismissal under 11 U.S.C. § 707(b)(3)(B). 	See In re Pak,
343 B.R. 239 (Bankr. N.D. Cal. 2006).
The 	Debtor 	then 	converted 	his 	case 	to 	chapter 	13 	and 	filed 	a
plan. 	The 	Plan 	proposes 	to 	pay 	the 	Trustee, 	for 	disbursement 	to
unsecured creditors, $300 a month for thirty-five months and $322.20
for 	one 	month. 	The 	Plan 	estimates 	that 	unsecured 	creditors 	will
receive 1.6 percent of their claims. 	The Debtor contends that these
payments constitute more than his “projected disposable income” which
he 	calculates 	by 	multiplying 	his 	“disposable 	income”–-i.e. 	the
average 	of 	his 	earnings 	during 	the 	six 	months 	preceding 	the
bankruptcy filing--by the number of months of the Plan. 	The Trustee
and American Express disagree with this approach. 	They contend that
the Debtor’s post-filing income must be used for the calculation.
B. 	DECISION
The 	Debtor 	contends 	that 	his 	interpretation 	of 	“projected
disposable 	income” 	represents 	the 	plain 	language 	of 	the 	statute.
When the language of a statute is plain, unless the result is absurd,
the 	Court’s 	sole 	function 	is 	to 	apply 	the 	statute. 	Lamie 	v. 	U.S.
Trustee, 540 U.S. 461, 534 (2004). 	The Debtor notes that “disposable
income” is now defined as “current monthly income” less the debtor’s
reasonably necessary living expenses. 	11 U.S.C. § 1325(b)(2).
As 	relevant 	here, 	“current 	monthly 	income” 	is 	defined 	as 	the
“average 	monthly 	income 	from 	all 	sources” 	received 	by 	the 	debtor
during the six months before the last day of the month before the day
the bankruptcy petition was filed. 	11 U.S.C. § 101(10A)(A)(I). 	It
“includes any amount paid by any entity other than the debtor...on a
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4The Kagenveama court was persuaded by this argument to adopt
the position advocated by the Debtor. 	It found that, otherwise,
the definition of “disposable income” in 11 U.S.C. § 1325(b)(2)
would serve no purpose. 	The Court’s answer to that argument is set
forth below.
4
regular 	basis 	for 	the 	household 	expenses 	of 	the 	debtor...” 	but
“excludes 	benefits 	received 	under 	the 	Social 	Security 	Act” 	and
certain 	other 	types 	of 	payments 	not 	relevant 	here. 	11 	U.S.C. 	§
101(10A)(B).
The 	word 	“projected” 	is 	not 	defined. 	However, 	the 	Debtor
contends 	that 	its 	meaning 	is 	plain. 	He 	contends 	that, 	once 	the
Debtor’s 	“disposable 	income” 	is 	determined 	in 	accordance 	with 	the
definition summarized above, one “projects” it by multiplying it by
the 	number 	of 	months 	of 	the 	Plan. 	Thus, 	he 	views 	the 	term
“projected” as meaning “extended.”
The 	Debtor 	contends 	that 	this 	construction 	of 	the 	word
“projected” 	is 	consistent 	with 	pre-BAPCPA 	practice. 	He 	notes 	that
the 	phrase 	“projected 	disposable 	income” 	is 	not 	new. 	Only 	the
definition of “disposable income” is new. 	According to the Debtor,
pre-BAPCPA, 	“disposable 	income” 	was 	determined 	by 	reference 	to
Schedules I and J. 	A bankruptcy court would determine a chapter 13
debtor’s 	“projected 	disposable 	income” 	by 	multiplying 	the 	debtor’s
“disposable 	income” 	as 	determined 	from 	Schedules 	I 	and 	J 	over 	the
term of the Plan.
The 	Debtor 	also 	notes 	that 	this 	construction 	of 	the 	term
“projected” 	gives 	meaning 	to 	every 	term 	of 	the 	phrase 	“projected
disposable income.” 4 	Thus, it is consistent with a basic principle
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of statutory construction. 	See Duncan v. Walker, 533 U.S. 167, 172-
74 (2001). 	Finally, the Debtor contends that his construction of the
term is consistent with the expressed legislative intent of limiting
bankruptcy judges’ discretion.
Although 	this 	issue 	was 	not 	briefed 	as 	part 	of 	the 	motion 	to
dismiss the chapter 7 case, the Court found it necessary to consider
the 	issue 	in 	that 	context. 	At 	that 	time, 	there 	were 	only 	a 	few
published decisions dealing with it. 	The Court found most persuasive
the rationale set forth in In re Jass, 340 B.R. 411 (Bankr. D. Utah
2006).
The 	Jass 	court 	concluded 	that 	the 	“plain 	language” 	of 	the
statute required a different construction. 	It concluded that, while
the 	definition 	of 	“disposable 	income” 	required 	the 	Court 	to 	look
backward, 	the 	placement 	of 	the 	word 	“projected” 	before 	that 	phrase
required 	the 	Court 	to 	also 	look 	forward. 	The 	Jass 	court 	construed
the word “projected” as meaning “estimated” or “predicted.” 	See id.
at 415-16.
The Jass court held that the proper approach was to presume that
the debtor’s “projected disposable income” was based on the debtor’s
“current monthly income.” 	However, the debtor should be permitted to
rebut this presumption by presenting evidence of a substantial change
in his financial condition post-filing. 	If so, the court should base
its 	determination 	on 	the 	income 	shown 	on 	Schedule 	I 	in 	the
calculation. 	Id. at 418-19. 	This construction also gives meaning to
every term in the phrase “projected disposable income.” 	Id. at 418.
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As 	the 	UST 	notes 	in 	her 	brief, 	numerous 	bankruptcy 	court
decisions 	have 	been 	published 	since 	the 	Court’s 	prior 	decision 	in
this 	case. 	The 	majority 	of 	the 	decisions 	reach 	the 	same 	result 	as
that reached in Jass. 	The weakness in the Jass approach is that the
definition of “current monthly income” is abandoned once the debtor
presents substantial evidence that his financial circumstances have
changed 	post-petition. 	Thus, 	arguably, 	in 	these 	instances,
“disposable income” is treated as surplusage.
Both constructions of the word “projected” are plausible. 	As a
result, the Court is unable to find the word unambiguous. 	The Court
agrees with the Jass court and its progeny that the more reasonable
construction 	of 	the 	“projected” 	is 	“estimated” 	or 	“predicted.”
However, the Court does not believe that the statutory definition of
“disposable 	income” 	can 	be 	abandoned 	even 	when 	the 	debtor 	presents
evidence 	of 	a 	change 	in 	circumstances. 	There 	is 	a 	reason 	why 	it
cannot be.
The 	income 	required 	to 	be 	reported 	on 	Schedule 	I 	is 	different
from “current monthly income” as defined in 11 U.S.C. § 101(10A). 	As
noted 	above, 	Schedule 	I 	income 	does 	not 	exclude 	Social 	Security
payments and does not include payments made by any other entity for
the 	debtor’s 	household 	expenses. 	In 	determining 	whether 	a 	plan
provides all of the debtor’s “projected disposable income,” a court
should attempt to predict what the debtor’s disposable income during
the 	term 	of 	the 	plan 	will 	be, 	using 	the 	definition 	of 	“current
monthly income” set forth in 11 U.S.C. § 101(10A).
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This construction of the phrase gives meaning to every word in
the phrase. 	It is also consistent with one of the primary purposes
of BAPCPA’s consumer amendments: i.e., to force “can-pay” debtors to
pay their creditors what they can, through a chapter 13 plan. 	While
Congress 	also 	expressed 	the 	intent 	to 	limit 	bankruptcy 	judges’
discretion, as discussed in the Court’s prior decision in this case,
the 	consumer 	amendments 	nevertheless 	contain 	some 	provisions
requiring judges to exercise discretion. 	See Pak, 343 B.R. at 243-
44.
This 	construction 	of 	the 	term 	“projected” 	is 	also 	consistent
with past practice. 	The Court disagrees with the Debtor’s contention
that, 	before 	BAPCPA, 	to 	determine 	a 	debtor’s 	“projected 	disposable
income,” a court simply multiplied the difference between the figures
on Schedule I and J by the number of months in the plan.
Schedule 	I 	and 	J 	is 	simply 	a 	snapshot 	of 	the 	debtor’s 	current
income 	and 	expenses 	at 	the 	time 	of 	filing. 	Commonly, 	pre-BAPCPA,
chapter 	13 	debtors 	anticipated 	changes 	in 	their 	financial
circumstances 	during 	the 	term 	of 	the 	plan 	and 	structured 	their
proposed payments accordingly. 	Alternatively, when debtors’ proposed
payments 	did 	not 	reflect 	anticipated 	increases 	in 	income 	or
diminished 	expenses 	during 	the 	term 	of 	the 	plan, 	the 	chapter 	13
trustee or a creditor objected to the plan as not contributing all of
the 	debtor’s 	disposable 	income 	to 	the 	plan. 	Thus, 	the 	court
“projected” or estimated the debtor’s “disposable income” by taking
into account those anticipated changes.
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CONCLUSION
The 	Plan 	may 	not 	be 	confirmed 	because 	it 	does 	not 	provide 	for
the payment of the Debtor’s “projected disposable income” during the
term of the Plan. 	The Trustee is directed to submit a proposed form
of order sustaining the objections and denying confirmation.
END OF DOCUMENT
Case: 05-49326 Doc# 78 Filed: 12/14/06 Entered: 12/14/06 14:21:55 Page 8 of 9

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COURT SERVICE LIST
Cathleen Cooper Moran
Moran Law Group, Inc.
1674 N. Shoreline Blvd., Ste. 140
Mountain View, CA 94043
Minnie Loo
Office of the United States Trustee
1301 Clay St., Ste. 690N
Oakland, CA 94612
John M. O’Donnell
Law Offices of John M. O’Donnell
915 University Ave.
Sacramento, CA 95825
Michael H. Meyer
3510 Unocal Place, Ste. 207
Santa Rosa, CA 95406-0609
Martha Bronitsky
24301 Southland Drive, Ste. 200
Hayward, CA 94545-1541
Case: 05-49326 Doc# 78 Filed: 12/14/06 Entered: 12/14/06 14:21:55 Page 9 of 9