Paul V. Marshall and Kathleen Kenney-Marshall

The parties timely filed the Agreed Statement of Facts. The Chapter 13 Trustee1
timely filed her memorandum. Debtors’ counsel did not file a memorandum until after
the issuance of an order to show cause why the Debtors’ Chapter 13 case should not be
dismissed for failure to abide an order of the Court. See 11 U.S.C. § 109(g)(1).
1
UNITED STATES BANKRUPTCY COURT
FOR THE
DISTRICT OF MASSACHUSETTS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
In re
PAUL V. MARSHALL and 	Chapter 13
KATHLEEN KENNEY-MARSHALL, 	Case No. 08-16022-JNF
Debtors
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
MEMORANDUM
I. INTRODUCTION
The matter before the Court is the “Trustee’s Objection to Debtors’ Amended
Chapter 13 Plan.” 	The Debtors, Paul V. Marshall and Kathleen Kenney-Marshall (the
“Debtors”), filed a Response to the Trustee’s Objection to confirmation of their amended
Chapter 13 plan, and the Court held a hearing on the contested matter on March 5, 2009.
At the conclusion of the hearing, the Court directed and the parties agreed to file an
Agreed Statement of Facts and briefs by April 24, 2009 on the issue of whether the above-1
median income Debtors in this case may deduct, on Official Form 22C, payments that are
“contractually due” to a junior mortgagee pursuant to 11 U.S.C. §§ 1325(b)(3) and
707(b)(2)(A)(iii)(I) for purposes of calculating their monthly disposable income where they
intend to seek a determination that the debt owed to the junior mortgagee is unsupported
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by any equity in their property and, thus, its lien is voidable and its claim unsecured
pursuant to 11 U.S.C. § 506(a) and (d). See In re Pelosi, 382 B.R. 582 (Bankr. D. Mass. 2008).
There being no genuine issues of material fact, the matter is ripe for adjudication.
II. FACTS
The Debtors filed a Chapter 13 petition on August 12, 2008. The next day, the Court
issued an “Order to Update,” requiring the Debtors to file Schedules, a Statement of
Financial Affairs, a Chapter 13 plan, Official Form 22C and other documents on or before
August 28, 2008. 	The Debtors failed to file the requisite documents by the deadline
imposed by the Court. Rather, on September 2, 2008, they filed a Motion to Extend Time
to File Required Documents, seeking a two week extension of time to file documents. See
11 U.S.C. § 521(a); Fed. R. Bankr. P. 3015(b). 	The Debtors failed to file all required
documents and their Chapter 13 plan within the requested time, although they filed some
documents one day late. Accordingly, the Court, on September 24, 2008, dismissed the
Debtors’ Chapter 13 case, citing their failure to file evidence of current and sufficient
liability insurance.
On October 6, 2008, the Debtors filed evidence that their property was properly
insured, as well as a Motion to Vacate Order of Dismissal. The Court granted their Motion
on October 6, 2008, but the Debtors’ case was dismissed again on December 30, 2008
because they failed to produce other documents requested by the Chapter 13 Trustee and
to comply with an order of the Court, dated December 15, 2008, requiring them to file an
affidavit, on or before December 29, 2008, stating that they had produced or filed the
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The Debtors’ Schedules I and J reveal monthly net income of $1,114.22.2
3
documents sought by the Chapter 13 Trustee.
On January 9, 2009, the Debtors filed their second Motion to Vacate Order of
Dismissal, as well as amended Schedules B, D, E, I, and J and an amended Official Form
22C. On January 12, 2009, the Court granted the Debtors’ Motion to Vacate and reinstated
their Chapter 13 case.
On Schedule A-Real Property, the Debtors listed their residence located at 88 Liberty
Street, Randolph, Massachusetts (the “Property”) with a value of $300,000. On Amended
Schedule D-Creditors Holding Secured Claims, the Debtors listed “CitiMortgage” as the
holder of a claim in the sum of $311,000 secured by a first mortgage on their Property and
Chase Manhattan Bank as the holder of a claim in the sum of $64,561 based upon a home
equity line of credit secured by a second mortgage on the Property.
On December 14, 2008, JP Morgan Chase Bank, N.A. timely filed a proof of claim
in the sum of $65,028.21. It attached to its proof of claim a Home Equity Line of Credit
Agreement and Disclosure Statement executed by the Debtors, as well as a Home Equity
Line of Credit Mortgage executed by the Debtors. Accordingly, JP Morgan Chase Bank
(“Chase”), not Chase Manhattan Bank, is the actual holder of the claim.
On January 14, 2009, the Debtors filed an amended, 60-month Chapter 13 plan to
which the Chapter 13 Trustee filed the Objection which is now before the Court. Through
their amended Chapter 13 plan, the Debtors proposed to make monthly plan payments in
the sum of $1,018. 	Specifically, they proposed to pay priority claims, totaling $10,019.13,2
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The Debtors listed $102,895.33 in unsecured debt on Schedule F and3
understated the amount of Chase’s claim in their amended Chapter 13 plan. The
Claims Register shows unsecured claims in the total amount of $107,145.81. The
Debtors’ amended Chapter 13 plan does not reflect that their counsel reviewed the
claims register before filing the plan.
Official Form 22C provides in relevant part:4
For each of your debts that is secured by an interest in property that you
own, list the name of the creditor, identify the property securing the debt,
state the Average Monthly Payment, and check whether the payment
includes taxes or insurance. The Average Monthly Payment is the total of
all amounts scheduled as contractually due to each Secured Creditor in
the 60 months following the filing of the bankruptcy case, divided by 60.
4
in full and to pay a 26.72% dividend to unsecured creditors with claims totaling
$168,236.33. 	According to the Debtors’ amended Chapter 13 plan, the class of unsecured3
creditors is comprised of general unsecured creditors with claims totaling $103,675.33 and
Chase with a claim in the sum of $64,561. The Debtors characterized Chase’s claim as an
unsecured claim arising after “lien avoidance/cramdown.”
On the same day that the Debtors filed their amended Chapter 13 plan, they objected
to the secured status, but not the amount, of Chase’s claim, relying upon Mann v. Domestic
Bank (In re Mann), 249 B.R. 831 (B.A.P. 1st Cir. 2000), and In re Pelosi, 382 B.R. 582 (Bankr.
D. Mass. 2008). 	On May 6, 2009, in the absence of a response from Chase, the Court
sustained the Debtors’ Objection to Chase’s claim.
On amended Form 22C, the Debtors disclosed that they have a combined monthly
income of $11,160.52. 	On Line 47 concerning future payments on secured claims, 	the4
Debtors listed payments to three creditors as follows:
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Name of
Creditor
Property Securing
the Debt
Average M onthly
Payment
Does Payment
Include taxes or
insurance?
a. 	CitiM ortgage 	Residence 	$2,299.00 	No
b. 	Chase
M anhattan
Bank [sic]
Single Family
House
$301.00 	No
c. 	Toyota M otor
Credit
Automobile (1) 	$394.23 	No
Total: Add
lines a, b, and
c.
$2,994.23
On Line 59, the Debtors calculated their monthly disposable income under 11 U.S.C.
§ 1325(b) as $1,017.73, rounded to $1,018, the amount of their monthly plan payment. The
parties agree that, if the Debtors were required to eliminate the $301 per month secured
claim deduction on Form 22C attributable to Chase’s claim, their monthly disposable
income for plan purposes would be $1,318.73, rounded to $1,319.
III. POSITIONS OF THE PARTIES
A. The Chapter 13 Trustee
In her Objection, the Chapter 13 Trustee contends that the Debtors’ amended
Chapter 13 plan is miscalculated. Further, she maintains that, if the Debtors are paying
Chase’s claim as an unsecured claim, they should not be entitled to claim the expense
deduction for secured claims on Form 22C for purposes of calculating their plan payment.
She cites, inter alia, United States Trustee v. Rudler (In re Rudler), 388 B.R. 433, 438 n.6
(B.A.P. 1st Cir. 2008), In re Hoss, 392 B.R. 463 (Bankr. D. Kan. 2008), and In re Gonzalez, 388
B.R. 292 (Bankr. S. D. Tex. 2008), in support of her position. The Chapter 13 Trustee also
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asserts that the Debtors’ amended Chapter 13 plan was not filed in good faith, and
extraordinary circumstances exist that require further inquiry into the Debtors’ expense
deduction for a wholly unsecured junior mortgage to Chase. Cf. In re Phillips, 382 B.R. 153,
172-73 (Bankr. D. Mass. 2008).
B. The Debtors
The Debtors admit that their amended Chapter 13 plan is miscalculated and that
they must file a further amended plan. With respect to the issue of the expense deduction,
they also rely upon the decision in In re Rudler, 388 B.R. 433 (B.A.P. 1st Cir. 2008), as well
as In re Willette, 395 B.R. 308, 325-28 (Bankr. D. Vt. 2008), and In re Quigley, 391 B.R. 294
(Bankr. N.D.W.Va. 2008). The Debtors also assert that their amended Chapter 13 plan was
filed in good faith and that no extraordinary circumstances exist which would warrant
disallowance of the deduction, particularly as their Schedules I and J mirror the disposable
income calculation on Form 22C.
IV. DISCUSSION
For purposes of this decision, the Court finds that a determination that Chase’s claim
is unsecured has the same practical effect as a surrender of property to a mortgagee. In
both instances, debtors are no longer required to make monthly payments to secured
creditors. Accordingly, the decisions involving surrender of secured property are apposite
to the issue before the Court.
Two recent decisions in this circuit, In re Rudler, and In re Burbank, 401 B.R. 67
(Bankr. D. R.I. 2009), appeal docketed No. 09-1776 (1st Cir. June 3, 2009), contain
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Section 707(b)(2) provides in relevant part:5
(B)(2)(A)(i) In considering under paragraph (1) whether the granting of
relief would be an abuse of the provisions of this chapter, the court shall
presume abuse exists if the debtor’s current monthly income reduced by
the amounts determined under clauses (ii), (iii), and (iv), and multiplied
by 60 is not less than the lesser of--
(I) 25 percent of the debtor’s nonpriority unsecured claims in
the case, or $6,575, whichever is greater; or
(II) $10,950. . . .
(ii)(I) The debtor’s monthly expenses shall be 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, as in effect on
the date of the order for relief, for the debtor, the dependents of the
debtor, and the spouse of the debtor in a joint case, if the spouse is not
otherwise a dependent. . . .
(III) In addition, for a debtor eligible for chapter 13, the
debtor’s monthly expenses may include the actual
administrative expenses of administering a chapter 13 plan
for the district in which the debtor resides, up to an amount
of 10 percent of the projected plan payments, as determined
under schedules issued by the Executive Office for United
States Trustees. . . .
(iii) The debtor’s average monthly payments on account of secured debts
shall be calculated as the sum of--
(I) the total of all amounts scheduled as contractually due to
secured creditors in each month of the 60 months following
the date of the petition; and
7
comprehensive and thoughtful evaluations of the pressing issue before the Court,
including detailed analyses of the relevant section of the Bankruptcy Code, namely 11
U.S.C. § 707(b)(2)(A)(iii), which is made applicable to Chapter 13 cases by § 1325(b)(3).5 	6
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(II) any additional payments to secured creditors necessary
for the debtor, in filing a plan under chapter 13 of this title,
to maintain possession of the debtor’s primary residence,
motor vehicle, or other property necessary for the support of
the debtor and the debtor’s dependents, that serves as
collateral for secured debts;
divided by 60. . . .
11 U.S.C. § 707(b)(2)(A)(emphasis added).
Section 1325(b) provides in relevant part the following:6
(b)(1) If the trustee or the holder of an allowed unsecured 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 debtor’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.
(2) For purposes of this subsection, the term “disposable income” means
current monthly income received by the debtor . . . less amounts
reasonably necessary to be expended– . . .
(3) Amounts reasonably necessary to be expended under paragraph (2),
other than subparagraph (A)(ii) of paragraph (2), shall be determined in
accordance with subparagraphs (A) and (B) of section 707(b)(2) if [the
debtor is an above median income debtor] . . . .
11 U.S.C. § 1325(b)(emphasis supplied).
8
Moreover, both decisions have been appealed to the United States Court of Appeals for the
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First Circuit. 	Indeed, as noted above, the First Circuit accepted direct review of the
Burbank decision on June 3, 2009 pursuant to a Certification of Direct Appeal to Court of
Appeals signed by Bankruptcy Judge Votolato. See also Morse v. Rudler (In re Rudler), No.
08-9007 (1st Cir. argued Jan. 5, 2009).
In Rudler, a decision involving two Chapter 7 cases which the U.S. trustee moved
to dismiss for substantial abuse, see 11 U.S.C. § 707(b)(2), the United States Bankruptcy
Appellate Panel for the First Circuit considered the issue of whether, in calculating “means
test” eligibility, it is permissible to deduct payments due to secured creditors when the
debtor intends to surrender the secured property. 	388 B.R. at 435. 	With reference to
section 707(b)(2)(A)(iii), Judge Votolato, writing for the Panel, concluded:
Regardless of a debtor’s intention to surrender property, the fact remains
that 	payments 	are 	“contractually 	due.” 	And 	those 	amounts 	remain
contractually due, regardless of whether said payments will actually be
made, whether the debtor will reaffirm the debt, or whether the debtor will
surrender the property to the secured party.
The phrase “scheduled as contractually due” is modified by the remaining
statutory language, “in each of the 60 months following the date of the
petition,” which must be read consistently with the preceding language of
the statute. Though the UST stresses the “forward-looking” nature of the
term “following,” we disagree that this somehow suggests that only those
payments that will actually be made may be considered. 	Rather, we
conclude that a “snap-shot” of the debtor’s situation as of the petition date
is a more appropriate approach, given the plain language of the statute. If
Congress had intended otherwise, it could easily have said that the only
deductible payments are those that the debtor intends to reaffirm. It is
neither our function nor within our authority to infer such intent.
Id. at 438 (citations omitted, footnote omitted). 	Judge Votolato observed in a footnote,
however, that “application of the means test in Chapter 7 and Chapter 13 differs.” He
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noted that the Panel in Kibbe v. Sumski (In re Kibbe), 361 B.R. 302 (B.A.P. 1st Cir. 2007),
determined that “the term ‘projected disposable income,’ within the context of how much
should a debtor pay in a Chapter 13 plan, is forward looking and based on reality.” Rudler,
388 B.R. at 438 n.6 (citing In re Nockerts, 357 B.R. 497, 504 (Bankr. E.D. Wis. 2006) and In
re Crittendon, No. 06-10322-C-13G, 2006 WL 2547102 (Bankr. M.D.N.C. Sept.1, 2006)).
In the context of a Chapter 13 case in Burbank, Judge Votolato considered whether
above-median income debtors can deduct payments for a debt secured by a mortgage on
real property which they intended to surrender in their Chapter 13 case. He noted the
“‘legal conundrum produced by Congress’ injection into the chapter 13 “projected
disposable income” test certain aspects of the chapter 7 means test for determining abuse.’”
401 B.R. at 72 (citing In re Hoss, 392 B.R. 463, 466 (Bankr. D. Kan. 2008)). Similarly, the
Bankruptcy Appellate Panel for the Sixth Circuit in Hildebrand v. Thomas (In re Thomas),
395 B.R. 914, 920 (B.A.P. 6th Cir. 2008), observed:
[T]he question of whether a debtor in a chapter 13 case should be permitted
to claim a deduction for collateral the debtor intends to surrender is not so
easily resolved [as in a Chapter 7 case]. The difficulty arises because the
requirement that a debtor calculate the debtor’s “average monthly payments
on account of secured debts” applies only in the calculation of disposable
income under the means test and Congress gave no instruction as to how to
integrate the chapter 7 “means test” into the calculation of projected
disposable income as set forth in § 1325(b)(1).
395 B.R. at 920 (emphasis supplied).
Although the Panel in Rudler intimated that application of the means test may differ
in Chapter 7 and Chapter 13, Judge Votolato in Burbank permitted the above-median
income debtors to utilize the secured debt deduction to determine their Chapter 13 plan
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payment. He stated:
Despite this multiplicity of results, theories, and rationales, the divide boils
down, effectively, to two approaches we will call the “realistic” approach and
the “mechanistic” approach. Two appeals courts considering the issue,
vis-a-vis Chapter 13, have come to opposite results. The realistic approach
was taken by the Eighth Circuit in Frederickson, concluding that the means
test is only a starting point for determining the Chapter 13 debtor’s
disposable income. [Coop v. Frederickson (In re Frederickson),] 545 F.3d
[652]at 659 [8th Cir. 2008]. “[T]he final calculation can take into consideration
changes that have occurred in the debtor’s financial circumstances as well as
the debtor’s actual income and expenses as reported on Schedules I and J.”
Id. This position has considerable support, as it takes into account the actual
income and expenses of the debtor at the time of confirmation.
Despite its broad appeal and following, however, there is also a fair amount
of opposition to the Frederickson (realistic) approach. The Ninth Circuit has
held that “projected disposable income” is not a forward-looking concept, In
re Kagenveama, 541 F.3d 868, 871-872 (9th Cir.2008). It stated that the term
“projected” modifies “disposable income” and is not synonymous with the
word “anticipated” in this context. Id. at 874. “Projected disposable income”
means “disposable income,” as defined by Section 1325(b)(2), projected over
the “applicable commitment period.” Id. at 872. In turn, for debtors with
above median income, the “amounts reasonably necessary to be expended”
are determined in accordance with Section 707(b)(2). Id. at 872 n. 1. Thus,
“BAPCPA replaced the old definition of what was ‘reasonably necessary’
with a formulaic approach for above-median debtors.” Id. at 873 n. 2.
Burbank, 401 B.R. at 73-74 (footnotes omitted).
The court in Burbank adopted the holding of the Ninth Circuit in Maney v.
Kagenveama (In re Kagenveama), 541 F.3d 868 (9th Cir. 2008). While recognizing that the
result is unfavorable to unsecured creditors, it concluded that it was bound to follow the
plain language of the statute, which does not produce an absurd result. Burbank, 401 B.R.
at 74-75 (citing Lamie v. U.S. Trustee, 540 U.S. 526, 534 (2004), and Kagenveama, 541 F.3d
at 875). The bankruptcy court was not unmindful of the decision in Kibbe v. Sumski (In re
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Kibbe), 361 B.R. 302 (B.A.P. 1st Cir. 2007), in which the Panel adopted the realistic
approach. It distinguished Kibbe, however, stating the following:
. . . Kibbe differs from the present case in two important respects: (1) the
debtor in Kibbe was a below-median income debtor, and (2) that court dealt
with the income component of the means test, whereas we are concerned
with the expense component. The Panel in Kibbe specifically acknowledged
that it did not address the “expense component of the ‘projected disposable
income’ calculation.” Id. at 307 n. 6.
Burbank, 401 B.R. at 73 n.4.
This Court is persuaded by the reasoning of the court in Burbank. The holding in
Burbank is consistent with earlier decisions examining means test deductions in both
Chapter 13 and Chapter 7 cases and reflects this Court’s view that the expense side of the
disposable income equation is not susceptible to the realistic approach. See In re Mati, 390
B.R. 11 (Bankr. D. Mass. 2008)(Chapter 13 debtor is entitled to ownership expense for
vehicle owned outright under 11 U.S.C. § 707(b)(2)(A)(ii)(I)); In re Phillips, 382 B.R. 153
(Bankr. D. Mass. 2008)(Chapter 13 debtor is entitled to standard housing deduction under
11 U.S.C. § 707(b)(2)(A)(ii)(I) even though her monthly rent was less than standard
deduction); In re Guerriero, 383 B.R. 841 (Bankr. D. Mass. 2008)(Chapter 7 debtors are
allowed to reduce “current monthly income” by amount of payments to mortgagee where
they have indicated their intention to surrender property). See also In re Lane, 394 B.R. 248
(Bankr. D. Mass. 2008)(Chapter 13 debtor may claim phantom ownership expense on
vehicle owned outright); In re Young, 392 B.R. 6 (Bankr. D. Mass. 2008) (same); 	In re
Hayes, 376 B.R. 55 (Bankr. D. Mass.2007) (Chapter 7 debtors were entitled to deduct from
their current monthly income the monthly average of the mortgage payments which they
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were contractually obligated to make on date petition was filed over the next 60 months,
without regard to whether they intended to surrender the mortgaged property); In re
Hartwick, 359 B.R. 16 (Bankr.D.N.H.2007) (same). But see In re Coffin, 396 B.R. 804 (Bankr.
D. Me. 2008) (Chapter 13 debtor was not entitled to deduct phantom ownership expenses
for vehicles owned outright).
V. CONCLUSION
In view of the foregoing, the Court shall enter an order sustaining in part and
overruling in part the Chapter 13 Trustee’s Objection to the Debtors’ amended Chapter 13
plan. 	The Debtors’ amended Chapter 13 plan is miscalculated, and, accordingly, the
Debtors must file a further amended plan. The Debtors, however, may claim a deduction
for “contractually due” payments to Chase, although, as the court in Burbank recognized,
a motion for plan modification under 11 U.S.C. § 1329 may be filed to reflect the Debtors’
actual financial situation. Finally, the Court shall enter an order overruling the Chapter 13
Trustee’s bad faith objection. In view of the $96.22 per month discrepancy between the
Debtors’ disposable income calculation on Official Form 22C and Schedules I and J, the
Court cannot find extraordinary circumstances warranting a finding of bad faith.
By the Court,
Joan N. Feeney
United States Bankruptcy Judge
Dated: June 9, 2009
cc: Lee S. Kaplan, Esq., Carolyn Bankowski, Esq., U.S. Trustee
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